00:00:00 moving the needle and founder failure one conversation at a time I'm your host Justin Gordon and welcome to startup 2.0 by spark XYZ Joris 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 [Music] today's guest is Elaine Russell who is a partner at plg ventures which is one of the most active early-stage venture funds here in Southern California Elaine welcome to the show thank you yeah with

00:00:37 plg adventures what areas is the firm focus on investing in I'll start there yeah so we invest in pre seed and seed pretty much anything before the series a and generally software based companies and then with that - is there a sort of check size or a range of check sizes you typically have as well we will write a check up to 250,000 an initial investment and then we have done many follow-ons as well so our full stake will go up higher than that when we have conviction okay and then with plg - is

00:01:14 there a certainly investment thesis you can work off of that's been strategy you have with the fund as many other venture firms will probably say but we do firmly believe that we're investing in people especially when you're looking at proceed companies so we are really evaluating the founder and we're trying to find a company and a founding team that not only we can build a relationship with but we also see that we can add value in certain areas and we can identify those areas early on outside of that we we are industry

00:01:53 agnostic so we will invest across different industries and as long as the idea is novel and the market is big beyond those two things it is really a connection that we need to feel we have with the founding team yeah and then with you like the structure as well with being a family office how does that change things what pros cons of that like how does that even go for you guys though yeah so we are a family office venture firm which means that we have a single LP and we do not have one we don't have to spend any time fundraising

00:02:30 so most of their funds spend allocate a large percentage of their time towards their LPS and their fundraising efforts we can focus solely on our companies and doing investments but beyond that how does it affect our investments it allows us to be a little bit more opportunistic I'd say you know we have tried to narrow down our investment thesis a little bit just for the sake of making investing a little bit easier on us and also easier from a talking to other and you know people in the industry and describing

00:03:09 what an interesting deal would be for us and how we can receive deal flow but reality is that we we don't have any mandates from LPS and we can invest in anything so there have been cases that we've done things that are a little bit later stage and we've evaluated very late stage opportunities when we think it is if it doesn't change our check size but but we are opportunistic and the day and that is because we're a family office venture firm and because you know we are doing this for a financial return but also I think

00:03:49 there's some social good aspect to what we're doing and we need to feel like we are enjoying the companies we're investing in and having fun while doing that yeah and then go back to that investment side of it then where does like what does that do just process actually look like for for you guys then at plg that depends a little bit on the stage of the company so if you're looking at proceed companies which I'll define as really just anything pre-launch maybe the diligence is really in meeting the people right meeting the

00:04:25 team hopefully there is a team that is something we look for even if it's a very very small team but there is usually more than one person involved in the company at that time so it the diligence process is usually pretty quick it takes you need to meet myself you also need to meet my partner Peter sometimes he meets them first or sometimes it doesn't matter where you come in but we both do need to meet the person yeah and that usually involves two three meetings questions diligence questions about again if it's proceed

00:05:02 it's a little bit more focused on what their vision is and what the problem is that they're solving and make sure that we buy into it and we think that they're the right people the right team to implement and execute on that idea if their seed or let's just say that post-launch yeah then there'll be a little bit more diligence that we're gonna do you know we're going to actually look at traction we're gonna look at the financials and get a little bit deeper into the actual business that they're running yeah and there are there

00:05:33 any red flags and in that process things that kind of okay that's a no right away or anything like that within that process yes I would say the most blaring red flag that unfortunately you do see sometimes is dishonesty and it doesn't have to be outright to sonna see but even embellishment um you know we're really looking at investing in in the people again and so if we feel like we can't trust that person that is a red flag for us and we are both pass operators I'm a past founder and so we both really understand how hard it is to

00:06:21 build a business and how the fact that there's you know there's a meeting where you have this fancy pitch deck and all these brilliant ideas and ambition and all this stuff but there's also the reality and the reality is probably pretty like it needs to be honest yeah you know it's probably not that rosy at the time we come in because this is an early-stage startup right you know if you're not able to admit to us that this is hard and that that there's you know a lot of upside but there's also issues that

