Vic Pascucci of Lightbank joins Nick to discuss New Founders, New Stages, New Offerings– The Only Constant in Venture is Change. In this episode, we cover:
- Where’d you get your start in venture and how’d your path lead to Lightbank?
- Can you walk us through the Lightbank backstory… before you joined?
- What’s the current thesis and investment focus for the firm?
- How active a role do you play with portfolio companies?
- Does Lightbank still have their studio/foundry arm, ‘Lightbank Start’?
- What, if anything, do you think the team at Lightbank can do a better job of going forward?
- Do you think your approach is different than Eric and Brad’s?
- Recently spoke w/ Semil Shah about the multiple stages, within seed… pre-seed, seed, inst seed, post seed, seed extension. WTF is going on with the seed round?
- There’s been an explosion of seed funds… do you think this is a problem? Is there a bubble at seed or, w/ the way barriers to startup have come down, is the influx of capital warranted?
- I’m noticing entrepreneurs moving away from SAFEs and Convertibles… are you seeing the same? If so, why do you think that’s the case?
- How have you seen startup capital raises change over time and do you think it’s moving in the right direction?
- What should every founder be thinking about, during a fundraise, that most often they’re not even considering?
- At a high-level, what metrics and milestones are you looking for at Series A?
- Are you seeing a difference in the makeup of founding teams and their capabilities? From personal experience, I certainly notice a difference in the style and approach of a early-20’s tech founder vs. a mid-30s founder w/ domain knowledge.
- So, you’re a blockchain guy… I see you on various blockchain boards and I know that you invested in Coinbase in 2015… and, on the record, you were very bullish on cryptocurrency’s at the time, when many were not. But what’s the deal w/ all these token offerings and ICOs? I’m a relative novice here… can you explain to me what’s going on and where you see it going?
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Guest Links:
- Lightbank
- Vic on Twitter
- Lightbank on Twitter
- Victor Pascucci III joins Lightbank as Managing Partner
Vic Pascucci
Nick: #Vic Pascucci joins us today from Chicago. #Vic is Managing Partner at #Lightbank, headquartered in Chicago, and the leading seed and Series A venture capital firm in the midwest. #Vic has over 17 years of experience in venture capital, fintech investing and financial services. #Vic currently serves on the board of #Clearcover, #Snapsheet and #Sprout Social. #Vic is also an Advisor to the #Chicago Blockchain Center, #Currency and #Fintech 71. Before #Lightbank, #Vic built and led the $330M fund focused on fintech, enterprise and consumer for #USAA, and was also a Partner with #Munich Re and HSB Ventures. Phew! #Vic, youโve been doing this for a while!
Vic: Yeah, itโs been great. You know, I think you and I have, are lucky enough to have some of the best jobs in the world.
Nick: I agree. I agree. Well, thanks so much for coming on the program. Can you start us off by kind of talking through some of these previous experiences and how that sort of led you to #Lightbank?
Vic: Yeah. I think my road to venture is a little different than most folks. Itโs definitely not that quintessential route that a lot of other folks play with, the west coast schools, investment banking and, or an engineering type of background.
Nick: Right
Vic: You know, I was joking with someone the other day. Theyโre like howโd you get into venture? Iโm like I scratched, clawed and fought my way in. If, you know, if you look at my background, like from Cleveland Ohio, went to average state schools, got a communications degree, ended up in law school and became a trial lawyer. And as I was starting this out in like the early 90s, Iโm looking at the world and going like Iโm going to court every day and just laying waste everything in my path. Like Iโm just destroying things. Like, and itโs the mid 90s. Iโm looking at all these like brilliant smart people around me that are building things and building these amazing technology companies. And I just kind of gut checked myself and said how do I want to spend my life? On, on like as a lawyer destroying things because I feel like Iโm self justified. Or do I want to build something of really game changing enduring value. So the only way to get into technology was to just use what I had and start out. And so I left a large law firm and started my own law firm focused on entrepreneurs and investors, and took it from there.
Nick: Awesome, awesome. Can you talk a little bit about your experience at #USAA?
Vic: Yeah. So #USAA is a fantastic organization. Coming from a software and startup background, #USAA was my first experience with large corporations. I had never been on like that side of the table or the buy side. I had always been what I considered like a sell side person. And I started out as council for the CIO, the CTO and the CISO. And Iโd see all these great, what I would consider deals come across their desks in their staff meetings. And because of the unique model the #USAA had, theyโd be the quintessential early adopter and be check client for all these technologies. And I started talking to the executive leadership on we have to do deals with these companies, weโve got to do deals. And theyโre like we are. Iโm like no, weโre just buying stuff, like we need to invest. Like theyโre relying on us, weโre relying on them, weโre going to build enormous value both for our membership base and for these companies. We need to really leverage that. And theyโre like we donโt do that here, donโt talk about that, keep your mouth shut, that type of talk, that type of talk will get you fired quickly. And I
Nick: Yup
Vic: was like I donโt belong to this large corporation anyway. So Iโm going to get fired at one point. So that was one of my LCOs every six months to double down. Like it was a case of whether I was going to get fired or quit. And I was like no, we just need to keep doing this. So eventually, slowly but surely, got them to do a deal here, a deal there. And it was the worst type of corporate venture investing just ad hoc, no real process, just very opportunistic. And then it showed some success. And theyโre like okay hereโs a $100M, what can you do. And then had a couple IPOs and everyone was happy and strategically things were paying off. And theyโre like okay here is, you know, 330 as a occasion to this what they considered to be an asset class. So it was fantastic. You know, got to be chairman of an MBCA committee on for education for corporate venture, got to do a lot of deals, meet lots of brilliant people. It was, it was great.
