148. New Founders, New Stages, New Offerings– The Only Constant in Venture is Change (Vic Pascucci)

*Please excuse any errors in the below transcript

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, you’ve been doing this for a while!

Vic: Yeah, it’s 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. It’s 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. They’re like how’d you get into venture? I’m 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, I’m looking at the world and going like I’m going to court every day and just laying waste everything in my path. Like I’m just destroying things. Like, and it’s the mid 90s. I’m 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 I’m 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 I’d 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, they’d 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, we’ve got to do deals. And they’re like we are. I’m like no, we’re just buying stuff, like we need to invest. Like they’re relying on us, we’re relying on them, we’re going to build enormous value both for our membership base and for these companies. We need to really leverage that. And they’re like we don’t do that here, don’t 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 don’t belong to this large corporation anyway. So I’m 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 they’re like okay here’s a $100M, what can you do. And then had a couple IPOs and everyone was happy and strategically things were paying off. And they’re 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 you’ve 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 #Lightbank’s 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, they’d 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. I’m like great, I get to sit around the investment committee meeting with guys that have done it 6 times. So, they’re amazing guys, and they’re 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 that’s why we founded the fund in 2010, to capitalize on those opportunities. In 2010, the fund was formed. And it is we’re 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 we’ve 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, there’s 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 we’ve, where we do the best. And from there, we cherry pick what we think are best for us and our fund on  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, we’re truly, because of our entrepreneurial dna, entrepreneur focused. So it’s, you’re kind of saying, wait, you know, we’re early stage guys. It’s like the team is going to be the commanding thing more than any other aspect at the point. So it’s got to be about the entrepreneur.

Nick: Sure. Sure. I think that’s 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 that’s so amazing that you’ve been looking for but the team just might not be the right fit for the product, that’s

Vic: Yeah

Nick: always a tricky situation.

Vic: You know and at first it’s 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 that’s 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. It’s like let’s 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 let’s give them a check, let’s go. That’s why it’s really critical to make sure, at least for us, we’re all looking at it the same way. I mean, you these are 10 to 15 year marriages we’re getting into at the seed and Series A style. And you’ve got to just believe that, you know, we’ve all been through the ups and downs of these companies and the backs and forths. And so it’s like is this the team that’s going to make it through and is it people you want to be in the trenches with.

Nick: Yeah. Well, they don’t just exist on the coast. There’s

Vic: Correct

Nick: There’s 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 we’re 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. That’s 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, we’re still on the board how many years later. #Goldman’s come in with a huge round of capital. We helped them recruit a CFO. We’re still in there, knocking on doors for them, making calls. And it’s 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 it’s just we know that well if we get in there and leverage everything we have for these entrepreneurs, like that’s where the success comes. We’re really bad at being passive seed investors. Like we suck at that. So we don’t, it just doesn’t work out for us.

Nick: So, so what are the ways

Vic: I mean, it’s fine, it’s okay, but it’s not, not our strong suit.

Nick: Yeah it’s 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 we’ve 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 doesn’t matter, it’s fintech, vertical software. It’s 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 we’ve done well as a firm is take technology to industries that didn’t 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 we’re doing now in insurance and in business process automation or in industrials. It’s taking technology to and disruption and which, you can’t talk about disruption with like legacy industries, you have to talk about innovation. And so that’s 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 it’s, 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 we’re helping out the whole of that entrepreneurial ecosystem. Because, you know, this whole thing doesn’t work unless we’re 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 we’re helping entrepreneurs, we’re growing businesses, we’re creating jobs or helping one another out. And while we’ve done a lot of that, you know, we’ve done it probably not as outwardly as we should have and letting people know that we’re here to help. And spending more times on panels and working with committees and working with a larger part of our ecosystem. So that’s what I want to see us do more, and that’s 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 let’s talk about that a little bit later. But I’m curious, do you think your approach is different than #Eric and #Brad’s? I mean, they’re such sort of seminal figures in Chicago.

Vic: Yeah

Nick: Very powerful personalities. You know, I’m sure they’ve run #Lightbank a certain way. And I’ve only been doing this for 4 years or so. So I wasn’t 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, it’s 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 we’re all, we want to see them help create more companies like the ones they’ve done. And they’re 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 we’re 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 what’s 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 #Brad’s pounding on the table going what’s the billion dollar idea. And I’m 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 aren’t we going after that. And so, you know, from there it’s, 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, we’re still doing some of that. Like when we see the right convergence where we can put a company together, we’re 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, what’s left within the auto ecosystem that’s untouched? And, and so we’ve 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 we’re, incubation is a key aspect of what we’re doing. And it’s 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 we’re in currently.

