00:00:01 moving the Neto unfound your failure one conversation at a time I'm your host Justin Gordon and welcome to startup 2.0 by spark XYZ during each week as we give you access to some of the top investors and entrepreneurs in the country to help you think through and overcome the top challenges that startups face I think there's no better place in the country to be investing than Los Angeles what is the problem that you're solving and for who like what is that specific pain point sometimes when a company is not

00:00:29 listening to his customers and just thinks it knows better than it customers has a really really hard time finding product market fit I want to see somebody that that isn't you know this person you just feel like they're gonna they're gonna they're gonna make it work today's guest is Rick Smith who is a co-founder and managing director of cross-cut ventures which is an early-stage venture capital firm located here in Los Angeles with over 200 million dollars under management Rick welcome to the show

00:01:03 thank you good to be here yeah and with cross-cut ventures what areas is the firm focus on today so you know we're pretty broad we're within technology we've been investing really across the technology spectrum for quite some time now yeah I think the areas in which we're investing have grown along with Los Angeles we're based here in Los Angeles but we spent a lot of time looking at companies in SAS software as a service serving enterprise customers we have invested in esports early and often we were there before it was cool

00:01:40 LA's becomes you know it's become international home for eSports right right here under our noses my colleague Clinton Foy has been leading our efforts there who's been in gaming for 20 years we invest in frontier tech we invest in big data we really had been if it has technology that touches it we still invest in e-commerce and ad tech which is how we kind of got our start and made our name for crosscut excuse me back in 2008 I mean I really say that we invest in great entrepreneurs first at the end of the day if we can find great

00:02:18 entrepreneurs and there's a technology component to it yeah we want to invest and for us technology for a lot of people but what we're looking for is just hyper growth and one of the things that technology does allows company to grow at sort of hyper speed yeah where the software that's being sold where there's the eSports rise you know it's going after these big in emerging markets that's that's why we all invest in technology we don't do it just because it's fun although it is awesome it's a heck of a lot of fun but it is

00:02:47 also areas where we think we can drive the most growth we're investing very risky companies and we want to be rewarded at risk yeah and with that to them what is kind of typical cheque size or what amount you're investing that in these companies yeah so sweet spot for us is what the industry would call it to to you know a seed round which is you know nomenclature sort of shifted over time here but that's a two to four million dollar round we're putting in half of that maybe two-thirds of that round

00:03:14 we're happy to be leading it we're happy to be following all we really care about is having a great relationship with the entrepreneur yeah that we think we can add value we think we can work with him or her and that's more important than sort of who's technically on the board or not yeah I think we used to be much more dogmatic but I think is an industry we used to be more dogmatic about what we have to be on the board I can tell you I've been doing this for 22 years investing in venture capital I've only

00:03:42 seen a big decision come down to a board vote one time in 22 years so to me we need to relationship with the CEO if if we have her respect and we're able to work with her and in and help her achieve the dream that's what works for us yeah actual control and the board level is not not that important yeah and you kind of like touch this on this already but with the in terms of your investment thesis like what I'm curious as to what that is now and kind of how that has evolved since you've done obviously

00:04:09 multiple funds now yeah so we're on fund for right now to sort of finishing up last five deals in fun 4 so we've been at this we've been at this for 11 years I would say our thesis hasn't changed it really is it starts with us with the entrepreneur yeah I I know we we all as the industry we've said that but we've done enough deals now where we we know that's the case right when we when we like the entrepreneur and love the concept we just haven't had a lot of success in those deals but if we love

00:04:43 the entrepreneur and and we like the concept we'll take that dynamic every time you know you have to have a little bit of a screw loose probably to do startups and baby to invest in startups right yeah that's true but both sides have their screws loose everywhere here I'm surprised the plane stays together and sometimes it doesn't but but you know if you have that you know you're gonna have to that entrepreneur has to convince people to come work for him or her yeah when they have nothing right that's convinced

00:05:14 themselves first of all that this is worth doing and then they get other people to leave good-paying jobs come work for them give up you know cash and benefits and all that kind of stuff and tell their spouse or significant other hey I'm leaving this to go to a start yes convince that person can work for him they have to convince the first customer takes a chance when then the first partner to work with them you I mean so at the end of the day it's at entrepreneur that we are betting on you know some large percentage of our

00:05:44 companies do some kind of pivot yeah make mistakes fast me an entrepreneur who can figure that out who not necessary for we do a lot of first-time entrepreneurs in the back a lot of first-time entrepreneurs but we do need someone who's not afraid to sort of make mistakes learn from those and pivot the company yeah they all have a finite amount of resources especially at the stage in which we're investing the seed stage you know you have about 18 months right get this you know to get this done so that means really about 12 months