Nick: Wow! So you helped spin up the whole fund for #USAA?
Vic: Yeah. Yeah.
Nick: Oh really
Vic: So I took it, you know, an ad hoc to institutional program. So it was great.
Nick: Amazing. Amazing. And I know youโve only been at #Lightbank for going on just two years now, but,
Vic: Yeah
Nick: But can you kind of talk us through the back story of #Lightbank, sort of
Vic: Sure
Nick: before you joined?
Vic: Yeah! So let me tell you about #Lightbankโs story and then as well as how I got involved with the awesome team here.
Nick: Yeah
Vic: So #Lightbank is best known for their entrepreneurial DNA of my partners #Brad and #Eric. So between 2001 and 2008, #Brad and #Eric founded 4 companies.
Nick: #Brad and #Eric,
Vic: #Groupon, #Echo Global Logistics
Nick: who are those guys?
Vic: For those outside of the midwest, theyโd be the two entrepreneurs that have founded 6 companies and created $10B in value, and
Nick: Yeah
Vic: the funny thing is, is like you know him, I know him, but people on the west coast are like well, you know, we just know the people that have had one or two exits. Iโm like great, I get to sit around the investment committee meeting with guys that have done it 6 times. So, theyโre amazing guys, and theyโre part of a, you know, to create something special here. But after doing those 4 companies, 3 IPOs and 1 that sells to #Vista Equity Partners for $700M, there was just this amazing attraction for other entrepreneurs that want to work with them. So there was this strong entrepreneurs attracting other strong entrepreneurs. And so thatโs why we founded the fund in 2010, to capitalize on those opportunities. In 2010, the fund was formed. And it is weโre around a $200M fund, seed and Series A shop. We focus on entrepreneurs because of this entrepreneurial DNA we have and leverage from our prior set of investment opportunities that comes from that entrepreneurial DNA, the #Lightbank network that now consists of 200+ founders or founding teams that weโve invested in. The 15,000 employees that have worked for a #Lightbank related company. The almost 300 deals that have been done by most of the team, myself, #Bill Pescatello, #Rick Zullo, #Brad, #Eric, and the #Lightbank lineage. And then the local entrepreneurs. Guys like #Tom Sosnoff at #Tastyworks, that went on to start companies. They stopped by #Lightbank as their first choice because of the DNA and the experience this team has, both as investors and as operators scaling businesses.
Nick: Awesome. So seed, Series A, entrepreneur focused, anything else on the thesis, geo-focuses or anything else you want to mention about sort of the investment criteria?
Vic: Yeah, when we look at the portfolio, 49% of the portfolio is here in the midwest. And, you know, thereโs just a certain type of entrepreneur we like. We like those grinders. We like those hustlers. We like those folks that get after it every day. We try to just stay, we are staying very disciplined in our evaluation approaches. And so that tends to be the midwest where weโve, where we do the best. And from there, we cherry pick what we think are best for us and our fund onย each coast. So the rest of the firm is pretty evenly distributed from the two coasts. You know, we have the networks and expertise within consumer, within vertical software, within fintech, you know, where I spent a lot of my time with some other guys on the team. But, you know, weโre truly, because of our entrepreneurial dna, entrepreneur focused. So itโs, youโre kind of saying, wait, you know, weโre early stage guys. Itโs like the team is going to be the commanding thing more than any other aspect at the point. So itโs got to be about the entrepreneur.
Nick: Sure. Sure. I think thatโs probably one of the best parts about the job. Also one of the hardest parts about the job. When you find that business and that idea and that product thatโs so amazing that youโve been looking for but the team just might not be the right fit for the product, thatโs
Vic: Yeah
Nick: always a tricky situation.
Vic: You know and at first itโs got to be the right team, the right time. And then you want to look at it as like can this team then recruit that next generational leaders thatโs necessary for these things to really grow. Because, you know, for us, you know, what I love about venture and, you know, I like venture about is like we want to create game changing, enduring companies, not flips, not quick in and outs, not take advantage of a fad. Itโs like letโs do true game changing shit. I mean, life is too short, right?
Nick: Yeah
Vic: So who are those entrepreneurs, those brilliant passionate entrepreneurs, just like yeah letโs give them a check, letโs go. Thatโs why itโs really critical to make sure, at least for us, weโre all looking at it the same way. I mean, you these are 10 to 15 year marriages weโre getting into at the seed and Series A style. And youโve got to just believe that, you know, weโve all been through the ups and downs of these companies and the backs and forths. And so itโs like is this the team thatโs going to make it through and is it people you want to be in the trenches with.
Nick: Yeah. Well, they donโt just exist on the coast. Thereโs
Vic: Correct
Nick: Thereโs a handful in Chicago that I know that just routinely blow me away with their ability to lead and coordinate and just handle really difficult things in
Vic: Yeah
Nick: broke through walls. But while weโre talking founders a little bit, you know, how active of a role do you guys play with your port-cos?