00:06:57 you've run into and here are the issues and here's how you're gonna fix them you know we want to see that vulnerability yeah and so somebody that came in and say you know we're gonna take over the world I want to hear that but if they back that up with anything that includes embellishment around facts or any sort of dishonesty sometimes that comes out in the form of being a little overconfident on fundraising or even just elaborating on traction yeah yeah and then come on the opposite end of that to looking at these different

00:07:36 companies and with the experience that you have as well as your partner as well I mean what are there are anything specifically that help a company stand out or things like oh yes I'm so excited to invest in them anything particular in there the main thing is probably it goes back to what I said that building a company is really hard and so there are gonna be many moments in the history or the timeline of this company that you hit a brick wall or you feel like should I just throw in the towel like what am i

00:08:11 doing this is so hard it's gonna impact every part of your life as a founder and so I want to see somebody that that isn't gonna stop you know this person you just feel like they're gonna they're gonna they're gonna make it work somehow like they've got somehow they have skin in the game it doesn't have to be capital necessarily but they have put all into this this is their their hundred and ten percent and there is a lot on the line for this person to make this successful so you just get that feeling like when

00:08:47 you meet somebody like that that you want to follow them because whatever they run into all the hardship that they're going to run into during this process it's not gonna stop this person yeah and how are people typically finding you or finding plg ventures I don't know if you make a trip tracking this is exactly but how are different companies and startups finding you and like how is that deal flow kind of work for plg ventures yeah I'd say our deal flow comes in a couple different forms and this is probably a

00:09:17 factor and I guess a output of our check size because we write smaller checks we are a we are always co-investing we are never doing an entire round most likely very if somebody was only raising 250,000 probably would be the right round for us because you'll most likely round have capital to quickly um so in in almost every case or I'll say in every case we are Co investing so we are actually a really great piece to the puzzle when somebody is doing a raise and so we get a lot of deal flow from

00:09:55 other venture capital firms that are rounding up other investors to finish around they might be the lead or they might also just be a co investor and they say hey you know there's a piece of this pie left over and plg would be really additive and the right check size for that the other side of it is we get a lot of deal flow from our entrepreneurs we have almost 50 portfolio companies now and so that is 50 sets of founders so you know all of those founders pretty much every one of them has sent us companies in the past

00:10:36 whether that be their friends whether that be their network whatever might be yeah and we actually the other two buckets I would say is we actually get a lot of deal flow from even founders that we've turned down in the past but we've kept up great relationships with and we are always very conscious of how we turned down founders try to be transparent quick and our answers and unhelpful when we're able to and then lastly service providers so we built you know a slew of relationships across legal across HR you

00:11:16 know recruiting and a lot of these firms really see entrepreneurs first you know whether they're incorporating or doing their first hiring or whatever it might be and so they're able to refer deals to us to yeah and one things mentioned earlier with how difficult it is to start a company what are some of those challenges that you see entrepreneurs facing early on I think that given we are usually coming in that first institutional round the most common thing we hear is we tell somebody you need to have a team before we can invest

00:11:58 in you and I know they're either thinking it or they say it out loud sometimes how do I get a team if before I have money and so there is a little bit of a chicken and egg situation there yeah because you would think well you know how do you pay somebody and obviously we don't want to only invest in founders who have their own capital to bootstrap the business but that goes back to what we're looking for in an entrepreneur I want to invest in somebody that can persuade people to follow them before there's even capital

00:12:34 and I know that's not easy and that's much easier said than done but it's even more impressive when we can find somebody who's rounded up a team and it could be one other person their team could be their co-founder and that's it and that's fine but you know kind of persuaded people to follow them and to build this product or company with them before there is funding because once you once you get to that point and you have money to pay people it becomes a little easier to find people to hire because you can actually

00:13:10 pay them so more incentive yes so it's even more impressive when you can do that before the capital comes yeah so if building a team is one of the main challenges that it's early startups face and that's something building a team before they have capital yeah before you have capital which you have to be scrappy and figure it out there's an entrepreneur are there any other kind of main things you see besides those team issues or building the team to begin with any other kind of issues that you see these these startups facing when

