Venture Capital, Power Law, & Startups | VC Panel • 9

00:00:00 I actually think bootstrapping is something more people should consider you have a lot more control over your destiny first and foremost there is no fun in fundraising right now I think this is probably the hardest fundraising environment for both Founders and then funds themselves but the thing that I've learned the most in the preed and the seed stage of preseries a is like really refining what problem are you solving who are you solving it for what product you need to build to solve that problem

00:00:26 and what promise are you unlocking [Music] welcome back to VC unfiltered super excited to have you here uh as always we had our demo day in mid October and so one of our missions here at Pegasus is always moving the needle on Founder failure and so we always like to include an education piece with any event that we end up doing and so uh we brought to you a great VC panel uh with Len lonzi he is the managing director of the stubs pre accelerator one of our esteemed Partners uh and people that we love

00:01:01 working with please take a listen super interesting chat uh my name is len lonie I'm the managing director of the pre celerator program I've been in this role just under 5 years it's hard to believe how fast time goes prior to that I spent 13 years as the executive director of the Los Angeles Venture Association and during that time I get to know uh some of our investors that are on the panel today and we're going to focus not on our typical um kind of venture panel talking about you know what do you

00:01:34 invest in and why but we're going to talk about why did you start a fund why are you working in Venture uh what is exciting about that for you and how do you see yourself as part of the ecosystem not just as an investor but a participant um I'm going to start with Petra because I know her the best uh she was on the board at lava with me uh several years ago so you went from product to banking to venture why um Petra grii I'm the founder and um managing partner of wed Bush Ventures we invest in uh pre-seed and Seed stage

00:02:18 companies so my journey and it's almost like Len was giving me the like like my intro speech with every time I meet with a Founder so this is great um I'm a foreign product manager I started my career actually up in the area um as a product manager it was actually I was I was hired as a person um to help build out a a company um the title product manager didn't exist back then uh kind of fell into that role it was that that kind of that role of of working with the engineers understanding strategy

00:02:47 understanding customers making that translation I I think the product role has changed a lot I actually don't understand a lot of product management today but but it's that role of like that translation layer and that building I always love that building um and then I went to bigger tech company I went into banking um and then I left Netflix in 2018 I did some Consulting and I was like like this is fun but I want to do more than just consult and that's what brought me into Venture and that's why

00:03:10 we invest in preed Stage Company SE preed to seed pre-series a finding product Market fit like that's the that's my sweet spot and that's what we really love to work on and that's uh a team uh Ashley is uh is on the zoom um also a former product manager and and Melissa our Venture Partners also kind of a former a product Manor and operator and uh that's kind of the lens that we bring to investing and that's what makes us passionate about working with Founders who are solving really kind of hairy big transformational problems um

00:03:41 in those early like kind of before you kind of hit that like I understand who I'm selling to and this is why I'm selling to them and this is what my product is and this is why it's repeatable it's like that messy stage before that that we get excited about I'm going to stick with you just for a second here wed Bush you know uh kind of a household name in the investment world why did they start an a venture firm yeah and I uh W bush Ventures is a separate entity we are anchored by W bush Capital uh W bush capital is um the

00:04:09 owner of uh wed Bush uh Securities which is a financial services firm broker dealer um Investment Banking wealth management clearing uh we're a separate entity we're not strategic um they backed me because this was an asset class that they wanted to participate in and and they wanted to find a uh a manager someone who who could you know start the fund run the fund um who had expertise in the space and so for them it was a uh an investment decision and a partnership which has been great because I get to run the fund um they are the

00:04:40 anchor LP uh they're not the only source of funds we run very much like just like any other Venture fund U but we have the access to wedbush the wedbush kind of network which is great so everything from the investment bankers to the research analysts um doing due diligence making introductions it's it's it's a network and community that I can leverage which is kind of the Best of Both Worlds if you ask me awesome thank you let's move over to Andrew Andrew why don't you go ahead and introduce yourself and uh talk about a little bit

00:05:08 about Alpha Edison but talk about your journey into Venture and and how you got into it and why and why you're staying in it hi everyone I'm and dark rich I lead in best relations in capital markets at Alba Edison we're based in Westwood here in La primarily focused on seed a andb businesses really across sectors I started off my career moving to New York from Vancouver Canada uh to join Goldman Sachs spent the better part of a decade there before moving out first to growth equity and then after

00:05:36 that venture capital for me it was really getting closer to the Innovation ecosystem there's this great book um by Klay Christensen called the innovators dilemma where many large institutions L organizations really are slow to innovate right if markets are hurt they the first thing they cut is R&D spent and that gives rise the opportunity for venture capital and so once I kind of clued into that early on in my career it was just taking a steps to get closer initially certain Angel Investing like I