Vic: Yeah. So our approach is to be extraordinarily active with our portfolio companies. We know that we would concentrate our resources, concentrate our network and focus on and get actively engaged. Thatโs how the returns comes. And the returns comes from, for everybody, for the entrepreneur, for our limiteds, and for us. And so we take active roles, whether it was you look at what we did with just #Justyn Howard at #Sprout Social, when he came in in 2011 with a powerpoint, an idea about social media management, to today, weโre still on the board how many years later. #Goldmanโs come in with a huge round of capital. We helped them recruit a CFO. Weโre still in there, knocking on doors for them, making calls. And itโs the same with guys like #Brad Weisberg here in town at #Snapsheet. The deal that brought all of us together at #Lightbank, me, #Brad, #Eric, #Rick Zullo, #Bill and the rest of the team. And itโs just we know that well if we get in there and leverage everything we have for these entrepreneurs, like thatโs where the success comes. Weโre really bad at being passive seed investors. Like we suck at that. So we donโt, it just doesnโt work out for us.
Nick: So, so what are the ways
Vic: I mean, itโs fine, itโs okay, but itโs not, not our strong suit.
Nick: Yeah itโs not your strong. So what are the ways that you do get involved? Is it strategy on the business side, is it help with talent? I mean, what are some of those levers that you guys can pull?
Vic: I think where weโve been most successful is, you know, helping people see rounds the corners and what it takes to scale these businesses. And a lot of that, you know, within the fit, it doesnโt matter, itโs fintech, vertical software. Itโs like what are those key distribution channels and relationships that these companies need to set up in order to hit real growth levers. And what are the relationships and how to really position themselves within the value chains of these legacy interests, legacy industries. Because, you know, what weโve done well as a firm is take technology to industries that didnโt have any. It does go on way back to #Brad and #Eric at their early days when they did with trucking logistics and print, or to what weโre doing now in insurance and in business process automation or in industrials. Itโs taking technology to and disruption and which, you canโt talk about disruption with like legacy industries, you have to talk about innovation. And so thatโs how we help position these companies and make them grow and scale and become true long term viable enduring companies.
Nick: Awesome. So what, if anything, do you think #Lightbank can do better going forward?
Vic: You know, I think going forward itโs, you know, being more of an active participant within a broader venture community to make sure that, you know, part of our perspective is heard within the community, and that weโre helping out the whole of that entrepreneurial ecosystem. Because, you know, this whole thing doesnโt work unless weโre all working as a community. And like a true authentic community. Not like that passive aggressive kind of grand fucking bullshit that goes on on both coasts. But like how are all really working together to make sure weโre helping entrepreneurs, weโre growing businesses, weโre creating jobs or helping one another out. And while weโve done a lot of that, you know, weโve done it probably not as outwardly as we should have and letting people know that weโre here to help. And spending more times on panels and working with committees and working with a larger part of our ecosystem. So thatโs what I want to see us do more, and thatโs why, and the rest of the team as well, is taking more active role within the community.
Nick: Nice. Yeah, I see you are on the #Chicago Blockchain Center advisory boards. So letโs talk about that a little bit later. But Iโm curious, do you think your approach is different than #Eric and #Bradโs? I mean, theyโre such sort of seminal figures in Chicago.
Vic: Yeah
Nick: Very powerful personalities. You know, Iโm sure theyโve run #Lightbank a certain way. And Iโve only been doing this for 4 years or so. So I wasnโt around for sort of the early days. But do you think your style and your approaches can be different than theirs? Or how do you think your approach is similar and/or different?
Vic: I think for all, any of these things to work, any team to work, any investment management team, itโs like you got to bring diversity of opinion, diversity of approach and diversity of experience, and with a common goal and mission. So our common goal and mission is around creating these game changing, enduring companies. #Brad and #Eric, I mean, they were operators, at the highest, highest level within the entrepreneurial ecosystem. And weโre all, we want to see them help create more companies like the ones theyโve done. And theyโre coming from a pure entrepreneurial perspective. Like business builder perspective. The rest of the team, we come from more of that investor perspective on things. And so you get the entrepreneurial energy and creativity, like #Brad, that just wants to talk about billion dollar ideas and billion dollar businesses. And weโre looking at it from an investor perspective, going yeah what is it going to take to build this company and finance this company to get it to that level, and whatโs the market like and what are the financial requirements, how much capital are they going to consumer, can they do it efficiently, are they priced right, do we have CAC LTV. And it just brings things together in the right way. When I started first working with like back in 2012-2013, #Brad Keywell had led the seed and Series A rounds into #Snapsheet, a local company here. You know, I came in as an institutional investor to do the Series B. And then there was just this awesome collision at our first board meeting, where like #Bradโs pounding on the table going whatโs the billion dollar idea. And Iโm sitting there with #Brad Weisberg and #C J Pryzbyl, the founders, going we have this interesting consumer business but we can completely disrupt the entire claim system within the insurance industry. We can revitalize the way everybody does property damage, claims within insurance. And it was like yes, there is a billion dollar idea, why arenโt we going after that. And so, you know, from there itโs, kind of took it from there. So you take industry expertise and some financial acumen with a great entrepreneurial business builder perspective, and it just comes together.
Nick: Love it. Love it. Are you guys still doing that #Lightbank Start stuff, some of the studio incubation of companies?
Vic: Yeah. You know, weโre still doing some of that. Like when we see the right convergence where we can put a company together, weโre going to get after that. You know, we did that with #Drivin, when we saw inefficiency within the used car marketplace on the wholesale side. We put it, started a thesis, started a theme, started a company, brought the team together, and went after it. And now we just have to be very intentional, particular about it, going okay where are we seeing the next convergence, where are things going? Is it, you know, trucking and insurance? Is it, whatโs left within the auto ecosystem thatโs untouched? And, and so weโve been more to speak on it, okay we have these great entrepreneurs here in Chicago, we have these great teams within our network, what can we rally around next? And so weโre, incubation is a key aspect of what weโre doing. And itโs just a matter of putting the right teams together.