00:06:15 maybe 13 14 months to to kind of get some proof points set to series a folks will find attractive after the day the number one job our job is just get to the next round that's and help your entrepreneur what's it take what milestones are necessary to hit that next round yeah we have the advantage right we have companies we have over a hundred cross cut investments we've made now over the last 11 years so we have companies at all stages out there raising capital so we have good information we understand what

00:06:47 the Series A or Series B folks are saying what they want to see and that does change over time so our job is to really sit down with your corner in advance and say you know what milestones you think we can hit and then along the way help them achieve those milestones if we can yeah but you know getting back to entrepreneur they got to do all that stuff be told no 99 times out of a hundred but by you know VCS who are not the easiest lot sometimes to deal with or at least to communicate with and so

00:07:15 you know it's at the end of the day our thesis is let's find great entrepreneurs 70% of our deals are in Los Angeles we're based here but we do do deals in New York with your deals in San Francisco we've done deal in Minneapolis just doing really well so you know we'll go where the great entrepreneurs are but but you know we're just really big fans of what Los Angeles just producing right now yeah and I want to dig into that too in a little bit but first I want to go back because you've raised multiple

00:07:40 funds now and that's something that not everyone does obviously because you had to have successful ones to get to the next ones I mean how do you approach that process of raising a fund and hyvee kind of looked at that over the years with crosscut yeah I mean I think we we probably we probably take the same approach we'd recommend entrepreneurs to take and that is you know we try to find investors who we think are aligned with our interest think about risk the same ways we do think about the long term now

00:08:04 this is a long term gain really long term you know this is a get rich slow business if you get rich at all on the venture side so you have to be patient it's a marathon it's not a sprint we look for investors who have that same kind of mentality who are looking to invest with us for the long term we spent a lot of time the last any resources the last year or two in particular investing back into our platform we've hired hit a platform Nick Kim came to us from Berkeley undergrad Wharton MBA but more interesting to us

00:08:37 was had a product at Warby Parker home Tryon product yeah and so he's brought a very product centric approach to our business which tends to be you know we've had a you know some success over the years in raising our funds and in in deploying the funds but it's been somewhat ad hoc we now have a more systematic holistic way of viewing our business and you know a credit Nick for that but also you know that you know we tell our investors we want to invest back in our platform we're gonna you know take the new management fees out a

00:09:10 new fund and put that back in in what we think can help you know build the foundation and platform for success for crosscut for the next several years yeah and with that to obviously have different sizes of funds and like the first one I'm sure is different perhaps than the one he just the fourth one I mean how do you side on that in terms of the size of it and you're still staking early-stage like how do you decide on that as well yeah so you know I'm a big fan of early stage investing I think the

00:09:37 earlier you go within reason that the better that on a risk-adjusted basis that returns are going to be it there's there's more risk I happen to think in a market we're in right now sitting here in late 2019 the series a B and C prices are relatively high we've seen seed prices go up but not at the same level as the a and B so I I think that risk premium that you get paid right we get paid to take the risk that we're taking I like where we are in the seed level so if you like that that sort of informs

00:10:12 then what size fun do we want to have and for us our current funds 125 million we think that's the right size to be investing in the C level we have four and a half people investing we have four managing directors we have marine clukey who joined us from TechStars Cedar sinai and who's doing investing across the board but especially in health tech and so we have you know foreign have people investing 125 million sort of feels like the right size we invest early we reserve a dollar or two for every dollar we invest but we

00:10:46 still want to be in the seed yeah so for us that puts an upper limit on how much money you know we can raise and deploy and feel like we're still at the seed level and not competing with the series a and B folks up north yeah and you mentioned I missed the founders that's what you're looking forward just working for great founders but in that what is that due diligence process then look like for a crosscut yeah so you know it's a courtship it in in better times we have even more time to spend with the entrepreneur these times are

00:11:16 certainly entre merrily friendly in that sense is that you know you have to move faster you have less time to kind of try before you buy so you know it's a fast courtship but almost all the deals in which we're investing almost all going to tourism which we're investing we have some relationship with them or someone that knows them fairly well and yeah it is you know we have the luxury of having been here for I've been investing in venture for 22 years in Los Angeles so we have you know deep networks Brian

00:11:47 Garrett my colleague one of my colleagues at crosscut he and I have worked together for 18 years we have a you know a good feel for you know where the great entrepreneurs are in LA and where the next ones might be right we know where the current ones are we like we're always trying to find in other words where the hot pockets are right and and and you know one of the greatest sources for that our other entrepreneurs but it is we're looking for you know people who bring to the table you know the drive and the grit and the sort of

