Author Archive

137. Cram Session, Episodes 79-85 (Nick Moran)

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Welcome back to TFR for another Cram Session. In these special releases, we have aggregated the takeaways and tips from previous episodes. In this installment, we will be recapping the following episodes:



Investor Stories 63: Exceptional Founders (Boyce, Ramsinghani, Greathouse)

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On this special segment of The Full Ratchet,

the following investors are featured:

  • Peter Boyce

  • Mahendra Ramsinghani

  • John Greathouse

Each investor describes an outstanding entrepreneur that

they’ve worked with and what key traits and behaviors

make for the best startup leaders.


Boyce Why I passed on a startup for investment


Greathouse whats next

Read More…

What Killed Sprig?

What Killed SprigIf you’ve been following tech media this week, the big news was that Sprig is shutting down. We’ve spoken a number of times about Sprig with Semil Shah and others and lauded the company for its incredible rise from fledgling food delivery startup to the next on-demand unicorn. Different than many other food delivery startups, Sprig was full-stack. They created the recipes, their chefs prepared the meals, they had a fleet of delivery folks often pedaling around the streets of Chicago between 6-9pm. Their well-crafted meals were a hit amongst the busy urban professionals looking for a healthier alternative to take-out. In a way, they had created their own restaurant, with no dine-in option and the guarantee of delivery in less than 20 minutes.

Personally, I value delicious, hot meals. I often like to eat dinner at home. And, above all, I don’t want to spend an hour cooking something mediocre or waiting for cold, unhealthy delivery. For those reasons, I was an immediate Sprig convert. During the first couple weeks of use, I was impressed. The food was pretty good. Not always hot. But quick and satisfying. I recommended Sprig to friends. They recommended to their friends. A lot of people in the extended network were using Sprig.

Then slowly I began ordering less frequently. Eventually, I stopped altogether. As I spoke w/ friends, it seemed like they went through a similar cycle. Everyone was excited, at first, then slowly stopped using the service. As I reflect on my ‘churn story’ a few things come to mind:

  • Delivery was inconsistent: Most nights, the food arrived in less than 20 minutes. But there were a couple scenarios where they had issues and it took over an hour. As you can imagine, this was both confusing and frustrating as the app showed a delivery person, doing circles around my building, while I convinced myself I was going to starve.
  • Delivery was awkward: Sprig made a decision that I thought was really smart. They disallowed the consumer from paying a tip. I thought this was brilliant, as I always find it awkward to figure out how much to pay the delivery person. 20% of the meal price? 20% of the meal price + a few bucks? Is the delivery charge already included in the cost? I’m often confused and they made a smart step in the right direction. The problem? I still felt guilty and awkward not paying a tip! Despite Sprig’s insistence on not paying a tip, delivery remains an awkward exchange.
  • Interruptions changed behavior: While I was still using Sprig, they had an unplanned break in service. I’m not sure how long the pause was because I never came back. I believe it may have been a couple weeks but in that time, my habits quickly adapted. I found other solutions for dinner and never found a compelling reason to re-engage w/ Sprig.  And this last point relates to the single biggest reason why I left Sprig and never returned… 
  • The food wasn’t great. It started off strong. Pretty warm, seemingly fresh, well-crafted. But over time it started showing up cold. Often the meal was pushed to one side of the paper bowls it was served in; presenting a displeasing, sloppy appearance. And worst yet, I started receiving meals that just weren’t that good. In a way, it was anti-climactic. They came out of the gate strong, with delicious meals. Then, between the recipes, ingredients, appearance, and temperature, they just didn’t taste very good. If the meals were fantastic early and remained fantastic, I would have dealt with the delivery issues and interruptions. But it wasn’t, and I churned.

Per the interview today, it’s pretty clear that the unit economics for Sprig were upside down. They could not create and deliver meals to customers for less than their cost. To Eric’s earlier points, they were magnifying problems, throwing money at scaling a system that didn’t work. And I imagine these problems were exacerbated by CACs that outpaced CLVs. When customer acquisition cost is high and lifetime value is not, scale is not a solution. I’d imagine that CEO Gagan Biyani and Sprig’s investors planned for much higher customer lifetime value. But bad product is the ultimate equalizer. The minute the customer experience becomes unpleasant, give them a reason and they’re gone.