Nick: Got it. Got it. So you and I have talked about sort of the dynamic landscape that weโre in currently.
Vic: Mmhmm
Nick: Maybe venture has been this way for decades. I donโt know, but it seems to be particularly changing at, at rapid paces now. You know, I was recently speaking with #Semil Shah about sort of the multiple stages even within the seed round. So we got
Vic: Yeah
Nick: pre seed, we got seed, institutional seed, post seed, seed extension, the list goes on. So what the hell is going on with the seed round
Vic: Yeah
Nick: first of all? And then, is this a unique phenomenon to right now or, you know, is this something youโve kind of seen over, over time?
Vic: You know, itโs kind of crazy to me. Like I donโt know if we all came up like all me, you and everyone else in this industry, we came up with these labels just to make us feel good about ourselves, that oh weโre seed versus pre-seed and Iโm post-seed, and Iโm seed-extension. And, you know, to try to make it sound like itโs more complicated than it is because it impresses all our LPs that oh look they have this thing focused. So I donโt know whatโs going on. So, you know, if you go way back to the mid 90s, when I started doing this and advising the state of Illinois on investments and working with entrepreneurs and early stage investors, it was like it was a completely different time and place. You had friends and family money. Then you had the 3 Ds. And then you got institutionals. So you went from friends and family, like people you knew that like you begged your parents, your family, whoever that you knew to give you money,
Nick: Yeah
Vic: Then you went to like doctors, dentists and dummies, and like people you didnโt know that had money, to like give you something.
Nick: Yup
Vic: And then you eventually got to people that were managing money on behalf of somebody else, right? And that was pretty much, there was no really seed per say. And, you know, what was then was an A and, and whatโs happened now is thereโs just more capital available. Thereโs more wealthy individuals, thereโs more successful entrepreneurs, there are more senior executives and large institutions that want to put money to work in the space. And I think thatโs a great development. Itโs a fantastic development. Anything that fosters innovation, anything that brings new companies to life is a good thing. Right? But you want to just make sure itโs people that do it responsibly, understanding the risks and are helping the right companies grow and in really utilizing those resources. So, you know, everyoneโs got to find their niche and their label on things because if you put a label on it, itโs easier to understand. But I think with what you do with your syndicate, to help people that want to invest but evaluate opportunities, is fantastic. Like we need more of that.ย Like I was fortunate enough to actually be on a board with #Naval for the first investments I made while he was spinning up #AngelList. It was just fantastic what, whatโs happened and, and the opportunities that are there with platforms. So my take is if, if people are taking this seriously, really understand what the end game is and all the risk thatโs out there with these companies, then itโs just great for all of us. Because it takes a community, it takes all this to come together to build these companies.
Nick: Got you. So are the seed firms today, are those the Series A firms of 5 years ago?
Vic: I think so. I think thatโs a 100% accurate because I mean, the seed funds today, the people that have, even take a, go down from give or take 10 million up to 50 million, I mean, those were your Series A shops way back when
Nick: Yeah
Vic: Right? When your Series A was like a couple million bucks.
Nick: Right
Vic: And the landscape has changed. Which, the part that scares me and a bit is that, you know, when valuations get out of whack, as they are in certain sectors, right. And so where thereโs more money out there and things are getting overly bid up, it just sets kind of a bad present because the corrections will come. And they are coming for things. And so people will start looking at down rounds because theyโre trying to put money to work in an inefficient or ineffective way. And with the convergence Iโve seen, like, you know, we talked about it. Like itโs less expensive to start a company thanks to AWS, compute horsepower because of the proliferation of the new technologies has gone through the floor. So itโs cheaper in a lot of senses to start a company. But people are taking out more capital and going through it in the same pace as if they would if they had a different amount of capital. So thatโs where we spend a lot of time focusing with entrepreneurs going okay what is the true capital plan, what are the metrics are youโre going to hit. And, you know, what are you going to do from this round of capital to the next. And you call it whatever round you want. Pre seed to seed, seed to post seed or seed extension, seed extension A. But itโs like youโre given a certain amount of capital, you have to accomplish things. Right? If you do that at too high of a valuation, youโre not going to show enough value accretion for the next round. And guess what? You start looking at down rounds
Nick: Yeah
Vic: which is bad for everybody. Because no one wants to do the down round. And it doesnโt incentivize management. And then I think you got the other unpositive things that are happening where people start garbaging up, you know, thereโs 14 million in convertible debt before theyโve priced a round, and itโs like okay how is this going to work now. So I just think youโve got to stay focused, youโve got to stay disciplined. Raising money is important because rule number one is donโt run out of cash, but you better be doing something with it to hit definitive metrics, definitive milestones, to make sure that as time goes on, youโre showing the growth, youโre showing the success so that you can start commanding higher valuations.
Nick: Yeah. So youโve touched on a bunch of things there that Iโd love to go deeper on. But before we do that, I know every company is different, but are there generalized milestones that you guys are looking for at, at a seed or a Series A, if you were to generalize. You talked about sort of these milestones and creating a capital plan to achieve them. Are there some kind of high level things that youโre looking for for a Series A for instance?