00:12:21 determination it takes to build these startups and you know we we we don't respond to cold we may respond to cold emails but in 22 years I think we've done one of those yeah you did do one but for the most part you know find a way to get to us yeah and you know that's the best way to get to us because it is you know these things last longer the successful ones at last longer than the average marriage right this is you know we're in the foxhole with you we're we're we're fighting a good fight with

00:12:55 you for several years right we invested in gumgum in our first investment we did with first round of 2008 dumb girl was doing great it's 2019 how many years right so you know these are we look at these as long-term partnerships we are patient investors we want by the way our our investors to be patient as well don't expect a three-year turnaround on see state investing if we get it that's great yeah that's unexpected and we're all lucky and we should be high-fiving but you know this is still a seven to ten year

00:13:27 turnaround for the most part yeah and did you see that process like now I've been more well known clearly a cross-cut is now compared at 2008 I mean how has that changed been like how was it early on when you were crosscut and having trying to get that deal flow and looking at companies versus like now dozen 19 yeah so you know in 2008 it was the personal networks and in reputation that Brian and I and Brett Brewers third co-founder of crosscut Brett co-founded the parent company of MySpace sold it to Fox for

00:13:57 about 700 million so he was known as a iconic you know optimistic entrepreneur in town Brian and I had a reputation for investing at our prior fund we were investing really in the plumbing of the internet then and that was sort of you know what late 90s and early 2000s offered up what we saw back then was the emergence of LA and more that consumer internet that was happening here and now you see a much broader array of companies here but you know we are we're constantly you know back then it was

00:14:36 relying on our own networks today we do get a lot more inbound I think we have a lot more you know our the cross-cut name is known certainly broadly within LA I think it could be even more elevated nationally but we we see good deal flow from New York and San Francisco because of our reputation and by the way the reputation III like to say I mean we do 10 or 12 deals a year but our reputation is made on a thousand interactions we have a year with entrepreneurs you know yeah how do we treat the ones that we

00:15:09 say no to you know do we get back to them in a timely manner do we are you know we explain sort of why we're passing do we you know offer to help people even maybe it doesn't you do us good right away we do a lot of things we we do podcast we show up and videos with colored shirts on and when I didn't know it was gonna be on video and we didn't love it but we do these things because really thought was an audio but we do them because we want to get back to community because I think that's the right thing to do I also think that over

00:15:43 the long term right we're often in a position as venture capitalist all of us are to take advantage of the situation right company needs an inside around or like I know you know you don't have another you know option out there yeah new coming ever than us we still have taken a long-term view this is an industry in my opinion it's still the most inefficient place to be investing in the United States yeah I you know the this markets are very efficient it's really hard to find edge there you know bonds stocks even leveraged

00:16:18 buyouts go to the highest bidder in seed States investing the nice person and that means the person who's going to be helpful to you the person that is responsive to you the person that that is reaching out and helping you before they even invest that person can actually win that's not necessarily based on price yeah right it is if you think we can add more than 10 or 15 percent more value than someone else then yeah maybe we'll get in at five or ten percent less price we do have to be conscious of price because you know we

00:16:50 have to make returns for our investors but it is you know we can that inefficiency in the market is where you know any VC's venture capitalist reputation comes into play yeah if we've done the right things over the years and we have the right people saying good things about us that will allow us to win the deals that are most competitive and most of us would be in the deals that are most competitive there's more VC's vying to get in those deals yeah and then yeah obviously people are firing into your podcast

00:17:20 earlier things as a media component but also Silicon Valley the show how did that come about Rick so we were I don't know what you're talking about unless you mean episode seven season one about ten minutes in that may be it may be hurt if I don't know I've heard people talk about it no we had Dave Young as a lawyer at Cooley he's done a lot of work with us dave was consultant for the show and and the director my judge wanted a he was doing TechCrunch yeah and to his credit you know he wanted real VCS and real

00:17:56 companies in the chute and and we walk in there and sure enough it's like you know a hundred companies in there and a few VCS and most of them are actors and and most of the you know but there are some real companies there and there's us and they just picked us out and and I was there with Brian and Brian will tell you why why they picked me I had my own view of why they picked me as sort of the lead person in it but we had a great time and I will tell you this during that it took 27 takes for the for

00:18:31 the men in 15 seconds or whatever yeah that we're on there it took 27 takes in three hours when other companies they're the real companies found out that we were real VCS yeah literally getting pitched you know between in between in between takes you're actually a VC you're actually you have to play one on TV but other thing that's great about that it really kind of shows how people consume media these days yeah you know there was the the expected spike of phone inbound phone calls with my friends and and colleagues you know saw