Vic: Mmhmm

Nick: Maybe venture has been this way for decades. I don’t 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 you’ve kind of seen over, over time?

Vic: You know, it’s kind of crazy to me. Like I don’t 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 we’re seed versus pre-seed and I’m post-seed, and I’m seed-extension. And, you know, to try to make it sound like it’s more complicated than it is because it impresses all our LPs that oh look they have this thing focused. So I don’t know what’s 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 didn’t 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 what’s happened now is there’s just more capital available. There’s more wealthy individuals, there’s more successful entrepreneurs, there are more senior executives and large institutions that want to put money to work in the space. And I think that’s a great development. It’s 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 it’s people that do it responsibly, understanding the risks and are helping the right companies grow and in really utilizing those resources. So, you know, everyone’s got to find their niche and their label on things because if you put a label on it, it’s 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.  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, what’s 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 that’s out there with these companies, then it’s 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 that’s 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 there’s 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 they’re trying to put money to work in an inefficient or ineffective way. And with the convergence I’ve seen, like, you know, we talked about it. Like it’s 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 it’s 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 that’s where we spend a lot of time focusing with entrepreneurs going okay what is the true capital plan, what are the metrics are you’re 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 it’s like you’re given a certain amount of capital, you have to accomplish things. Right? If you do that at too high of a valuation, you’re 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 doesn’t incentivize management. And then I think you got the other unpositive things that are happening where people start garbaging up, you know, there’s 14 million in convertible debt before they’ve priced a round, and it’s like okay how is this going to work now. So I just think you’ve got to stay focused, you’ve got to stay disciplined. Raising money is important because rule number one is don’t 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, you’re showing the growth, you’re showing the success so that you can start commanding higher valuations.

Nick: Yeah. So you’ve touched on a bunch of things there that I’d 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 you’re looking for for a Series A for instance?

Vic: You know, for a Series A, here’s how I would define Series A. Series A for check size, it’s 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 it’s 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 we’re still dealing with what could be or should be. And so we don’t have definite answers, but at least let’s have models. Like what’s the real CAC LTV? What’s, what it is going to look like? Like it’s early days, we don’t have a lot of customers. But what’s 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. I’ve noticed this explosion of seed funds as I’m 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 it’s seasoned executives leaving large corporations or first time entrepreneurs, like they generally don’t 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 we’ve proven it time and time again in our portfolios. And so I think it’s 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. I’m 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 they’re valued at 1.5 billion.

Nick: What’s wrong with that?

Vic: I’m 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? I’m 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, it’s still a huge win for everybody that was involved.

Nick: Yep

Vic: Huge win. And that’s why I don’t 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. It’s 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 I’m 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 I’m ending up. So like you’re 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. They’re just kind of getting crammed on things. So I think I’m always doing it with the thesis of oh it’s simple, it’s easy, it’s low doc, it’s low way, it’s low friction. I mean, yes and no, you just kind of keep the can down. And if you’re going to bother to put a cap on the note, you’ve 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: there’s 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 you’ve 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: it’s great that the entrepreneur is progressing and that the business is moving on and they’re able to raise at higher caps, but from another standpoint it’s just totally different style than setting clear

Vic: Yeah

Nick: milestones and raising the amount of capital to get there. It’s kind of, kind of just this rolling, ongoing

Vic: Yeah

Nick: process of raising all the time. And man, I’d love it if they had more time to allocate to the business instead of just raising.

Vic: Yeah. I mean, it’s just, we’ve seen it again and again. It’s like hopefully you’re raising enough capital to get at least 18 to 24 months out there. But specially at the seed stage, like you’re maybe raising enough capital to get just 6 months to 12. So if you raise 6 months of capital, that means you’re raising again in 60 days.

Nick: Yeah

Vic: Right? And so it’s like when are you focussing on the business and when are you really building product and testing with the markets. So, you know, that’s why I think it’s great when with your group and with other groups, you’re like okay we’re going to be the first check in and instead of giving them 250,000 like I can put 500,000 and maybe I’ll talk to #Jason’s contingency and they’ll put another 500,000. And you’ve got a full million bucks. And that will take them at least 12 months.