Vic: You know, for a Series A, hereโs how I would define Series A. Series A for check size, itโs for us a million and a half to maybe five million dollar check. For anywhere from 10 to 30%, hopefully something close to 30. And for me at that stage itโs like no questions asked. When I say no questions asked, I mean like that management team better know the space cold, they better have all the answers, I know weโre still dealing with what could be or should be. And so we donโt have definite answers, but at least letโs have models. Like whatโs the real CAC LTV? Whatโs, what it is going to look like? Like itโs early days, we donโt have a lot of customers. But whatโs the model look like?
Nick: Yep
Vic: How are we going to handle margin compression? How are we going to handle new entrants? How are we going to handle responsive incumbents? Or how are we going to handle take your pick? But, you know, at the A I want to see a more fully developed product with a definite product roadmap that accounts for all the changes in the market and the competitive pressures. And I want to see people that have a strong CAC LTV model. And part of it proven out at the same point.
Nick: Sure. Sure. So touching back on one of your previous points about sort of lots of influx as of capital and maybe some artificially high valuations in certain sectors. Iโve noticed this explosion of seed funds as Iโm sure many have.
Vic: Yep
Nick: Do you think this is a problem? Is there a bubble at seed or with the ways that barriers have come down for startups, as you mentioned, networking and AWS and such. Do you think this influx of capital at seed is warranted?
Vic: I think, specially for the markets where you and I spend a lot of time in between the coasts, that the proliferation of seed funds and pre-seed and post-seed funds is fantastic. Because these are entrepreneurs, whether itโs seasoned executives leaving large corporations or first time entrepreneurs, like they generally donโt have the networks to get access to the early stage capital. And I think, you know, both believe like great companies can be started anywhere. And weโve proven it time and time again in our portfolios. And so I think itโs great to see the influx of capital. But like I said, I, I want to see it with people that understand the business, understand the risk, understand how to put money to work and understand how to help these people build businesses.
Nick: Great.
Vic: So I think when, you know, even like fast forward to a most immediate stage. Like we had the #Stitch Fix IPO. People are like oh it was busted IPO. Iโm like wait a second, they raised 50 million, their last round was 300 post, give or take, they raised a 130 million in their IPO, and theyโre valued at 1.5 billion.
Nick: Whatโs wrong with that?
Vic: Iโm like, oh, oh wait, is there, should they have raised 500 million and had a billion dollar valuation and then gone out now? Like would that made it more sexy for everybody? Iโm like no. They got, they built their business, they got, took a small modest amount of earlier stage capital, priced themselves right, and guess what? Even though the thing went out at $15 versus the 18,20, itโs still a huge win for everybody that was involved.
Nick: Yep
Vic: Huge win. And thatโs why I donโt understand like some people like oh no it was bad. Well they just killed it for everybody. For management, for their investors, for their customers, for everybody. So that was the result of I think people taking the right approach in, in how they raise money and how they build their businesses.
Nick: So, you and I have talked a little bit about how some of these founders are moving away from SAFEs and, and convertible notes.
Vic: Yeah
Nick: and some of the earlier stage venture firms are sort of mandating priced rounds. Have you seen this and why do you think this is happening? Why do you think this is going on?
Vic: I think people are kind of getting back and gravitating back towards, you know, more of that, for lack of a better word, old school approach. Itโs like simplified cables with clear structure make things a lot easier. Because I think what I started seeing last year and definitely when I was spending more time on the west coast, like some of these traditional Series A folks, like their term sheets were just coming out with Iโm giving you 8 million dollars for 22% of the business, back into the valuation, do whatever you can with your cap table, but this is where Iโm ending up. So like youโre leaving the founders to go start that negotiation process with how much convertible debt. And the unfortunate thing is it like how many early stage or angel investors or seed investors or however you want to identify them, took risks with them. Theyโre just kind of getting crammed on things. So I think Iโm always doing it with the thesis of oh itโs simple, itโs easy, itโs low doc, itโs low way, itโs low friction. I mean, yes and no, you just kind of keep the can down. And if youโre going to bother to put a cap on the note, youโve already essentially priced the company. So we want to not just do the work, simplify the cap table and kind of get it done from there.
Nick: Yeah. I certainly noticed the difference in styles of entrepreneur. Right? Some of them do a price round, they have clear milestones and they raise an amount of capital that will help them get there. Whether or not it does, they get there or not is, is a different question. But
Vic: Sure
Nick: thereโs other entrepreneurs that kind of, they do it a little tranche of capital, call it like a $4M cap and then a little tranche of capital at 6, and then another bigger tranche at 10. And youโve just got stacks and stacks of these, these
Vic: Yeah
Nick: SAFEs or convertibles. And it gets a little crazy. I mean, from one stand point,
Vic: Yep
Nick: itโs great that the entrepreneur is progressing and that the business is moving on and theyโre able to raise at higher caps, but from another standpoint itโs just totally different style than setting clear
Vic: Yeah
Nick: milestones and raising the amount of capital to get there. Itโs kind of, kind of just this rolling, ongoing
Vic: Yeah
Nick: process of raising all the time. And man, Iโd love it if they had more time to allocate to the business instead of just raising.
Vic: Yeah. I mean, itโs just, weโve seen it again and again. Itโs like hopefully youโre raising enough capital to get at least 18 to 24 months out there. But specially at the seed stage, like youโre maybe raising enough capital to get just 6 months to 12. So if you raise 6 months of capital, that means youโre raising again in 60 days.