00:13:36 you have them at plg I think we also because of the amount of attention the venture capital industry has received in the past five years plus but really past five years maybe I think there's a lot of different types of businesses that now think that they should take you in venture capital and one of the most common pieces of advice I give many founders that walk in our doors is your business like you are not going to be set up to succeed if you take in venture capital and so you know I encourage them

00:14:13 to think very thoughtfully and and be calculated about whether they should be taking in true venture capital and then there's a difference between you know we almost a little bit in between because we're we are not a you know traditional venture capital fund without peas right so we do have more flexibility in that but then there's a whole other realm but we have set ourselves up as a venture firm looking for venture returns there are many other family offices or angel investors that are looking for different

00:14:49 things in their investment in their investment thesis as well and so I encourage entrepreneurs always find their their fit find their investor fit is that venture capital is that more family offices is that strategic angels and that should be based on the expectations for returns yeah and think about that too though what questions should they be asking or thinking about when trying to decide what type of investment they want in their their company being with or if even if investing is investing right for their

00:15:21 business what should they be asking or thinking about they should be thinking about before they come to us or whatever they should be thinking about being very honest with themselves what they want personally out of this yeah and what sort of return they truly think their business can provide yeah there are plenty of amazing businesses that will generate cash flow in which you could live extremely comfortable comfortably off of and should that entrepreneur be giving away a large piece of piece of their business

00:16:00 to venture capitalists to own and versus owning all of it and being able to actually make a really healthy amount of money yeah each year you know there's just there's a lot of them there's a lot of trade-offs there yeah well how does that conversation go when people maybe have a business that it should be more of a lifestyle business versus a venture back business with that you have with people and I don't really like saying my business I mean because I think God that gets a that that gives it for whatever

00:16:32 reason people think that's a negative thing or like they're not trying hard enough there's only created a lifestyle business I think some of the most successful people out there created businesses that were not venture backed traditionally and they got really far without that type of capital yeah but what you know again I think I think they just have to be there for whatever reason venture capital has become almost a status symbol for people and I think that's the wrong way to think about it it's a goal people have to be able to

00:17:14 get funded by a venture capital firm and I encourage them to talk to you more past founders that have taken in venture capital and more often than not when there are a second or third time founder they try to avoid it for as long as possible so you know do your diligence forehand yeah and assuming assuming a company has the right fit for venture capital and they have maybe the right team from there what are some of the reasons maybe that startups fail if it had those two things why do they fail

00:17:49 obviously so many of them fail but where are some of those reasons that you've seen at least that why startups fail yeah so that's a good I guess Xuan question or what plg focuses on because what we do is we focus very heavily on organizational behavior with our companies and that is directly because we believe that is the biggest reason of failure at early stage when you're talking about pre seed and seed founders sometimes just don't get the foundation right for their business there is plenty

00:18:32 of examples out there and it's it becomes a matter of time of when that's going to affect their business it may be able to sustain for a good period of time and it's not till they're pretty big and large that they start to fail yeah or it could fail really early on because of that but we focus on organizational behavior and helping entrepreneurs build the foundation for their business it kind of goes back to you not just building a product but building a company and so we have four different pillars that we focus on with

00:19:02 our founders first is leadership development second is how to retain top talent so it's not just about hiring really qualified people but how do you keep them happy and and and how do you retain them and then third is co-founder relationships that is a massive area that can cause companies to go through a lot of hurdles and lastly is how to build culture early on so don't wait until you have product market fit and you're growing the team every month yeah build your culture before so that you can hire the right talent into it and we

00:19:45 work with third-party service providers basically for all of those different areas and and then also obviously one-on-one with our companies as well yeah and like what does that look like just going to eBay what does it actually look like with incorporating those four pillars into working with these startups we do not actually have a traditional method of how we implement those across all of our portfolio companies I guess the answer is it depends some companies don't have co-founders that's a solo

00:20:15 phone solo founder so that third bucket is actually just sort of irrelevant for them yeah a lot of them do have co-founders and so that third bucket is very important to them some you know some people we help a lot on the hiring and employee side and some people don't need that help as much so it just it it does sort of depend yeah and then gain that I mean give me getting that word out about that for being a strong point of plg how do you mention that is it in every conversation you have with founders I hear this is what we do or