Nick: Yep, yep

Vic: Right? And that’s great. As opposed to let me give you 250,000 and then they’re back again. Here’s 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 it’s moving in the right direction or not?

Vic: I mean, I think it’s hard right, because it’s like there’s this whole group of entrepreneurs that have never seen a down market.

Nick: Right

Vic: Like they’ve never seen a correction. Like they didn’t see 2008, they didn’t see 2000. And so to them, and even to their mentors, like there’s been nothing but glory times. So, so of course I have to, even though it’s 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 they’re 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 it’s a midwest mentality thing, but I’ve got a handful of founders that are just super fiscally responsible.

Vic: Yeah

Nick: Maybe even, you know, conservative and they’re not just chasing growth but really, really healthy growth.

Vic: Yeah

Nick: Not the leaky funnel. And I’m 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, they’re just very careful about hiring and growth strategy and personally I, I love it.

Vic: Figure it out first. It’s like if you’re going to spend money before you figure you out. all you’re do is like amplifying the weakness. You’re not amplifying the strength.

Nick: Right

Vic: It’s like I’m just figuring out whether I have, put any label you want on it, product market fit or CAC LTV, whatever it is, it’s like if you start spending before your figure out the important shit, it’s like all you’re doing is magnifying the problem. You’re not magnifying your strength.

Nick: Yep

Vic: It’s like

Nick: Yeah

Vic: great, you blew through 10 million bucks. Most expensive lesson you’ve 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 you’re doing, whether it’s a consumer or an enterprise or your channel partner, there’s the time for growth. Figure it out. I mean, don’t 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 they’re not even considering?

Vic: I specially think like the first time founders like make sure you’re using your time most effectively. And to me, at that early stage like make sure you’re 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,  seed stage.

Nick: Yep

Vic: Like

Nick: Yep

Vic: don’t beat your head against the wall trying to get in through #Nick’s network to do like a life science drug experiment.

Nick: Yeah, right.

Vic: And then when you get in the door, make sure you’ve done all the homework, to take us through every single market maturation that can happen and how you’re going to adjust to it. Right? And so I think it’s do the homework, don’t rush it, and like have definitive strategies and plans on like yeah I haven’t figured this all out but here’s what I figured out and here’s 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 you’ve been doing this for, for years and you’ve seen kind of the venture market from a bunch of different perspectives. So from personal experience, I mean, I’ll notice the difference in the style of let’s say an early 20s tech founding team versus maybe a mid 30s domain expertise team. I’d be curious to see if you’ve seen patterns or shifts in sort of the makeup of teams over time?

Vic: The exciting thing that I’m seeing is that the change in the patterns and the dynamics of these founding teams. Like, you know, I’ve been doing FinTech for a long time, and now it’s called InsurTech or RegTech, it’s like to me it’s 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 I’ve 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. I’m seeing now it’s like these incredible things where you’re taking brilliant, young entrepreneurs but they’re attracting people that have seasoned experience. And it may be fintech or it may be industrial IoT. But they’re 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, who’s a 40 year insurance expert

Nick: Yeah

Vic: as well.

Nick: Yeah

Vic: You know, and so you’re seeing that time and again. Or you’re 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 they’re not able to actually get anything to market. So you’ve got these teams and these women and men that are in their 30s and 40s that know their space, or have some entrepreneurial instinct, that’s how they got to these programs. But they’re frustrated because they’re not changing the world and they’re 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 I’m 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: I’m seeing more and more those types of founding teams. And that, that excites me. I mean, that gets me really excited. And I think what’s 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 you’re 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 I’m seeing more of them, even if they’re not teaming up, it’s kind of the midwest thing, they’re willing to take phone calls and advise and give their perspective as to here’s what’s going on in travel or here’s what’s going on in telecom, here’s what’s going on in financial services. So I think that’s one of the exciting things I see going forward.

Nick: So out of curiosity, what’s the break down in your portfolio of first time founders versus, you know, serial entrepreneurs?

Vic: Doing some rough math, there’s probably about 50 – 50.

Nick: Yeah?

Vic: Probably about half and half. Yeah. There’s probably about half and half

Nick: Wow

Vic: that’s 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 we’re seeing a lot of that.

Nick: Well, while I’ve got you on the mic, I want to talk something about fintech. I mean, you’ve got an extensive track record and I know you’re a blockchain guy. You’re 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 wasn’t super in vogue back then.