Nick: Yeah
Vic: Right? And so itโs like when are you focussing on the business and when are you really building product and testing with the markets. So, you know, thatโs why I think itโs great when with your group and with other groups, youโre like okay weโre going to be the first check in and instead of giving them 250,000 like I can put 500,000 and maybe Iโll talk to #Jasonโs contingency and theyโll put another 500,000. And youโve got a full million bucks. And that will take them at least 12 months.
Nick: Yep, yep
Vic: Right? And thatโs great. As opposed to let me give you 250,000 and then theyโre back again. Hereโs another 250,000. It gets to be diminishing returns at some point.
Nick: Right. Right. So in light of that, you know, have you seen sort of capital strategies for entrepreneurs change over time? You know, the way that they raise capital and do you think itโs moving in the right direction or not?
Vic: I mean, I think itโs hard right, because itโs like thereโs this whole group of entrepreneurs that have never seen a down market.
Nick: Right
Vic: Like theyโve never seen a correction. Like they didnโt see 2008, they didnโt see 2000. And so to them, and even to their mentors, like thereโs been nothing but glory times. So, so of course I have to, even though itโs just me and a powerpoint, I got to get like an 8 pre because someone at #YC just got a 7 pre. So I think that stuff is really bad for everybody. And that stuff, for the most part, 99% of the time is not going to end well. But I think there are those entrepreneurs that are spending the time to understand how to build something long term, sustainable, and viable, are like what matters is the valuation ow the way out as opposed to the valuation on the way in. So how do I set metrics, raise the right amount of capital to get me from one stage to the next. You can pull off as a fixed IPO or you can pull off some of the others that raised five, seven hundred million, went out at a billion and then lock up comes off and theyโre less than a billion dollar company. What do you want to do? Or do you want to be one of those funds that raises 300 million and then sells for 100 million? Just be responsible.
Nick: Yeah
Vic: Be smart about it. And take it from there.
Nick: Yeah. I mean, maybe itโs a midwest mentality thing, but Iโve got a handful of founders that are just super fiscally responsible.
Vic: Yeah
Nick: Maybe even, you know, conservative and theyโre not just chasing growth but really, really healthy growth.
Vic: Yeah
Nick: Not the leaky funnel. And Iโm just very thankful for them. Because
Vic: Yeah
Nick: I think they sometimes have to push back on coastal investors that are saying, you know, you should be throwing a ton more money at growth. And, I mean, theyโre just very careful about hiring and growth strategy and personally I, I love it.
Vic: Figure it out first. Itโs like if youโre going to spend money before you figure you out. all youโre do is like amplifying the weakness. Youโre not amplifying the strength.
Nick: Right
Vic: Itโs like Iโm just figuring out whether I have, put any label you want on it, product market fit or CAC LTV, whatever it is, itโs like if you start spending before your figure out the important shit, itโs like all youโre doing is magnifying the problem. Youโre not magnifying your strength.
Nick: Yep
Vic: Itโs like
Nick: Yeah
Vic: great, you blew through 10 million bucks. Most expensive lesson youโve ever learned. And guess what? Now you have nothing. So like I said, once you figured out the important things, you kind of always get to grow. If the value props there, if the market likes what youโre doing, whether itโs a consumer or an enterprise or your channel partner, thereโs the time for growth. Figure it out. I mean, donโt scale. Very few people, and I think the only one is probably #Bezos, like very few people can scale selling dollars for fifty cents, and then turn around and have a multi billion dollar organization.
Nick: Yeah
Vic: So
Nick: Yeah. So what should every founder be thinking about during a fund raise that most often theyโre not even considering?
Vic: I specially think like the first time founders like make sure youโre using your time most effectively. And to me, at that early stage like make sure youโre talking to the right people. Talking to the right partners, the right investors that want to invest at your stage and your space. They know if they go to you like IoT, midwest,ย seed stage.
Nick: Yep
Vic: Like
Nick: Yep
Vic: donโt beat your head against the wall trying to get in through #Nickโs network to do like a life science drug experiment.
Nick: Yeah, right.
Vic: And then when you get in the door, make sure youโve done all the homework, to take us through every single market maturation that can happen and how youโre going to adjust to it. Right? And so I think itโs do the homework, donโt rush it, and like have definitive strategies and plans on like yeah I havenโt figured this all out but hereโs what I figured out and hereโs where I am going with things.
Nick: Got you. Got you. And, you know, speaking of founding teams, have you seen a difference in the makeup or the capabilities of founding teams over time? I know youโve been doing this for, for years and youโve seen kind of the venture market from a bunch of different perspectives. So from personal experience, I mean, Iโll notice the difference in the style of letโs say an early 20s tech founding team versus maybe a mid 30s domain expertise team. Iโd be curious to see if youโve seen patterns or shifts in sort of the makeup of teams over time?
Vic: The exciting thing that Iโm seeing is that the change in the patterns and the dynamics of these founding teams. Like, you know, Iโve been doing FinTech for a long time, and now itโs called InsurTech or RegTech, itโs like to me itโs just like technology that makes financial services better, right? And so from the days of well, I went to Google so I understand data, therefore I can price better than anybody on the planet. And Iโve never just spent any time in financial services, like and those people got really crazy valuations. And most other companies flailed out. A lot of that, I think is gone by the wayside. Iโm seeing now itโs like these incredible things where youโre taking brilliant, young entrepreneurs but theyโre attracting people that have seasoned experience. And it may be fintech or it may be industrial IoT. But theyโre able to attract talent that brings industry acumen without being poisoned by an industry, with great entrepreneurial spirit and dynamics. And people are able to look at things. So when I see like #Kyle Nakatsuji here in town at #Clearcover. He also recruited #Derek, whoโs a 40 year insurance expert
Nick: Yeah
Vic: as well.
