Venture Capital & Banking | Carey Ransom • 4

00:00:00 wanting to work with startups is almost a loser guaranteed on its own because most of them fail they don't have any money the exits that are required for what you're looking at you'd have to hit an Airbnb or a stripe in every single one it's no longer that you're excited about a unicorn it's that you you have to shoot for decacorns and it's like I don't the math doesn't math like welcome back to VC on fil uh great to have you here uh my name is Lucas poles managing partner Pegasus Angel accelerator and today we've got

00:00:36 Carrie Ransom uh an old friend of the show uh someone who's been in the space a very long time not just as an investor but also as an operator he's going to share some insights with us today awesome G welcome to the show so excited to have you here thanks for having me great to be here so yeah it has been a while since we've caught up so uh honestly I I want to find out more about what you're up to and the bank Tech Ventures as well as the as well as operate and so like walk me through all the fun cool things that you're doing

00:01:05 right now sure uh yeah I mean Bank Tech Ventures has been just a a a really fun uh in some respects full circle opportunity for me as I look at the entirety of my life uh I grew up in this small town in Indiana in a 100 plus year old family business and because we were one of the bigger businesses in this town I grew GRE up with a family that was deeply involved in a community bank and I grew up with my grandfather doing that my dad ended up really taking his seat on the board and when we decided to

00:01:42 do Bank Tech Ventures my dad was my first call and I said is your bank dealing with technology issues and trying to navigate how do you digitally transform and the changing customer expectations and this was right in the middle of covid and so not surprisingly the answer was yes and so I said okay I said we're talking about putting a group of banks together around the country to really establish kind of a Consortium approach where we can be the eyes and ears out there identifying the emerging Technologies

00:02:18 well equipped to work with and help make Community Banks better we'll do that work we'll do all the R&D we'll do all the risk management and valuating that they can do what they say they can do and we'll make an investment in a small number of those sort of your typical kind of VC type pipeline we're going to go meet a whole bunch of companies and we're going to pick a select few and we'll provide all of that work to our banks that partner with us and all you have to do as a bank is just invest into

00:02:50 our fund and you're part of the the the crowd and you know my dad who's followed my Escapade of a bunch startups and all the things I've done in my career said I don't I know if that's something we'll do here at this bank but I'll at least have the conversation right and it turns out they said this seems like a great idea and so we ended up getting uh just over a hundred banks around the country in 33 States or Nationwide to agree to join this and it has just been incredible fun to really bring a lot of

00:03:26 that life experience of building technology companies working with uh companies to implement and and see that success on one side the banks and then on the other side Founders who are constantly frustrated and trying to figure out how to create more efficiency and leverage in working with smaller Banks and we really try to be that bridge between the two and it built this really fantastic ecosystem of great Founders and companies and banks that that really do want to continue to stay independent but be responsive to their

00:04:00 market and their customers to so that they can stay relevant competitive and really differentiate themselves particularly from other competitors they may have uh I think the one thing I would say just in final thought there is uh we went in very openly saying we do not intend to be a venture capitalist and how we think about this we are a strategic investor for the future of the community banking industry and that means we have to be very eyes wide open about what is the proper growth rate what is the proper

00:04:37 capitalization approach that we should take for these various companies some of them might have a potential Venture growth trajectory but that's not our expectation from every one of these companies and it's more important that we're working with responsible entrepreneurs who want to go build a good durable business that helps Community Banks because our banks are going to look much more keenly at are these building predictable durable companies that can work with us over the kind of financial return that they expect to get

00:05:14 and so we we need Almost 100% of our companies to be successful as businesses much more than we need that unicorn fund returner uh to be you know key in the portfolio and our hope is we can get both that's super interesting so I'm sure that change that from a fun Dynamics kind of standpoint I mean it feels like maybe you're acting a little bit more like PE than a we we look much more like PE in that regard that's right when you actually come through with these portfolio companies like are they like how Hands-On are you with them are

00:05:48 you acting more like an accelerator where like you're actually getting uh like dive deep into what they're actually doing or are you a little bit more passive with them actually just then passing them off to the to the bank is like hey here's X Y and Z we are super active and that when when and that was part of what excited me I mean we can talk about operate which the whole idea of operate was we're going to be super active because I don't know how to be any other way me as a passive investor in general it it just doesn't

00:06:21 suit my personality where I like to be involved I I I'm a get my hands dirty type of person and so i w sort of on the way in with any one of our companies at at bank to I say look we may not even be your biggest investor but I can generally assure you we're going to be the most active and in almost every case we are and it's not the same approach every time but when when we were designing the bank Tech Team my view was we need people on both sides and so our platform team if you want to use that is a much