00:06:03 think a lot of people in this room do uh to then you know jumping in with two feet focus more on the capital side of the business to me the storytelling the People The Narrative is a lot more passion inspiring as F NSA super Brandon why don't you uh tell us a little bit about your journey into uh this uh wonderful space I've been in this space now for uh close to 15 years both as a founder of a startup and I've been on the VC side for close to 10 years running my second fund level up Ventures that focuses on mature seeg stag

00:06:41 companies but overall takes this bottomup approach to really building a comprehensive Venture ecosystem where we run a lot of pre- accelerator goto Market programs and corporate Innovation programs with groups like Google and Fidelity but kind of the antithesis of Negan into this is I fell in love with doing startups I fell in love as someone that I like to think I have some versatility across doing different things that this is a true space of innovation I love working with Founders like having the ability to

00:07:18 affect uh change and it's truly incredible to watch what a lot of people you know create in this space uh so it for me it's just a absolute pleasure to be a part of it how much time are you spending fundraising just like any startup there is a fine balance to the raising funds and still being able to focus on all the other components of the business I would say that the balance is probably 20% on the fundraising and 80% on the support and continuing to build this bottomup ecosystem where all of the dots connect in a meaningful

00:08:01 way and we can continue even as a fund to expand scale um hopefully to like a a massive level first and foremost um there is no fun in fundraising right now I think this is and Petra you can comment on this as well probably the hardest fundraising environment for both Founders and then funds themselves and in our careers my full time draw is fundraising uh both for our portfolio companies and then also for our fund itself I 100% of my time is oriented around it but I think the the biggest lesson or the biggest success for a lot

00:08:34 of GPS and and fund owners is you're always fundrais it right whether it's an entrepreneur you're pitching your story or whether it's an LP you're pitching your story it's events like this you're telling your story and so always being fundraising it kind of becomes part of the job and just you know check the box every single day versus there's a point in time where you can measure 20% air time as One racing as you go same way with a startup it gets it gets easier even in this environment the more that

00:09:02 you do to put yourself out there whether it's an event whether it's putting on your own event and curating and building that audience there's if there's a will there's truly always a way even in these types of environments is there anything new from a technology standpoint or a process standpoint in looking for LPS and bringing LPS into a fund has anything changed over the past 15 years in doing that things so so I think one there's been a lot more interest in the private asset class from my perspective

00:09:35 like the the the potential investor group has gotten bigger there are a lot more potential LPS um hustle fund does some great content around this like anyone is in like you know your your contractor could be your next LP your dentist could be your next LP um I think it's actually some great content around that so I think that the univers of people who are curious about private markets curious about startups that has definitely increased so it's made it a little more like interesting um but it's

00:10:02 also hard in terms of like if you want to get a fund above you know 10 20 million um you need like individuals are great but like it's hard to get a fund we're limited to 100 LPS um and so it's hard to raise a fund with individual LPS um um Andrew can talk a lot more about institutions technology wise I don't see much it's still a block and tackle business in my opinion I think like the the biggest change over the past decade to your point betra has been everyone kind of knows what Venture is now like

00:10:31 there's been this massive Tailwind I think since the GFC where Ben Making Sexy and it was an up and up market and so dealing with the Fallout of that because of 2022 and kind of the damage that we did to ourselves has been eye opening but it for context on the the fundraising side the the last Hyundai close was a$ 1.5 billion fund year growth Equity Firm 2021 the most recent fund of April of this year was 150 million different firms different of strategies um but this last fund raise was very painful

00:10:59 cuz it is a lot of blocking and tackling and even more so now where people have more time for diligence it's a lot easier to do a zoom meeting LPS this institutional but also smaller individual one are just a lot slower moving and methodical there's no rush like the one piece of advice or the one thing that that's worked well is creating that starcity creating Demand right and I think it goes to building that Community Building those trusted Partners trusted relationship CLE at your 10 true Vans early on and having

00:11:26 that momentum and then writing that which in AED above there's only so much time left but wait there's more right the the kind of strategy has been the biggest shift um in terms of Technology there hasn't been this aha moment or light bulb moment of there's a tool where it can reach out to all these specific Heth there's great lists but it still requires time and energy and ultimately in this environment high quality relationships I think people are everything right now even more so than they have been in the past it's really a