00:19:06 me on there but I still hear about it when people are just discovering yeah Silicon Valley even today and binge watching it and they see me and I can't tell you how many people have been sort of drinking their beer and almost chipping their tooth and they see me walk walk on there but I'm still hearing for those people today so yeah you know it's interesting as you know we can consume content in so many different ways we didn't know if this talking valley was even gonna make it that first year we fill in that before yeah before

00:19:35 the show was even first aired and it was a fun little fun little thing to do over time and again something for my kids to see someday of course and now we'll take a quick break and hear from our sponsor Breck's a big heartfelt thank you to Breck's who without their support this show would not be possible we've seen firsthand the difficulties accessing basic corporate credit without providing a security deposit or personal guarantee early on as companies grow magining expenses has become more difficult and time-consuming which is

00:20:08 why we've partnered with Breck's to offer a corporate credit card that is not personally guaranteed offers higher credit limits provides Auto reconciliation and integrates with ERPs using receipt capture Breck's is the credit card of a start ecosystem and we highly encourage you to check them out and back to the show so Rick you mentioned obviously entrepreneurs that's your focus that's like we're trying to help them as much as possible what are some of the problems you see them facing where the

00:20:35 challenges are facing that you can help them with well you know we're investing in perla early-stage and I think at the early stage it's really the basic building blocks that any company needs to you know whether they need our help or not does that they need to do something somewhere another yeah it's hiring the first few employees one of the advantages of being local being in this market having a lot of friends and investors in this market and a lot of context miss mark is that we can help find the first few critical

00:21:04 employees to come come join the company or maybe it's advisors that might join as a board member or advisory member I think helping the entrepreneur think through how they crystallise the plan they go to market strategy we've had a lot of experience where companies have been successful even more experience with companies that haven't and so I think we're able to impart some some wisdom there at least how others have done it without trying to be dogmatic about you know it's the way you should do it but this is what we've seen be

00:21:36 successful in other areas we were putting together have put together a seed the series a playbook at cross-cut that we give to entrepreneurs that helps them figure out sort of what doesn't need to get done during during the seed round to track to series a we have a lot of conversation about what milestones that they need to hit we can be helpful in getting the first partner or customer again our we have several investors who have an interest in helping our companies but we just have a great network in town and

00:22:07 and I think there's a lot of leverage that comes with the early-stage company let's say it's an enterprise SAS company you know the first customer - they get or the first few customers are key yeah and if we can be helpful in that that's great we can't go fishing for them they're gonna have to learn to fish them themselves but I can certainly help stock it up initially and that's you know one thing that I think any good VC can do just using their normal contacts and in relationships yeah and I'm with

00:22:40 that - I mean there's you said the playbook so like is it something that you're kind of just constantly evolving constantly like adding things - as you learn from the stars you've had before or how does that kind of work yeah yeah it is I mean it has you know it is we're always learning I mean this is uh yeah I think it's very much a pattern recognition business it's one of the reasons why we can invest in an energy company and a and a space satellite company and you know a consumer company out of New York whatever we can do all

00:23:08 those things because there are some basic building blocks I think of how you build the business you know make sure the compensation structure is done right initially it is kind of easy early on they say well yeah we really need this person will pay more than maybe they deserve to be paid yeah and okay we got them on board but then okay now you're hiring someone else at their level or below and you're paying you know or above maybe and you're paying them less and you know I think some of those some of those early

00:23:38 learning some of the foundation if you will the building's got to be put down correctly in order to for the building to kind of be built in increment and and survive you know that the storm that is that is startups yeah and for people who maybe don't know it's cross-cutting what are some of the maybe one two or three portfolio companies that have done really well and then also on the flip side maybe some that just didn't do as well enough you know as to why maybe for those two yeah well we've never had a

00:24:04 company fail we're 100 400 I'm not using what happened now we are crushing it so you know I think our early success was in and around ad tech and e-commerce so back in 2008 we had a very successful investment in in Brian Lee at ShoeDazzle yep fabletics is one of our investments that was back Adam Goldenberg back 2008-2009 started textile that's done well obviously you know billion dollar revenue we invest in black tux early in our VARs at SAS e-commerce company out of Northern California we have

00:24:45 investment in jive right now that's doing great just signed a major contract of multiple hundreds of millions of dollars so you know we have and that's in a sort of really distributed labor market space yeah taking taking goods from the back of the grocery store put em in front just sign a major contract it so you know we invest in a variety of different companies across the board and you know I would say you know common sort of factor in all those companies was is this great entrepreneurs I mean