Nick: Yeah
Vic: You know, and so youโre seeing that time and again. Or youโre seeing like great corporate innovation programs that I love at the same time, because you get these great, and this is part of my staffing and recruiting strategy for hiring startups. Like you have these corporate innovation programs where the right people are going into them. And they get frustrated because theyโre not able to actually get anything to market. So youโve got these teams and these women and men that are in their 30s and 40s that know their space, or have some entrepreneurial instinct, thatโs how they got to these programs. But theyโre frustrated because theyโre not changing the world and theyโre not taking stuff to market. So you get these people that are in their earlier stages of their career, mid stages in the career, that are willing to like now go work for a startup and work with people that are right out of school or on their first startup or second startup. So Iโm seeing better balances because, like I said, it takes that diversity of opinions and experience to do like the, I mean, if they have to do the inconceivable to build billion dollar companies in, you know, 12 months, so
Nick: Yeah
Vic: Iโm seeing more and more those types of founding teams. And that, that excites me. I mean, that gets me really excited. And I think whatโs great about Chicago as well, we have these, we have more Fortune 500 companies than just about anybody, you know what, the third largest GDP. So youโre getting these executives that are looking for new opportunities and looking for new things. And these people that are at mid level management that are teaming up with these startups. And Iโm seeing more of them, even if theyโre not teaming up, itโs kind of the midwest thing, theyโre willing to take phone calls and advise and give their perspective as to hereโs whatโs going on in travel or hereโs whatโs going on in telecom, hereโs whatโs going on in financial services. So I think thatโs one of the exciting things I see going forward.
Nick: So out of curiosity, whatโs the break down in your portfolio of first time founders versus, you know, serial entrepreneurs?
Vic: Doing some rough math, thereโs probably about 50 – 50.
Nick: Yeah?
Vic: Probably about half and half. Yeah. Thereโs probably about half and half
Nick: Wow
Vic: thatโs there. You know, we, we, cycle a lot of folks within #Lightbank now. They keep coming back. And then you reach deeper into your network as well to team them up with the right teams. So weโre seeing a lot of that.
Nick: Well, while Iโve got you on the mic, I want to talk something about fintech. I mean, youโve got an extensive track record and I know youโre a blockchain guy. Youโre on various blockchain boards and you invested in #Coinbase in 2015. And, you know, I saw that on the record you were super bullish about cryptocurrencies at the time when many were not.
Vic: Right
Nick: That wasnโt super in vogue back then.
Vic: Yeah
Nick: But can I get your take on these token offerings and ICOs? So Iโm a relative novice. Can you explain to me whatโs going on here and where you see things going?
Vic: So what I like that Iโm seeing at the highest level, the big picture, are advancements in technology, advancements in innovation. And more of that entrepreneurial spirit being brought to financial services. Because financial services, to me, itโs too important to communities, families and individuals across this planet at every level of the social economic platform, whether youโre under served, unserved or even over served. And I donโt believe that the incumbents are going to provide for the financial security of people the way startups will. Now all that being said, you know, when people are raising these sums of money in token offerings that are essentially use cases, and to me itโs about long term sustainable, viable businesses.
Nick: Yep, yep
Vic: So when people have a use case thatโs kind of a white paper theory and some code theyโve coupled together from #Github and they donโt have the industry expertise and they raise 20 million in 14 minutes with no governance around it, I donโt see that ending well in most of the cases. And specially when youโve got people that are investing in these companies like theyโre not following a full stack, thatโs like met the team, met the entrepreneur, knows the space. Or theyโre not following anybody that spends their time within fintech or financial services to say okay whatโs the true value proposition, how is this going to help people, why do we need this now. And so that concerns me. Now thatโs why I donโt like it. And so youโve got the utility tokens, which is you use your token that you buy to use the technology. Those tokens are only worth something if that technology proliferates and becomes a standard. And so now everybody claims to be the next standard. Well, thereโs people, individuals that are working hard for their money, lots of institutions as well that are buying these tokens with not a flipping clue like where this technology is going to go or if itโs going to be worth something. But they know theyโve got this token and thereโs a market now and thereโs some arbitrage and they can make some money. So unfortunately I think the signal to noise ratio is way out of whack. Thereโll be some good things that come from it and thereโll be some unfortunate, lots of unfortunate. So since day one Iโve been infatuated with blockchain technologies and what they can do for financial services as far as removing inefficiencies, providing transparency, helping serve communities and people everywhere and businesses and individuals. But it kind of reminds me of 99, when people would just throw a dot com after it and just decided well it must be worth 30 million bucks so letโs invest. So I just want to make sure that the technology proliferates for what itโs real use is and that people can see through whatโs really there. Because the unfortunate situation, same with the internet while the first early cases were more nefarious and it just grew a lot of bad actors, you know, so can blockchain. And because if you donโt have a lot of professional managers yet focusing on the space and we donโt have the regulation, the opportunities for the wrong outcomes gets amplified. So I want to see blockchain technologies proliferate, I want to see it happening, I want to see entrepreneurs grabbing hold of it, but I just want to make sure that, you know, we donโt see any of the, you know, people raising $200M and then it just kind of disappears because thereโs no board, thereโs no governing and thereโs no true playing line.
Nick: Got you. #Vic, if we could cover any topic or have any guest here on the program, what topic should be addressed and who would you like to hear speak about it?