00:11:54 relationship business I don't think tools tools are great like once the commitment is come in and getting the documentation done but it's gotten much more competitive um also like I the number of funds in La like gosh I mean when you ran lava there was like how many funds when you like maybe 60 70 even that many yeah but like it just especially she was hoping for like six I know I'm like well it depends on what you considered a fund too I can count 10 right right yeah and I think if you look at National stats um I think it's like

00:12:28 3,000 funds and so there's been an explosion of like solo GPS and a lot in the preed and Seed stage um so there been a lot of a lot more of these sub 50 sub20 million funds which I think is actually quite interesting for the preed like you see more companies getting uh funded actually uh in those early stages makes it very difficult when they get to series a as you build a portfolio and and you know when we look at specific companies that are coming and asking you know asking for investment we look for

00:13:03 things to drisk that right you want to drisk the investment how do you drisk a portfolio how do you look at the totality of a portfolio and say how do we R how do we drisk that is there any way to do that and in in making the math work so you when you have that exit it it covers everything else but if you could have 10 out of 10 that would be awesome how do you get there I mean but Leed wish Ventures we recognize that the preed and Seed stage is risky you just can't underwrite every risk there's a

00:13:37 lot you don't know yet there's a lot how your product will change the market will change founder Dynamics will change um so you know we're ULU Ventures there's a lot of content around this and we're we we're big Believers in that that decision-making science of you do need diversification and so we look to um fund one we had 40 companies in fund one and so we think about it as like diversification and number of bets and um it is you know it is a venture law the the the returns are really driven

00:14:07 from a few outliers in your portfolio so I'm a personal believer you need to have enough bets in your portfolio enough enough um yeah chips on the table yeah I definitely think it's it it comes with that ability to grow the portfolio anybody that says that it as much as we'd want to have that perfect 10 out of 10 scenario realistically it's not going to happen at this level pre-series a there's not enough data points to truly make a predictive analysis on how successful somebody could be that's why you hear so many different

00:14:43 groups driving home team team team or there's other specific components of the business like does this company based off our check size have the ability to scale quickly enough if you're a fall on smaller check do they have enough money with what they're doing like if it's a Marketplace and they're raising half a million dollars that's going to be really hard to be successful and it has a high likelihood that that type of company if it's like the airbnbs of the world and that business model they're

00:15:14 probably going to be raising multiple seed rounds if they can't hit that you know $10 million massive preed or $30 million sometimes which is kind of virtually unattainable in certain areas is outside of San Francisco the most important thing in my opinion is setting your strategy early before you go and actually raise close the fund you know check size you know follow on strategy reserves for follow ones and then sticking to that um so much so that we have a print out of our initial investment strategy would put it on the

00:15:46 fridge it's like one of our kids finger pinnies yeah and where can you really add value like opportunity costs like um yeah where where where are you able to really make a difference uh and where someone else may be better suited to make a difference thinking about Investments that you've made is there a lesson a particular lesson you can pull out of that investment for something that didn't go as planned I mean I would say there's definitely quite a few previous fund being purely acceleration focused I would

00:16:21 say the handful of the hardware Investments that we made um not going to give any specific names but handful of Hardware Investments that are a little bit more Capital intensive as an accelerator program giving $150,000 you're not going to move the needle much now granted even going back to that same analogy of like the market place is if they only have a few hundred, your $150,000 is not going to move the needle much and I would say that some of those types of companies although intriguing as they were they're

00:16:57 like shot in the dark best just based off of the resources they have to work with at that point were you betting on the technology and the company itself or did you were you placing the bet on the founder it's combination of the founder and the technology itself some of these that had interesting patterns trying to you know think if there's if this completely fails is there at least some sort of recoup you know way out of this but as you're playing with with especially from during acceleration where we were taking

00:17:34 90 companies a year at Quake um you're making a lot of bets so some of these you're purely taking that swing for the fences and you're playing the law of averages but if there are certain things that I could avoid than just swinging for the fence on certain deals that probably in hindsight didn't make as much sense I might do something differently as I said before there are certain risks that you just can't foresee um and those happen and and you can't really control them but the thing that I've learned the most

00:18:13 in the preed and the seed stage of pre series a is like really refining we call them the four Ps it's like who are you what problem are you solving who are you solving it for what product you need to build to solve that problem and and what promise are you unlocking um and and if you can and and those are four questions that companies have a really hard time answering and so that's like kind of what we always focus on and so like I found velocity um so the your ability to constantly be like okay who whose problem am I solving what