00:25:17 yeah they're really driven we invest a nature of our business if we don't have losses we're not taking enough risk I mean that's just we are not swinging for singles and doubles we're swinging for homeruns and and we underwrite every deal we do to at least a 10x return on those dollars that we initially put in yeah so we're gonna have some failures you know we're going after markets and maybe aren't developed yet we're maybe going after established competitors maybe within a different twist you know we're so we're taking

00:25:47 some outside risks and you know I there are things to learn I mean I the adage is you learn more from your failures and your successes and I guess that's true that's just an expensive education you know both in our dollars and the time and the and the heartache I mean it is tough stuff for an entrepreneur to shut a company down it's tough it's tough on us too and we we we made that we made investment we we put our time out there hopefully we did our job I try and help the company succeed and you know our our

00:26:22 job really is it clear that you know clear the runway and try to help the plane take off and sometimes it just isn't able to take off for whatever reason so I you know I in in retrospect the the winners seem easy and loser seem obvious but it really isn't that way to start I mean especially at the earliest stages whereas primordial soup is coming together and it's just so much of the of the founders passion is what's gonna make it successful that's why you can't that's why we don't bring I mean we've

00:26:57 invested over a hundred companies I think all but two or three have or had the same CEO in there you know either when they succeeded or when they did something at our stage you just got it you have to have that that that Moxie that Lisp of the of the entrepreneur to make that work it's not like we can oh that's a great idea let's put someone else in there it's the mercenary versus the missionary you know we need the missionaries we need people who are gonna climb Everest without oxygen that that that's it we can't just pay someone

00:27:31 else to get to go do that right and then come a little bit deeper on those founders that did succeed so well with like Brian from ShoeDazzle a a couple hours you mentioned I mean you're just going back early on like even you meeting them those conversations with them I'm what with her like did you think like oh yeah obviously invested in them so you clearly thought they would do some some great things but they much different than others like I'm just curious this too that you're having that experience well I mean you're mentioning

00:27:53 Brian Lee he's one of the premier entrepreneurs United States yeah he's had several successes Brian's passion his his drive his ability to think through issues his ability to think about you know what's there what can be and some people just have an imagination that I do not have right that's why I don't do startups I started crosscut for sure that's a start-up but not like not like Brian Lee and our other mantras are doing so yeah you know I think people like Brian are able to kind of see over the next hill

00:28:31 or - in ways that just you know are and and his success rate is it speaks to the fact that he's really good at that yeah so yeah that does come out right I remember I remember a meeting that's just 20 years ago but this guy came in and was talked out of Caltech and was talking about MEMS and I didn't understand probably more than 25% of the conversation but and we had at the time as an old fund of ours former friend of ours that had a technical guy and they were talking back and forth and I'm like

00:29:03 I don't know what he's saying I just want to back this guy he has the kind of forward-leaning like you need people who are gonna be able to convince others to go into you know the fight with them and that guy had had that right it's like whatever he's saying I I'm I'm is pulling me in and he's he seems to be really understanding where the market is and then thews Yasim about that you know and and that's those are the folks we want to back yeah by the way that company failed which is part of our you

00:29:37 know but but but if we put 30 of those offers in in in a portfolio we do 25 or 30 companies in portfolio people 30 of those entrepreneurs in there I'll take the bet that you know usually one or two are really successful and we turn the fun another ten will get us up to hopefully a three or four X on the fun day yeah that's kind of the way Ventures been over the last couple decades yeah their give me the best chance to succeed that's all this for sure and then looking to like what you're most excited

00:30:06 about in terms of startups and each particular industries or technologies or anything at all that you're really excited about now well you know the next great deal I guess I'm excited about I we really do get excited about entrepreneurs first and so show me we invested in inspire energy we didn't know anything about energy this is when was this five six seven years ago but Patrick came in and sort of made the pitch of why energy deregulation was going to matter and and in sort of a longer-term vision to helping consumers

00:30:41 manage energy in their homes and you know we're like I don't wait are you creating energy I mean what you're doing but man I want to learn more and back down me a little more time to kind of you know test it yeah and then my colleague Brian Garrett Patrick had a retreat and came back and said we got back this guy and so we did it's been a very successful company here in LA driving hundreds millions dollars of revenue and one of the big successes in one of her early funds that was not an area that we were even thinking about so

00:31:15 so I always want to say we're looking for entrepreneurs first yeah but if you look at what la is offering esports a lot of interesting things there my colleague Clinton Foy started immortals helped start immortals one of the eSports teams franchises yeah we like what's happening in frontier tech that the aerospace companies here in LA are you know I've been a driving force for decades in the outer space but now that this kind of commercialization of the privatization of it is creating some opportunities there for us we have one