00:20:46 how is that how do you get the work everyone yeah I think that also a really good piece of advice for founders when you're talking to investors it's obviously you know you're going to feel like you're being interrogated by the VC because they're making a decision of whether to invest or not right but once you get to a certain point I would encourage entrepreneurs to question the VC just as much like why should they be the right partner for them and so this is what plg brings to the table and what

00:21:21 we do and so you know that that part of it we leave it to the entrenar to see if that's something that they're looking for yeah and is there anything else with just being a family office that gives you an advantage I mean you touched on that earlier on but I'm just curious if there's anything else that PLG is there anything else with being a family office that gives you an advantage or as you see is helpful for running the fund internally or for the entrepreneurs either way internally or often entrepreneurs I mean internally there's

00:21:49 tons because I be curious to see what you what the percentage of time you think most fund most partners that funds spend on fund raising yes Alfie's it's sort of the secret that entrepreneurs don't always realize VCS are fundraising and so you know it's very time-consuming and I don't know what percentage on average funds spend fundraising but let's say it's 50/50 sure we have just a hundred percent on investing yeah on fundraising so that's a major time advantage that we have are you able to be more hands-on because of that then or

00:22:36 yeah so I mean you can allocate that to doing more investments you can allocate that to spending more time with your companies either way yeah just important for entrepreneurs I also understand that if they're if they're investors are a family office they they had that flexibility and potentially yeah yeah and um I guess for entrepreneurs you know we also just can be flexible and what we and what we offer and can be a little bit more aligned with them because we're going to we're going to give them advice that is usually really

00:23:16 in their interest yeah because we don't have the same pressure on returns obviously we want to make return but yeah but they don't necessarily need to return the fund a lot of a lot of partners and that's just how fun dynamics works right you need to return the capital to your LPS before you start to make any money on that fund we again don't really have that so we can we can only be a little bit more flexible awesome a big heartfelt thank you to Breck's who without their support this show would not be possible we've seen

00:23:57 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 why we've partnered with Breck's to offer a corporate credit card that is not personally guaranteed offers higher credit limits provides auto conciliation and integrates with ERPs using receipt capture Breck's is the credit card of the start ecosystem and we highly encourage you to check them

00:24:24 out what are you most excited about now in terms of what you're investing in different areas you're investing in what are you most excited about so um let's see I most of the consumer side of things for plg ventures um again we're industry agnostic so we do a quest across industries I'd say the three big buckets that we look at is consumer broadly we do my partner Peter has a finance background and in the banking world and so we do a lot of FinTech a lot of real estate tax yeah and then we do a lot of b2b SAS just um

00:25:02 software plays and so what I'm I'm most excited about in terms of just me personally I enjoy looking a lot at the future of retail I would say so this is on the consumer side or it's B to B to C but somehow affecting how the consumer experiences or consumes going forward so that does not necessarily have to be ecommerce specifically but just the entire efficiency around the environment around the industry and the consumer experience yeah and then being as an investor the last couple years but also

00:25:41 having a ton of product experience as well I mean how have you seen the venture community change in the last two years and where do you see it going or see it changing in the future I think that um I'll be I'll be even a little bit more relevant today I would say I what I've seen change just in the last few months may be and how I think it's going to change going forward um I I do see venture becoming more focused on margins and more focused on unit economics and a little bit you know just you can see some recent examples in

00:26:28 news today that are causing some uncomfortable there's uncomfortable feelings out there I would say about throwing a lot of capital at companies early on before some of the model has actually proven so personally I would rather invest in businesses that we feel like they are close to or have figured out that model and and are being very conscious of how they scale yeah yeah have you seen I mean have you already noticed at all that companies are changing in that way seeing where the venture capital

00:27:14 community is going in terms of trying to get more like the margins itself or it's just slowly happening that way yeah I do I think I think that you know everything is a outcome of where the capital how free the capital is going to be you know how much capital they think is going to be available for them so if anybody is worried that the capital might restrict in the future then they're going to change their behavior so that they are not or they should change their behavior so that they're not put in a bad