00:07:01 different type of thinking than a traditional VC platform team because of the fact that our LPS are the likely Partners customers beneficiaries of these companies and so it's rlps but it's really all banks and so we have a strong interest in building relationships with all banks out there whether they're in the fund or not because that benefits our companies we certainly want to preference our investors first and foremost and the things that we're doing just intelligence about what's happening in

00:07:37 the banking industry how can we help them build more confidence make better decisions we do programming with our banks to help educate them about Trends and things happening in the technology industry and then we're doing things with our portfolio companies to help them become better at partnering and working with banks and it could be things such as creating third-party risk vendor due diligence packages for them so that we know they're ready to go show up and work with a bank and we do that work because we can create best

00:08:14 practices to use across our entire portfolio right now we're at 21 companies we get leverage across all of those not just one if you're trying to do that in isolation as a company so we can just create leverage and efficiency in unique ways because of where we sit and how narrow and curated the the set of companies is that we're considering awesome well let's switch gears a little bit let's chat about um operate because I know that you are you you don't like downtime apparently so you want to run your

00:08:47 adventure studio and a and a fun so so walk me through operate a little bit Yeah so operate has been a a really really fun transition for me as I you know sort of came out of serial operating roles across a whole bunch of stars I think I did eight and then I said okay I think I'm going to have to try to figure out this parallel entrepreneur path and so operate was sort of a first attempt to see how might we do that and you know my partner Kyle and I we started it now almost five years ago and the original idea was to

00:09:23 get involved with some really early Founders that we could partner with and almost co-found their company companies or be a you first investor extra hands and feet and we said we'll we'll go find as as we think about it and I think that this sort of still holds true generally which is Founders we can fall in love with that are working on problems that we can get excited about so that way we'll devote some time and attention to it and where we feel like we have some value to add we can help drisk it we can

00:09:55 give them a little bit of unfair Advantage you know what what might that be and so it tends to live in in and around areas where we've spent most of our career which is sort of that intersection of software and data generally and that was where we started that's the majority of the the companies and Founders that we still work with we're at about 30 companies today and we have a different relationship and different ownership and different involvement in every single one of them and I think that's the realization that

00:10:29 we started to have very early on and I think it's different you know we we call ours a studio because I couldn't find anything else that I felt like resembled what the the the moniker for it but I think a lot of Studios out there operate a little more like factories they're they're trying to have the same process and the same ownership and I just have this mindset that you know every startup's a snowflake and a studio is an environment to create create and everything you create is going to be a little bit

00:11:03 different and and we're comfortable with that and so we have companies that we were there at Napkin stage and really helped get it out of the gate and our role and what where we played was a little different based on who the founders were and where there were gaps that we could potentially fill in and we have others where we're we look much more like a you know Super Angel even more passive investor and we were just there to root them on and so it really is pretty varied and I think that's been

00:11:38 comforting to just be okay with hey we we don't have the same role to play in every one of these and we had this Instinct Kyle and I both started a lot of stuff we were like at some point we're probably going to have an idea that we're going to want to see Born Into the world and I don't know what that'll look like do we go try and recruit a Founder to come in and found it for us or uh what is that going to be and a couple years ago after almost a year of tinkering on an idea he and I looked at each other and just said this

00:12:14 needs to exist and one of us needs to run it we're going to co-found it and so we actually co-founded a company brought in a third co-founder and Kyle and my partner Jason they they now run it full-time on the chairman of and that's the first really from internal idea of ours that we felt so compelled it had to exist that we would start it and that's actually slowed some of our activity down within operate as far as new activity we've made uh a few Investments over the the last year and we kind of

00:12:49 look at that as that's the thing we're going to do forever and so you know Kyle's Off spending the vast majority of his time on bonus right now and building that I'm spending most of my time on Bank Tech and operate we have this great Cadre of of Founders that we are still very attentive to and always happy to to play any any role we can still on the board of a few of those and that we're really trying to you know as best we can push those out of the nest to to move to the new heights where they they should

00:13:23 go and we have some that are there and so that's been uh a ton of fun and you know I wouldn't of projected when we started it where it would end up uh but it's it's it's really been for me that next phase of Life uh that I hope continues as long as I continue to have any relevance to offer to to Founders let's move on to one of my favorite uh sections War Stories so give me a you know I never La for those so give me a war story give me something that uh where something went sideways where uh something appeared

00:14:03 where it didn't um something just honestly just failed miserably and a lesson learned especially for some of the newer uh investors that are out there sure I think you know part of part of what's been fascinating is to see operates Evolution and you know as I think of back to when we started it we got this really cool shared office space we were going to create this physical place this was I think our lease started mid November of 2019 and great timing great timing then you know we find a multi-year lease on