00:31:43 investment that seems to be doing really well we're looking at a couple more I like what la is doing there la in micro mobility obviously is is offering up some interesting opportunities here we made investment in wheels one of the fastest-growing the fastest growing revenue growth I've ever seen in a start-up which is competitive with bird and lime and scooter companies yeah but I think mayor Garcetti is push to get LA ready for the Olympics is kind of driving you know a new take on logistics and and mobility and sort of just

00:32:20 getting around town right yeah so you know we like that here in in LA I you know SAS is coming alive here again in LA I think that's great we you know I we just get encouraged by the number of different entrepreneurs in different different areas in Los Angeles this is I think a golden time for LA I've been through the first cycle of LA back in the 90s the second version of LA venture was kind of in the 2000s and kind of the etoys world and some they'll rise up price grabber and lower my bills and now

00:32:57 you see the diaspora from from those companies and you see a much broader range of companies that the number of big data scientists coming out of USC your yeah current alma mater is you know that's that's driving a lot of our companies may not even be big data plays but they're helping drive the intelligence behind you know some of our companies and and what they're offering up we graduate more engineers than any other metropolitan area in the country we're a more diverse economy we're more diverse a place to live I mean we

00:33:31 haven't we now have an event every year just for people c-level people moving down from Northern California this because we see so many people moving down here yeah you know it's not just cause it's cheaper it's just a better place to live it's more diverse it's more heterogeneous and I think that drives more diversity and the companies that we're gonna be investing in and and makes for a better place to enjoy doing what we're doing yeah and then having started your fund in 2008 and then going through this last 11 years I mean where

00:33:59 do you see VC go away I mean have you seen it maybe evolve since then but also where do you see it going the next couple years you have probably good perspective on that based on the experience level well yeah I've been through unfortunately three cycles of ups and downs I started investing in 97 and yeah was there for the bust in 2000 which was painful and took several years to kind of get over but you know we I think we're always investing as if you know these dollars have to last longer than anyone thinks

00:34:28 that's why we yeah we sort of buffer in to our companies that's why we encourage them to raise more money sooner than they might think because you never know you know we're one tweet away from war or maybe some kind of market collapse and but I think even in general you know markets tend to go a do go and waves over time and this is one of the longest bull runs we've had so you know I've correctly called seven of the last two recessions so you know I I will be right one of these times but but but that's

00:34:58 not much my job is in macroeconomics my job is help companies grow but but we can we can help them beware that you know that the spigot can get turned off so yeah I think you know a lot of the venture capitalists it's not their fault a lot of events a lot of the CEOs that we're backing not their fault have not been through a down-cycle all they know up and to the right they don't know what a down round is they don't know what an assignment for the benefit of creditors is which is a poor person's bankruptcy you know

00:35:27 understand wait we're not pari passu what does that mean again you know a lot of those things can come into play at the end of the day I do believe regardless of economic whatever happens in in the Dow yeah I'll just hit a high yesterday regardless if it even hit the low yesterday there's a steady drumbeat of entrepreneurs many of whom have chosen LA's or as a home to start their companies who want to change the world in a big way and that does not change if the Dow is down five percent or 20 percent tomorrow it does not change they

00:36:00 want they still want to change the world and by the way most of them don't have money in the Dow anyway it's the PCs you go crying oh my god it Dow is down yeah so you know by another Tesla or whatever you can't sorry oh sorry yeah but but it's the arts versus you know regardless of what's happening in the macro world they see an opportunity over the next 7 10 15 years to change the world in some significant way yeah creating the next great thing or make the last great thing better that that continues on up and down cycles so yeah

00:36:32 you know we're in a time now where it's good times and you know that may change at some point it was gonna change this one we know that la is seeing more funds form over the last few years I think it's great for Los Angeles we didn't have enough early-stage funds we need that you know it they've kind of replaced or at least provided a bridge because we don't have a lot of angels here I think one one knock on LA right now it's I just wish we had more angels who were active investing and help grow

00:37:01 the pre precede companies out there so you know I think the institutional funds are raised in LA they're smaller kind of helped me fill that gap and and there's still a sense of cooperation in LA so I think this landscape here has changed I think there's no better place in the country to be investing than Los Angeles there's more opportunities per VC or VC dollar here in LA than anywhere else I spent a lot of time in New York we spent a lot of time in Northern California we see what's going on in Seattle in other places so yeah