00:27:48 situation and in the near future yeah and then one thing we haven't really touched on much with your product experience like how do you use that for your portfolio companies in terms of how you're helping them and how you look at again how you look at different investments where's that product kind of knowledge before kind of tie in to what you're doing now I guess that's sort of you know it's one of my passions in life is products software products I would say and a lot of times that's consumer

00:28:18 facing products or that's I mean everything at the end of the day is built for some sort of consumer yeah even in a b2b SAS platform and so it's certainly something that we're evaluating when we are making an investment decision it's something that I am involved with in terms of how solid do I think that the product is or is being built but after we invest that's the fun part for me is getting involved and helping on the product side ago yeah and then one thing to from before we can I mention a little bit

00:28:54 with questions that entrepreneurs should be asking their investors and you have experiences entrepreneur as well I mean what are diving a little bit deeper into that I mean what are some of those maybe critical other questions we haven't maybe touched on yeah we're just going deeper critical questions that entrepreneurs should be asking investors we talked a little bit about you know them making sure that the investor they're talking to is a good fit for them so I definitely encourage people to

00:29:24 ask the investor what they're looking for in investments and how they're going to add value to their company specifically you know depends on the stage that they're at but inquire about board composition their views on that whether they're going to be involved in your board and you know at the end of the day it's not just about receiving money from somebody but they should be very strategic and it's it's a puzzle you want to make sure that you don't have five of the same type of investors if you get one investor that's really

00:30:09 good at the network and find an investor that's really good at the internal side of things and find an investor that's really good at the marketing side of thing and whatever you need right but it's a puzzle and so it's really about finding complementary investors to sit around your table and help you build a company yeah and how does that change though because as an as a company that their gate they're trying at their first investor and once they have someone on board does that evolve where they can be

00:30:38 like more picky and terms and for they're looking for because early on they just need cash or survive like how does that go at different yeah so I guess I'm you know in most cases not all it depends on if they're raising a certain amount but you know certainly if they're raising over a million dollars usually they're gonna look for a lead first and yeah I guess you're right you know in terms of a lead it can be any one of those puzzle pieces first right sure but it is even more important for you to have a good

00:31:06 feeling about that investor they are going to be with you for the rest of your journey yeah and so just having that gut feeling and and that personal relationship make sure that you feel like you're gonna get some time and you know some time allocated from that person and then whatever piece of the puzzle they check then you can figure out the rest of the people yeah okay go from there some of the blanks yeah and then even looking at with PRG ventures then are there certain other venture firms that you partner with multiple times

00:31:47 that you continue to like you have the relationship with or if you kind of send things back and forth I'm just curious on your your fund and how that you know we invest with I almost would say majority of the LA venture firms yeah here and I guess given where industry agnostic there is not just one that is our go-to partner and we invest we do invest and every deal it's really dependent on the industry and you know so there's there's players and funds that we really respect in their specific industries for sure

00:32:25 yeah and for you going from an entrepreneur and being product and then VC is it what you expected you know yes and no I think I think overall yes I think that you know I spent most of my career kind of on the other side of the table and so it is I think in the very beginning I had a lot of what I called founder guilt it's hard to say no and you had to learn how to do that because majority of the time we have to say no we invest in every company we see and I hear so many good and interesting ideas and they meet so

00:33:11 many amazing people so that's the best part of the job for sure and then the worst part of the job is saying no to almost all of them yeah but I really try and I think most of us do to be helpful to majority of those people that I talk to in some way even if it's a very small here's another investor in town that you might be interested in speaking with or might be a good fit for you or here's you know someone who could be a great marketing asset for you whatever it might be but I try to be helpful and

00:33:45 even if that's in feedback and you know really being specific around suggestions and feedback to a founder yes that's helpful too yeah and with with that soup guy how is your day broken up or how to use how is your time spent at the ventures every day is different um so I don't think there is necessarily a formula for every day but you know we spend a portion of our time in pitch meetings so speaking to companies for the first time and hearing their pitch we spend a portion of time with our portfolio companies and that goes in