Vic: Yeah

Nick: But can I get your take on these token offerings and ICOs? So I’m a relative novice. Can you explain to me what’s going on here and where you see things going?

Vic: So what I like that I’m 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, it’s too important to communities, families and individuals across this planet at every level of the social economic platform, whether you’re under served, unserved or even over served. And I don’t 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 it’s about long term sustainable, viable businesses.

Nick: Yep, yep

Vic: So when people have a use case that’s kind of a white paper theory and some code they’ve coupled together from #Github and they don’t have the industry expertise and they raise 20 million in 14 minutes with no governance around it, I don’t see that ending well in most of the cases. And specially when you’ve got people that are investing in these companies like they’re not following a full stack, that’s like met the team, met the entrepreneur, knows the space. Or they’re not following anybody that spends their time within fintech or financial services to say okay what’s the true value proposition, how is this going to help people, why do we need this now. And so that concerns me. Now that’s why I don’t like it. And so you’ve 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, there’s 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 it’s going to be worth something. But they know they’ve got this token and there’s a market now and there’s some arbitrage and they can make some money. So unfortunately I think the signal to noise ratio is way out of whack. There’ll be some good things that come from it and there’ll be some unfortunate, lots of unfortunate. So since day one I’ve 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 let’s invest. So I just want to make sure that the technology proliferates for what it’s real use is and that people can see through what’s 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 don’t have a lot of professional managers yet focusing on the space and we don’t 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 don’t see any of the, you know, people raising $200M and then it just kind of disappears because there’s no board, there’s no governing and there’s 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 it’d 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 what’s going on and how do we make this a better industry. And I think with what you’ve 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 you’ve done from a format perspective your different formats is awesome. It’s 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 it’s LP perspective too. Just like how do we, how do we make this thing better.

Nick: Couldn’t agree more

Vic: What’s 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 I’ll 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 I’ll be home late, I’ll catch you tomorrow morning. So I come in the house and it’s late and my daughter’s 12 and a 1/2. And she’s like on her phone fiercely texting away. And I’m like Giovanna what are you still doing up? And she looks at me, she goes I’m running a fucking slime company bro. I’m like first of all, do not get all bro-ey with me. She’s like nope get into your office and I’ll call you bro. Like they’re fun of me because I’m older than all of them. And so obviously this is a parenting moment around the right language to use. But I’m like alright so tell me about this, this slime company. Like I’m, I’m a venture guy right, let me ask questions. So we sit down and she’s 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? She’s like I’m selling slime. And I’m like so if you have kids that are in, I don’t know, the pre teens like they play with this stuff, which is basically glorified silly putty

Nick: Right

Vic:  for folks

Nick: Yeah, my niece and nephew have this stuff. It’s ridiculous.

Vic: Yeah. So I’m like how did you, where do you get the stuff to, to build your slime? She’s like I got mom’s amazon prime account, got glue, got forex, got the dye coming to the house every month. I’m like what? She goes yep, hacked mom’s amazon account, no problem, don’t worry, did it on Subscribe and save and am getting 15% off. I’m like what? She’s like yeah you can’t go to CVS and get it because they’re all out because everyone’s making slime. I’m like so wait a second, you figured how to finance hack, you’ve got a vertically integrated supply chain, and you’ve already optimized on your cost. I’m like, interesting. I’m like who’s this other girl on your account? She’s like ah I started with her but she wasn’t really pulling her weight so she doesn’t get any money but I let her stay in the website because she’s, you know, popular and likes to be on there. I’m like you figured out supply chain, you got the cofounder issues handled. I was like alright. And then I’m like well, how do you know you’re making any money? She’s 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 I’m going to charge more. And she goes every couple weeks I try to raise prices. I’m like so she’s got price lists figured out. And at this point I’m beating my head against the wall. I’m like I’ve 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. I’m like well how are you getting people to buy? She’s like well, I got the list of everybody’s 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 I’m running a slime company bro. To understand that, yeah, it’s 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, it’s 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. He’s not that long known, doesn’t 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 he’s, he, he’s just been great. He’s 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. He’s another midwest guy. He’s got his office outside of Detroit and then he’s got some stuff in San Fransisco too.

Nick: That’s awesome. No calls forced in, in venture right? You don’t have to invest in, in

Vic: Yeah

Nick: in everything. So, awesome. And then, so finally here, what’s the best way for listeners to reach out and connect with you?

Vic: Yeah. I’m 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.