136. Dispelling Conventional Wisdom in VC, Part 2 | Should Seed Investors Follow-on? (Eric Paley)

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Today we cover Part 2 of Dispelling Conventional Wisdom in VC with Eric Paley of Founder Collective. In this segment we address:

  • Eric Paley Founder CollectiveI wanted to get your quick take on follow-on investing. There was a recent twitter convo w/ you, Parker Tompson, Semil Shah & Nick Ducoff on Follow-on funding… Nick made the statement: Knowing when to double down is the key to solving the “I wish I owned more of my winners and less of my losers” paradox. And you said you strongly disagreed, stating that “Venture funds are made on the first check and destroyed on the follow on checks.” Wow, that was certainly a shocker to read. Why do think following on is not wise?
  • Why small, early investments by large firms can create conflicts for founders when they’re raising their next round
  • Why many early investors actually have a weighted average cost basis of a Series B investor without knowing it
  • The paradox of pro-rata where investors want to pay the lowest price but also want their existing portfolio to raise at the highest valuations
  • Eric’s thoughts on concentrated vs. diversified portfolios
  • His final thoughts on key takeaways from the study and items running counter to conventional wisdom

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135. Dispelling Conventional Wisdom in VC, Part 1 | Does Capital Drive Outcomes? (Eric Paley)

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Eric Paley of Founder Collective joins Nick to dispell some conventional wisdom in VC. We address questions including:

  • Dispelling Conventional Wisdom in VCWhat’s the focus at Founder Collective?
  • What are the downsides of heavily funded companies?
  • Overview and Methodology for your study of 71 IPOs: ‘Overdosing on VC: Lessons from 71 IPOs’
  • Conventional VC wisdom says more capital, better outcomes… Eric, what were the results of the study and does more capital lead to bigger exits?
  • Do you think fundraising is a vanity metric?
  • How do you address large overhead and burn rates when the growth objectives or growth vectors for the business change?
  • Why did you base the multiples in the study on current, public market caps vs the market cap at IPO?
  • Raising lots of capital and big exits… Is there causation, correlation, neither?
  • What about acquisitions… does this study omit a significant number of positive outcomes to strategic acquirers?
  • You also found that public performance, post-IPO, was quite different between efficient vs. heavily capitalized business. What were the results here?
  • Was there any blowback or frustration from large investors at later stages?

Read More…

Investor Stories 62: My Investing Strategy (Parker, Suster, Shah)

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On this special segment of The Full Ratchet,

the following investors are featured:

  • Andrew Parker

  • Mark Suster

  • Semil Shah

Each investor describes their investment thesis and

how they evaluate startups for investment.


Andrew Parker Data Algoirthms

Read More…

What Winning Looks Like in VC

In today’s interview, we quickly discussed the key metrics by which venture fund managers are measured. I’d like to use this week’s tip to review what these metrics are, who values each and why some can be manipulated while others can’t.

The metrics we will review include: DPI, TVPI, IRR, Follow-on and Bulge Bracket Follow-on. And, in the case of the first three, I will use definitions from Silicon Valley Bank.