00:18:45 what is the promise that I'm unlocking of myself as problem for them because there's there's so much you can be doing and it's this lack of focus and or it's this like ability or this like you really focus on like oh I get I'm getting all these calls with these people but they end up buying my product or um and so that usually is because like what you're selling them is not what they want so figure out like where's that market pull um that's like to me what I always think about like you might have gone in like I have this

00:19:12 hypothesis this is the problem that I want to solve because this is what I experience and then you go and you sell it to five 10 people and they might take your first call they don't take your second call and they don't take your third call like that that input you need to then take and then refine your strategy um so I think about velocity taking an input transferring that back into execution that's kind of you need to be able to because that's something we really spend a lot of time thinking about and does the founder have that

00:19:38 capacity to have that framework of like here's what I want to approve I'm going to execute take the input and then refine and they move forward again I've also learned like oh this person Liv at XYZ impressive company like that ultimately doesn't matter and we really look at the execution like do they can they are they willing to run through walls um we just spoke with the company this morning I one of my first companies I invested in and um you know I probably had written them off already but like

00:20:06 they kept on iterating they kept on listening to the customers and they're like you know they're they they're just like so close to being you we'll see but like I think like they've just I'm impressed with where they've been and they've just kept on PING through get Factor yeah exactly yeah why is Los Angeles a great place to to start a company and why is Los Angeles a good place to invest I mean I I'll take this one cuz I I am very bullish in LA and the reason I went into banking was actually because I wanted to help

00:20:35 develop the La Tech ecosystem I started my career up in the Bay area so I feel like I have an interesting vantage point where I spent most of my career in the Bay Area for Bay Area based companies um and then I've also lived here for almost 20 years now I really like LA because La one is diverse and two um it's more applied in a good way like people are solving they're very problem focused um the founders are just kind of gritty heads down and have this unique lens to a problem and that to me always lends to

00:21:06 an interesting solution which is Market defining and Market changing is that what that's what makes me bullish about La I came out here in 2018 opening our first Quake office it's changed so much it was silicon beach and everything was kind of you know in this Santa Monica Venice area and since then it's grown so much where as much as La is rich in culture every single you know area of La has something when it comes to Innovation whether in centry City whether in Culver whether you're in South Bay like me

00:21:43 which is feels like a different country in a bubble in elsag gond you have all these major corporations there's a lot of innovation out there every single Rich cultural area has something different to offer and just bringing all of that stuff together I feel like La has become such a great alternative to that very Tech focused uh Silicon Valley San Francisco area what's changed over the past say 15 years from maybe when you first got here to to to build um companies and investing companies to today and what do you see coming down

00:22:22 the road where do you think it's going I feel like when I first got out of out here it was during this this like interesting transition where you started getting some of these larger companies like snap that came to uh Venice Venice Santa Monica area and you're kind of seeing the growth of some of these larger companies but it it was not that vertical growth from a fund standpoint uh it was very much you know preed and seed and then how do you support them after I think that has been one of the

00:22:57 biggest transitions here is this growth of funds not just early stage but the ability to invest up the funnel that helps keep these companies here and not have to you know abandon ship and go to San Francisco or abandon ship and go to New York and where I see it going with that La will just continue to facilitate and adopt having all of these you know companies of tomorrow keeping them here I think there's been an explosion of funds both in in the precede and and um in later stage later stage stuff has

00:23:35 been really nice to see you know minrol 10110 does an LA Venture podcast and I think she's been doing it for four or five years now and I mean it's 300 plus uh interviews she's done and all La based um BC so like that that would have been unheard of 15 years ago I just think back to you know 2014 or so at lava and you know it was the same it was much smaller community community has grown and I think that's been great to see we've had more exits we've had more companies grow there's been more Tech

00:24:09 Talent more Tech Talent is staying the pandemic was actually I think really good for La there was a lot of tech talent that came to La was a better quality of life um more more outdoor space um not all of it has stayed with the burgeoning of AI um much of it has moved back to the Bay Area but some of it stayed and I just think the more Talent stays here the more not only number but also quality of startups St here all right I'll I'll just make a comment because I think one of the things I've observed over the

00:24:38 past 20 years is we did not have that Talent sticking around 20 years ago if XYZ fund out of Silicon Valley invested in you there was almost an expectation that you were going to go to the Bay Area and build your company there if they were going to keep investing in you and what does that do well once that exit happens now that founder is not here that founder is up there any carried interest that and and any proceeds from a sale that that founder has that can be reinvested in the community is not here and and I think