00:37:29 you know I think this is a great place to for us to be and I think for for our community to be investing here in Los Angeles yeah and then with there being you know so many more funds and like so many opportunities to to find investors essentially for your company thinking of the entrepreneurs and from their perspective from their side I mean how should they approach fundraising what are maybe questions they should be even asking investors or trying to figure that out yeah I mean I think it's very

00:37:52 important and you're inviting someone into your family to get to know I mean this is this is a two-way street I think not enough entrepreneurs probably view it that way or actually I think they do view it that way but maybe are afraid to to kind of push it but I I you know I think you're interviewing the VC as much as we're intervening you ask them you know why are you passionate about what I'm doing how can you help me Monday don't don't you know don't you know save me the this is great no all the stuff

00:38:20 you've done but you know give me a list of what you can do yeah when we were we were chasing ShoeDazzle we were boxed out of that initially and for a variety of reasons and my colleague Brian made a list of like three pages long so this is what we will do for you if if you lessen the deal three pages of this stuff and by way maybe was a page but over time I say it's three I think it was three pages long a crazy stuff and we didn't stone horrible and novel action why you show us in but no but we we do that all the

00:38:54 time you know we pay it forward yeah wait wait we want to help people anyway but I think it's a good way for us to say this is what we will do for your fact we'll start doing it now yeah you know we we we're in the position a lot we're lucky to be able to do this but to say look here are two or three potential customers there are portfolio companies or people we know may barn dusters or just friends of ours here in LA go see if you can sell to them and or go see what they say about it it's great

00:39:19 diligence for us and you also get your first two or three customers that way ya know that's you know what what better you know real life sort of you know battle can there be but you know here's you know here's a potential customer for you they want to help us they want to look at you I mean it's it's you know it's a great great thing so find it find it find a VC that is passionate about what you're passionate about who is helping you and by the way more than anything let me back up hey I will start with it's a Hippocratic

00:39:50 oath what doctors do do no harm find a VC will do no harm III have said on too many boards with Midas touch top 5 V season in the world whatever who are harmful to a company you know just find someone who whose ego is not gonna get in a way who's not sitting on 22 boards who's gonna be there to help you and isn't gonna sort of throw out 16 ideas that aboard me and then walk away and then go off in in in in their jet somewhere it is it is really that's really that's really important I mean but but and I'll stop talking but but

00:40:25 yeah at some point it's only going about VCS yes that's the whole point right I guess no but III think it's it's it it's do do the diligence on the VCS not that you know it's not that hard yeah you know call all of our companies call the ones we said no - yeah I mean actually I think we had some other people mention that same thing like talk to portfolio companies up these VCS you can get a feel for what they're actually like yeah I mean they work with them you know no they have to say good things

00:40:56 right but you can read between the lines yeah yeah he's he's selfish you know okay that says long no didn't check the box exactly and then and for you now I mean how is your time spent a day with with crosscut I'm sure potentially has evolved since 2008 but how is it nowadays yeah so you know it evolved over time to get more active companies and so I would say you know sniffing portion my day still looking for new deals we estimate that we see about 4,000 business plans a year we meet with 400 companies we bring 40 into the

00:41:33 partnership and we do 10 so yeah there's just a big funnel that's a constant machine in constant motion so we're I'm still doing you know that's still the lifeblood of what we do and it's the most fun of what we do I think is is trying to sort through the the maze of entrepreneurs out there who have you know their own sort of passions and tried to see what aligns with ours we spent a fair amount of time with our portfolio companies and that absent flows depending on the company and whether they're raising and sort of what

00:42:05 stage they're at and kind of you know how they raise the a or the B we oftentimes usually come off the board when the a or B is raised but our work continues on relationship continues on and we sold dock stock I was a board observer at the end that was a multi-year cycle for us and then you know we're spent a fair amount of time and it's kind of in the community we do enjoy giving back I think it's a it's a real it's a real privilege to be able to do what we do I mean it is to be able to take takes some money and help people

00:42:46 fill their dream to be able to help them achieve that in some way you know play a small role and believe me VCS are you know if we a live at you it's about 1% of the value of a company um it is the entrepreneurs show for sure but if we can be supportive for to him or to her and help amplify the skills and and relationships and talents that they have that's our role yeah we are clearly the coach we're not the quarterback but coaches are important and and you know we cherish that role and you know we're lucky to be in this

00:43:19 in this position to do that and help you fulfill fulfill their dreams yeah and having been in venture capital for a long time obviously chosen tables me started a Costco but also even before that in other deals as well I mean what is it that draws you to venture capital I still live for the day when I walk in and entrenar walks in and they're pounding the table saying this is what we want to do yeah by the way it may not be pounding the table there's lots of different kinds of personalities that