  • DPI: The ratio of cumulative distributions to limited partners divided by the amount of capital contributed by the limited partners. The nice thing about this metric is that it compares actual dollars distributed to LPs against the dollars that they invested. It is a true cash-on-cash multiple. The drawback is that it’s typically not usable, until later in a fund’s life. It’s rare for a new fund to have exits and cash distributions very early, so the metric doesn’t paint a clear picture early on. From my discussions, it appears that a 3-5x DPI puts you on the big board.
  • TVPI: The sum of cumulative distributions to limited partners and the net asset value of their investment, divided by the capital contributed by the limited partners. So this metrics accounts for both cash distributions to LPs and the net asset value of existing investments that have not yet exited. In theory, it sounds great but the problem here is that paper valuations, in venture, are pretty unreliable. Some may go to zero, others to the moon and yet others may languish in the private markets for many years… delaying an exit and cash distribution. It’s also worth mentioning that neither of these first two metrics accounts for the time it takes to return capital, which leads us to our next metric…
  • IRR: The annualized effective return rate which can be earned on the contributed (invested) capital, i.e. the yield on the investment. This determines the time-adjusted yearly rate of return. Many great firms are in the 20’s. Many not so great are in the low single digits. On paper, this would seem like the best metric for assessing winners. However, it’s an easy metric to manipulate. GPs can do a number of things to inflate their IRR. Namely, they can borrow money from a bank, at low interest, invest that capital in a startup, then call the capital from the fund much later. This effectively reduces the time between when the capital was invested and when distributions are made. I’ve even heard of cases, with early exits, where the capital isn’t officially invested until after distributions are already made. This causes some firms to show doctored IRRs that are very high, particularly early in a fund’s life.
  • Follow-on: This is simply a percentage that represents the number of companies that have received follow-on funding vs. the total number of companies invested in. This metric can be used to assess Series A follow-on ratio, Series B, etc… depending on how mature investments are.
  • Bulge Bracket Follow-on: This is a key metric that I hear about more often lately. Great institutional investors don’t care about follow-on alone; they want to see the percentage of follow-on by the best performing A and B investors. If you’re a GP, how many of your investments receive funding from Sequoia, Accel, Bessemer, KPCB, etc. When assessing funds very early in their lifecycle, this can be a helpful signal that shows both quality of investment, relationships with top firms and outcome potential.

In discussions with a wide range of LPs, including HNW, UHNW, family offices, fund of funds, sovereign wealth, foundations, pensions, and endowments… My big takeaway is that there is no silver bullet. Each type of LP and each individual LP looks at different metrics. Trey likely has his own priority and even cited the merits of DPI as it can’t be easily manipulated. Many HNW retail investors also tend to prefer cash-on-cash multiples over IRRs or follow-on. Regardless, each GP must measure them all and be measured by each. Those that optimize for one, at the expense of others, may not be raising a fund 2.

134. The Importance of Storytelling, VC EQ, and the LP-GP Dating Game, Part 2 (James R. ‘Trey’ Hart III)

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Today we cover Part 2 of the GP-LP relationship with Trey Hart of Northern Trust. In this segment we address:

  • GP LP Relationship with Trey HartKey mistakes that GPs make
  • The key characteristics that successful GP’s share
  • The importance of an ownership focus
  • What winning really looks like for GPs, in terms of metrics (ie. DPI, TVPI, IRR, cash on cash, bulge bracket follow on, etc)
  • Trey’s final thoughts on the GP-LP relationship and who he’d like us to have on the program

Read More…

133. The Importance of Storytelling, VC EQ, and the LP-GP Dating Game, Part 1 (James R. ‘Trey’ Hart III)

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SVP of 50 South Capital at Northern Trust, Trey Hart, joins Nick for a deep dive on the relationship between LPs and GPs. In Part 1, we will address questions including:

  • Trey’s path to becoming an LP
  • His thoughts on being a GP
  • The types of GPs and categories they fall into
  • The importance of storytelling
  • Herd mentality in the LP community
  • If he’ll consider first-time fund managers
  • Thoughts on if LPs are looking for GP’s w/ an EDGE

Read More…

132. Nick Moran is Interviewed on Bootstrapping in America

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TastyTrade was kind enough to invite Nick on their program, Bootstrapping in America.  In this episode the interview audio will be available on the podcast and the video is here on the blog.  Hosts Kristi  Ross and Tony Batista interview Nick about the Podcast, the investment group and what types of startups he invests in.


  • What are your thoughts on the state of the overall venture market?
  • Why do you invest at the early stage?
  • Is early stage investing about return opportunity and volume of investments?
  • How long have you been doing the podcast and what topics are you covering?
  • What questions do you focus on for the podcast?
  • What’s the demographic of investors in your syndicate?
  • You had background in M&A.  It seems like you’d be able to apply that to your investing now.  What are the most notable experiences or skills you gained while doing M&A
  • How many companies are you invested in?
  • How do you pick your favorite investments?
  • Can you talk about examples of your investments and how that fits with your investment focus?
  • Why do you require startups that have a business model with an annuity?
  • Are you going back to your experience building and launching a product and investing in similar types of products?
  • Can you talk more about why the generalists are going away and what types of VCs are positioned for success?

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