00:25:15 Los Angeles struggled with that through the 9s and and through the early 2000s if you look at kind of the history of venture and there's there's people in the room that will remember this I mean our big exits of geoc cities of Overture created an executive team of people then that could go out and build companies and if you look at the pedigree of people that have done that who are now my age and older uh they're you know now their kids are out there doing it so we're building some generational

00:25:50 entrepreneurism uh that didn't exist 20 years ago and I think that's a a huge change uh the other thing is the pandemic is keep kept people here as opposed to draining our brains Los Angeles is known to be the number one producer of engineers in the country if not the world just based on the the number of schools that we have here that do that but they're all going up to Silicon Valley to work up there to New York they're staying here now and that's to our benefit because we get terrific Founders building companies who stay

00:26:23 here who employ people who exit and then reinvest and that's how that cycle needs to build and because of that I'm very bullish on Los Angeles and the economy that we're building here both through Venture and other ways what do you see the future of venture capital and how is the industry involving so what's changing within the investment Community that's different and and where is that going because I I think we've seen some huge changes in how companies approach investment because of the jobs act and

00:26:55 being able to do a CF funding a crowdfunding how how is that Dynamic changing how you all invest and do you see any trends that are going to change that in the future so I think one it's it's cheaper to start a company now um there we I'm seeing a big um Trend towards bootstrapping so more and more Founders who are just especially repeat Founders who are not raising Venture anymore um as much as they can the the other benefit of the Alumni network is there are more Angel Investors I just see more

00:27:28 and more founders raising you know it's still 500,000 200,000 um to get a company going and to get the cash flow profitability and they're growing it very differently and they're just deciding not to go the Venture route I also see a lot of companies that have kind of hit a growth metric they're at whatever 2050 even 100 million in revenue and there kind of a question of where do you go from there um there it seems a lot fewer growth dollars um you'd have a better perspective on that um out there and then and and then just

00:27:57 hav't been a lot of IP there's a lot of companies sitting there in that like pre-ipo bucket and so there's a lot of question about how do they exit um and and you're seeing some uh momentum on the secondary share side there I actually think bootstrapping is something more people should consider um you have a lot more control over your destiny um crowdfunding I am personally not a huge fan of crowdfunding um it's a definitely a way to go I've seen some of my companies have have have raised money

00:28:25 that way um and the reason I'm not a huge fan is it's a lot lot of people to manage um and I think it would be I think it' be very good if if you have a consumer product and you like you're building kind of customers who want to be your investor um I've seen that be very effective I I found the the equity crowdfunding to to be less effective but it's definitely an option yeah in terms of where it's evolving I think it it goes back to just how this is not a foreign conversation to so many people

00:28:57 now that when you're starting a company and I know that I've come across at least in the time that I've had in the space a lot of firsttime Founders it's just like so I got to a VC to raise money now you've got so many people familiar with this space that whether they support early stage whether they're family offices that have 10% or 15% or a large portion of what they're investing in focused in series day and above private outside of the crazy amount of funds that have formed over the past 5 to 10 years there's been a lot over the

00:29:36 past 5 years in the secondary Market there's so many different groups and people are whether they're interested in early stage or not they're down to go into some of these more protected deals that are up the funnel and there's so many different access points to get some of the ones that are the best performers that you probably want access to so I think I think it's shifting in terms of The Wider base of who a potential investor in your business actually is great so let's wrap up by pitching to

00:30:13 this group why an investment from wed Bush an investment for Alf frison would be beneficial to a company what do you offer besides money that's your secret sauce we we are former product operators um we love the messiness of that finding product Market fit uh we want to be your partners in in focusing on like what problem are you solving and who does it matter to and why um and be your partners through thick and thin um to help you get to that stage where you're on your rocket ship um and also solving

00:30:46 a big problem like we love finding like meaningful problems to solve there's no problem that we don't want to solve like we Sprint in with our portfolio companies with our Founders and the most important thing to us is it's not just partner diversity but trust we have a massive ecosystem we work with close to 25 corporate Partners all of our team are former operators startup Founders and that have done stuff quite recently that understand it still fresh in their brains that this takes a lot of Blood

00:31:17 Sweat and Tears and when you're a super small team as a Founder where you're juggling like 50 different things and investor just gives you money and expect you to be successful that's not the approach that we take especially investing other people's money we actually really work closely with these companies a bi-weekly basis some it's less others it's much more whether it's fundraising but we usually come in at the end of the round that way we can take a roll your sleeves up approach and start building on that

00:31:50 customer and partnership base we look collaboratively across synergistic customer bases on each company that we take whether to make sure it's not competitive but it's synergistic in nature so thank you very much uh thank you for being here today and imparting your wisdom