00:14:40 this this really cool property and we were having events and we're like this is going to be great and you know not many months later uh we were the only ones in there and it was you know cavernous where any word I said echoed because there was nobody else in the space that was really a a First Learning of oh wow we we didn't have a business model yet and he and I looked at it as an investment in this strategy that we believe was let's get a bunch of great Founders together under the same roof and it'll be kinetic energy and um we'll

00:15:16 we'll figure some things out and all of a sudden the world was different we didn't know how long that was going to be different and we as quickly as we could thinking it was never going to happen tried to subas the space and got really lucky that somebody liked the space a lot and was willing to just take it over for a totally different purpose and you know we we were prepared to eat it but it it definitely um was a relief partly because when we when we started it we never we were trying to figure out is

00:15:50 there a way to just kind of share this office and have sort of shared expense across a whole bunch of things that we're going to be involved with and never really saw it as as a a profit Center on its own and I think that's that's been the challenge of that really early whether you call it incubation or even through acceleration kind of building early startups is I say all the time like the business model of wanting to work with startups is almost a loser guaranteed on its own because most of them fail they don't have any

00:16:23 money and so I think you you got to take this really Long View and we're now you know 5 years in and I still think all the time when it comes to operate I go I don't know if we're good at this or not we're still probably a few years away from knowing for sure and we we're looking at some of those early indicators of um You Know How likely are some of these companies to survive to raise follow on we we have some good ones that have become profitable and probably look a little bit more like more of my bank Tech type of companies

00:16:59 where they've been Scrappy and you know the founders that I love that maybe aren't benchmarking themselves against raising $100 million in in venture mean we have one that she's raised $3 million since Inception and she'll do $50 million in Revenue this year like hard to that's hard to and profitable like okay that's good you know like I'm quite okay that you own the vast majority of this company that's uh uh 100% And K threw us all for a loop and I do think that it so it went sideway I mean big it

00:17:34 didn't totally fail but and it was still being written right and I think the the Solace I take is a lot of the money that we've put through Opera has been our money and you know a lot of friends and family and and uh family offices and people that that said I think I think these guys know how to create some value in the world so we'll we'll trust them but it's been a lot of time and effort really and I don't think we ever Aspire with that to have a huge Capital pool because I I tend to also have a general

00:18:07 belief that I don't think Venture scales as much as a lot of folks have tried to raise Capital around the idea of it being more scalable than maybe it is yeah well are you talking about the the AUM of uh funds in general but yeah I I'm honestly I even I struggle with if you have M multi-billion dollar funds like I start looking at the math of how power law works and I'm like I don't understand like I don't the exits that are required for what you're looking at like you you'd have to hit an airb beer or a stripe in every single

00:18:44 one and it's no longer that you're excited about a unicorn it's that you you have to shoot for decacorns and it's like I don't the ma the math doesn't math quit yeah it's challenging I agree there are definitely a couple firms in town have stuck to their guns on a and I've I've always been I think when I first started an adventure I was I was curious and maybe I I don't think I understood I was like why are you guys like why aren't you going bigger or like why isn't that fun like continuing to progress and I think a lot of people

00:19:17 have that but when you really start diving into the numbers you're like I don't like I just doesn't make any sense like give you're going bigger yeah I I'm a big believer in you know try to feel like you have a handle on how you're going to to deploy your the capital that you have and even when we started to operate I felt like we were already on borrowed time uh in the VC cycle yeah right and so I told I told Kyle I said look Kyle here's my view is if this cycle extends the valuations are the most attractive at the earliest

00:19:55 stage at this point when we started if the cycle blows up the the best time to be in early is usually at a difficult time because those will be hopefully the companies that you have incubation time on to navigate through and that was the thesis is it's hard to predict where the world's going to go it sure feels like we're at a a near bubble and you know it came a couple years later but we we were pretty disciplined about not stretching too much on early valuation uh because I just felt like that was

00:20:32 going to be a a likely losing proposition so there aren there aren't many that I feel like we we overpaid because of just the hype yeah no I mean it which is uh honestly super encouraging I I I remember even in 2019 like had similar feeling of like like what is happening and then Co happened and I thought we're getting a reset and instead it went straight to the moon and it yeah I was like okay I was like this doesn't make any sense I remember looking at some of the valuation I was like because I don't think I did a ton

00:21:03 of deals in 21 and 22 and I'm just sitting here like I don't like how again the math doesn't math if you're coming to me at 15 or 20 uh uh and your your pre-revenue I'm like I I don't know how the the margin for error is so low are you being able to make it to that next round it's like this is and honestly for the founders I think honestly that was what hit me the worst is that trying to explain Founders like you don't want to do this because you're going to take a Down Round and this is going to you're going to get cut at the