00:34:31 waves for each company you know we'll spend a lot of time with one company when they're in the middle of hiring senior people or going through a big negotiation with big partners or doing in their next round of financing whatever it might be and then they might go a little bit quiet for a while and we're not as spending less time with them but what we do spend a good portion of our time with our founders and then lastly well actually two more buckets one would be diligence so we do spend some time making these investment

00:35:06 decisions once we've deemed something a pitch interesting doing that deep dive and then lastly I would say just we spend time building out our networks because it is it is a network industry and so in order for us to be relevant and have deal flow and also build up our network that we use to be value add for our founders we spend time with as well yeah and what does that look like typically I mean guys there's so many ways you can go out and then network he's just always trying to go to events like what is it kind of look like I mean

00:35:43 its events it's talking to other building relationships with other VC's in town or in other towns with other servers all of those areas of deal flow that we that I spoke to spending time with just really smart people who might be an entrepreneur soon um and all that kind of goes into my networking bucket yeah and one of the things that you've talked about your partner as well how are those decisions made between you two on investments how it was that look like exactly from there yeah but given were

00:36:14 two people we do look for a unanimous so it's you know you need two votes for us to make an investment so it's pretty simple and you know usually one of us is sort of leading it in a way even though we're both we both met the company and we both are working on working on the deal and you know sometimes it's a little bit longer of a discussion and sometimes it's a very easy discussion but it's given it's two people it's not it's not a very lengthy process yeah definitely much easier with two versus

00:36:59 and have a whole team of people as well and how many investments Ruffino if we talk about this but how many investments roughly a year are you kind of going forward aiming for um aiming for about 12 to 14 talk the 14 okay so then and then if you have any idea the number of companies you're you're looking at throughout a year yeah I think we looked at in the last year I think it was five or six hundred okay and I'll write down to that many then yeah and those are companies that we've actually spoken to

00:37:30 or either on the phone or in person yeah I had meetings with and then is there anything else with advice for entrepreneurs as they're going through raising either gonna be just growing their company or even looking for investors any other advice you you tell them might sound cliche but focus on the people you know sometimes people have such a specific idea of a skill set they need to hire four or a level of seniority or that their co-founder has to be a perfect complement of their skill set but at the end of the day

00:38:05 again just follow your gut and when you're hiring and even if you find someone that maybe doesn't have exactly what you're looking for but you think they can do it and they just seem like a perfect person for you from a culture standpoint from a personality standpoint and just happens to be the smartest person you feel like you could hire I hire a players like do hire the best people you can and be opportunistic yeah I'm that point too I mean because hiring is so important is there anything else

00:38:45 you'd you'd mentioned to them because I mean so many teams there's so many people struggle to find those hires even have the right co-founders anything else on like how they can vet them or where they can go to find co-founders or how that even goes from four co-founders because I mean co-founders I guess it could be their first hires but how do I go about that process challenging yeah I think it's it's my opinion and and I'd actually it'd be something I would love to hear as many people's opinions on the

00:39:13 matter as as possible but I think it's really more of an art than a science and the more people you talk to the more chances you have finding that person so get out from behind your computer meet people talk to people be open be vulnerable um and be passionate you know the way that people want to come on board is because they just they want to follow you you know and and you've sold them on the idea and they just can see it you know yeah yeah and where can people go to learn more about plg and connect with

00:39:54 you as well Elaine you can learn more about us on our website and we have all of our portfolio companies listed on there as well I think the best way to if you are an entrepreneur I think the best way to meet with us is to find some sort of mutual connection that we have we love one that comes through some of our portfolio companies there's 50 of them um or if it comes through somebody we respect in our network but really when contacting any VC I suggest entrepreneurs to find the best or closest person they have to because it

00:40:30 does mean a lot when when certain people we really trust recommend a company to us that that is meaningful yeah hold some weight versus a cold do you get a lot of cold emails assume you probably do still but it's definitely helpful to have that warm connection but lean go ahead we also have a area on our website where you can submit your business plan and your an idea actually asked for a small video so there are cases where an idea or a person just stands out so much through that cold submission process

00:41:08 yeah that we will we will reach out to them and set up a meeting but more times than not it's coming from more of a warm introduction yeah makes sense thank you so much for taking the time to come on today 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