Vic: You know, I think itโd be great to get a bunch of us together to talk about how we could venture better as a community and as an industry. And, you know, we get people from, you know, LP perspective and the GP perspective and some different geographies and across the different stages. And, you know, some, you know, and some women entrepreneurs and maybe though too and some women GPs in the mix. And different perspectives and different backgrounds. And, and just talk about whatโs going on and how do we make this a better industry. And I think with what youโve done with #TFR with them, like I listen to a lot of venture podcasts and I spend a lot of time always trying to get better, and what youโve done from a format perspective your different formats is awesome. Itโs incredible.
Nick: Thanks!
Vic: Definitely the best one out there. But, you know, maybe we could try to get like a panel together around, you know, different, different types of investors, different types of partners, maybe itโs LP perspective too. Just like how do we, how do we make this thing better.
Nick: Couldnโt agree more
Vic: Whatโs wrong and how do we make it better. So I think that would be great.
Nick: Awesome. Awesome. You know, after, after chatting with you the other day at breakfast, you told me a funny story about something about an up and coming founder, your daughter. And can you, can you tell the story again? This is hilarious.
Vic: Yeah. So I guess yeah Iโll try to tell the somewhat PG version. So I, you know, I was on the road, said good night to my daughter via FaceTime like Iโll be home late, Iโll catch you tomorrow morning. So I come in the house and itโs late and my daughterโs 12 and a 1/2. And sheโs like on her phone fiercely texting away. And Iโm like Giovanna what are you still doing up? And she looks at me, she goes Iโm running a fucking slime company bro. Iโm like first of all, do not get all bro-ey with me. Sheโs like nope get into your office and Iโll call you bro. Like theyโre fun of me because Iโm older than all of them. And so obviously this is a parenting moment around the right language to use. But Iโm like alright so tell me about this, this slime company. Like Iโm, Iโm a venture guy right, let me ask questions. So we sit down and sheโs got her instagram account open of this slime gross bread slime co. I was like what in the hell is this? Like what are you doing? Sheโs like Iโm selling slime. And Iโm like so if you have kids that are in, I donโt know, the pre teens like they play with this stuff, which is basically glorified silly putty
Nick: Right
Vic:ย for folks
Nick: Yeah, my niece and nephew have this stuff. Itโs ridiculous.
Vic: Yeah. So Iโm like how did you, where do you get the stuff to, to build your slime? Sheโs like I got momโs amazon prime account, got glue, got forex, got the dye coming to the house every month. Iโm like what? She goes yep, hacked momโs amazon account, no problem, donโt worry, did it on Subscribe and save and am getting 15% off. Iโm like what? Sheโs like yeah you canโt go to CVS and get it because theyโre all out because everyoneโs making slime. Iโm like so wait a second, you figured how to finance hack, youโve got a vertically integrated supply chain, and youโve already optimized on your cost. Iโm like, interesting. Iโm like whoโs this other girl on your account? Sheโs like ah I started with her but she wasnโt really pulling her weight so she doesnโt get any money but I let her stay in the website because sheโs, you know, popular and likes to be on there. Iโm like you figured out supply chain, you got the cofounder issues handled. I was like alright. And then Iโm like well, how do you know youโre making any money? Sheโs like well I know how much it costs to get the stuff here to the door, and I looked around what other people are charging and I said my stuff is better so Iโm going to charge more. And she goes every couple weeks I try to raise prices. Iโm like so sheโs got price lists figured out. And at this point Iโm beating my head against the wall. Iโm like Iโve invested millions of dollars in companies that it took them several months to get to this standpoint.
Nick: Oh sure
Vic: And I was like alright, interesting. Iโm like well how are you getting people to buy? Sheโs like well, I got the list of everybodyโs instagram accounts from the school. And so I just kind of put it out there. Then I go after the fifth grade boys because they know tons. I was like oh god. Here we go. So yes, when in doubt I will always go back to Iโm running a slime company bro. To understand that, yeah, itโs cheaper and easier to start companies now and this next entrepreneurial group coming up is going to be scary.
Nick: Unbelievable. When she needs her first pre seed round, you know who to call.
Vic: Absolutely.
Nick: Alright! So just to wrap up, what investor has influenced you most and why?
Vic: You know, itโs funny, you get to work with some really brilliant folks within this business, both entrepreneurs and investors and, and different types of investors and, you know, there is, there is one guy. Heโs not that long known, doesnโt get out there that much but, you know, spent some time with me earlier on in my career, is #Marc Weiser from #RPM Ventures. And heโs, he, heโs just been great. Heโs like, you know, some of the fundamentals about venture he gets back to. And, you know, some great things he said is like #Vic you know what the great thing is about venture is you get to pick who you work with, you just pick brilliant people and help them grow their businesses. So #Marc was great. Heโs another midwest guy. Heโs got his office outside of Detroit and then heโs got some stuff in San Fransisco too.
Nick: Thatโs awesome. No calls forced in, in venture right? You donโt have to invest in, in
Vic: Yeah
Nick: in everything. So, awesome. And then, so finally here, whatโs the best way for listeners to reach out and connect with you?
Vic: Yeah. Iโm just vic@lightbank. And then @victorpascucci3 on Twitter.
Nick: Awesome! Well, I look forward to getting the panel together, #Vic. I appreciate you doing this today and look forward to many more chats about how to fund the next great founders here in Chicago and beyond.
Vic: Look forward to it. Thanks #Nick.