00:21:33 knees and it might seem exciting now if you stay more disciplined at it that you're going to have a much better shot of continuing and raising and when we had the reset it was like I this not a time I want to say I told you so but this is that point of of time so yeah and I think having been on that side so much in my life I have we we sort of use and and it fits I mean obviously the bank Tech strategy fits my personality which is it's great like I I want to be in something that just fits the way I

00:22:04 look at the world and one of the things I say all the time in operate too is this idea of no founder left behind and I I want to do any and all we can to try to get them to some kind of positive outcome because as a Founder you're putting it all on the line in a very very concentrated way and especially if you haven't done it before fully appreciating what it means to have so much of other people's money and pressure on that not everyone fully appreciates that and um trying to help them understand that and and try to

00:22:42 navigate some of the decisions are you sure you want to do this do you fully understand what you're and some do they absolutely do and and um I but it's I I think we have to spend more time on on helping them understand and appreciate what what is happening let's move on to my my absolute favorite uh uh segment eing uh uh literally set this segment of Blaze uh a couple uh episodes ago the conversation that he had was in a group of like 200 angels and just like he he he absolutely kind of tore into them which was uh hilarious and fun

00:23:23 um but uh the hot take segment has become quickly my my favorite segment so I would love to get a hot take of yours around the space maybe something that people don't actually think about something that uh either investors or startups kind of run through but would love a hot take from you in general yeah it's one that I um I mean it's almost counter to me a little bit in that um I think there's a predisposition for a lot of people to experience that whole adage of the multi-time entrepreneur is the is the one to

00:24:05 back and I I mean I've met with some recently that are very experienced and they're trying to run the same playbook for this new company that they ran in a prior company and when I press them a little bit on explain to me the similarities and the differences in this business to your prior one they just haven't done the work in my mind to really understand the differences and they feel like this worked we're going to go do this again and this idea that that those things work the pace of change of the world

00:24:51 continues to speed up and so if you've been doing this for 25 30 years in that earlier era it things weren't changing as much and the competitive response the understanding the the transparency of information and access to information all that's changing so rapidly that any capture that you sort of find or or model that you find that works I think is so much more easy for other people to discover and and we've seen it in just the the number of replication or competitors that show up in any situation I guess if

00:25:33 it's a hot take it's sometimes experiences actually a big detriment because if you haven't fully broken down why did that work when it worked and are those conditions actually the same now I think you're actually more at risk of not succeeding okay so I could absolutely see that because I'm putting this back into like sales for some of the portfolio companies now like when I tell them it's like okay you have to learn growth hacking and Gorilla Marketing like that's the initial kind of push through I'm like you they're

00:26:09 like oh well give me examples like well I can give you examples from five years ago and maybe even a year ago but they're already outdated like you have to you have to be the one finding and being creative and running through that those those crevices of in between the systems because the the stuff that we used yeah I mean even six months or a year ago don't work now so you have to be continuously I guess upgrading uh everything that you're kind of running through so yeah no I I appreciate that

00:26:36 that's a good one um it's definitely a word for the wise to especially when you're running through due diligence it's like oh you've done it multiple times before oh it's fine like let's like actually dive in here a little bit more and I I try to use the fact that I mean I I have had so many different businesses with different business models and different customer segments from cons consumer to small business to Enterprise and direct go to market and channel I was like I've kind of seen most of the the the starter approaches

00:27:09 at some form and I can't even tell you as we sit here right now that I can say this is exactly the the right one all I can say is there's work to be done to try to go figure that out and go do the work and if you're predisposed to only one way because that worked for you at least test is that the the right way for this business and consider that there may be others and I think that that conversation is always an interesting one for me with entrepreneurs to just recognize are they sort of you know

00:27:51 fixed or or growth mindset and there are plenty of entrepreneurs out there as much as it seems weird to to say are more fix like here's how you do it and it like how are you going to adapt when inevitably it doesn't pan out like you think because usually it doesn't I mean you know I don't care what your projections say when you don't have any customers and even your growth levers are probably wrong so yeah let I would I would rather you walk me through how you think how you respond to things that's

00:28:27 going to tell me a lot more versus um you know you're pretty spreadsheet that's why you know I'm I'm I'm also not a big deck guy for early Founders and I think there's a school that says Hey I want them to to tell me the story and articulate their thoughts and I always say you know this is you on your best day pretending like you have it all figured out and I know you don't have it all figured out and I'm quite okay with the fact you don't have it all figured out what I want to hear is how are you going to go try to figure it out

00:29:02 and take me on that journey and that that's where I can really start to gauge whether I can buy into the approach awesome well we could talk honestly forever uh Carrie but uh I appreciate you coming on the show thank you so much for the time and uh we'll uh we'll catch you again here soon always fun thanks so much for joining us today always excited to have you here uh make sure to uh hit that subscribe button we've got a great guest coming out next week look forward to catching you then