00:43:45 work in this business but figuratively or literally pounding the table and saying this is what we want to do this is it's business 101 right it's what's the proctor service you work on an MBA right now yeah what's your product/service who you're competing against what resources do you have you know what's the long-term prospect for this for this industry you know it's a new it's a zero billion dollar industry that means it's starting but is this a blink I mean it's it's just that business 1/1 if you enjoy that kind of competition

00:44:13 that kind of that difficulty it's a it's a you know it's a it's a massive multivariate game that we're playing in any of these companies and our job is to try to figure out you know who among all the opportunities we see you know you know where the eight to twelve year that we're gonna place our place our money and time and resources behind it to help them you know try to achieve that that's just a great I mean I just love that yeah III maybe I don't know how that sounds but uh I just I love that I loved

00:44:46 is getting enthused about you know you know learning about it this job you have to have intellectual curiosity you have to be interested in new areas we have thesis we do follow fourteen different verticals and we have you know thoughts on sort of you know what's going to emerge and whatever but you have to be curious about new things that are coming out and be wanting to read and learn and and and and realize that you don't know that much you know yeah one of the best stories when I first got in this

00:45:17 business there's a angel venture investor named Arthur Rock who invested in many of the big successes in Northern California and he had called me about diligence on some company or some person he was investing in and I don't know why he was calling me but some connection I had and and I said well I have you on the phone I'm just trying to get to learn in this business a little bit I said you know what can you tell me about this that no thing and he said Rick let me tell you this we were sitting there

00:45:45 in 1992 and we invested in disk drives and and storage things and we said this is it I mean venture there's really nothing left to invest in venture there's this is there's nothing interesting we all might as well just take our chips and go home he goes no one saw the internet coming in 1993 and the next year no one not one of us saw it so if to me that means that we always have to be we can have ideas about what we like we certainly we certainly do but you know I love that the fact that we have to stay open to

00:46:22 the fact that there may be some coming we don't see ya and whatever we do see may not be an area one invest in by time we see it a bunch of other companies have probably you know gone in there already it's just a you know it is a lemming most investing is so somewhat you know follower type lemming type you know our our job to try go the opposite way and and that's hard it's hard to do that but yeah I think it's you know at in the day this is just there's it's not to me not a better job I I'd rather yeah

00:46:54 I used to say I'd rather you know only Clayton Kershaw has a better job than I do in LA and well he's had a tough couple years Dodgers have a few tough years in a playoffs but but I just love what we do yeah it's pretty clear it's pretty obvious that you and where can people go to learn more about crosscut and you mentioned obviously finding someone a connection to get in touch with you but where can they go to hear more about what you're doing well I mean you know our website will tell you a little bit what we're doing about our

00:47:24 team crosscut BC I am I think my emails out there it's Rick across BC we get a lot of emails I mean I it is hard to be responsive the way I'd like to be I come from a small town in central Illinois my dad was a plumber repair plumber we have this sort of I was a lawyer for a few years and we have that service mentality so I feel bad about not getting back to people but it's hard but and cold emails are probably not a great way to get hold of any VC and not a great way to get hold of us but if you know if you're an

00:48:00 entrepreneur and you want to get to us it's probably best to try to find someone in our network and get an introduction we're pretty broad we do a lot of events we try to do a lot in the community yeah we are gonna you're gonna see for better for worse more of cross-cut next year we're gonna do or actually and put some content finally in the in the internet like like it's 2001 oh wait that's actually 2020 I have and I will say and this is doing this podcast yeah I I had the mentality that whales only get harpoon when they

00:48:35 spout we should be quiet we should let entrepreneurs do all the talking and I don't know that's a wrong strategy but I think a maybe a slightly improved strategy would be elevating our presence a little more yeah because it but only if it's helpful to our entrepreneurs right and if maybe crosscut has a higher profile where we're able to give some content back to the to the world in some ways and maybe some of the things we've learned or maybe maybe it is just highlight our companies in a better way

00:49:04 we have a lot of great entrepreneurs we have a lot of great companies and a lot of people may not know you know who they are and they are that they are the true the true heroes for us I strongly believe if we're adding a lot of value to a company companies in trouble we're not we're nothing we're not the ones that should be adding that much value we can be helpful to a company for sure and we try but our entrepreneurs are the ones that need to be supported and amplified more than us and that's been

00:49:33 our approach but we we do recognize that in this day and age it's probably good to you know open up a little bit more to to the outside world yeah Rick thank you so much our time today really appreciate it thank you thanks for checking out star up 2.0 from spark XYZ if you want to learn more about startups and investing and check us out join the ecosystem at spark XYZ dot IO