159. The Pioneer of Post-Seed (Paul Martino)

Paul Martino Bullpen The Full Ratchet

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Paul Martino of Bullpen Capital joins us today to discuss the emergence of the Post-Seed Round.  In the interview, we cover:

  • When and why did you start Bullpen?
  • What was this product/market fit algorithm that you developed for Mike Maples?
  • Are the stages moving out or are there more phases and gates?
  • Tell us more about how you guys are different?
  • Metric requirements for you to invest? $1M in ARR /quarter or year? Growth metrics?
  • Operational plan… How does your math and computer science background influence your approach as an investor– making a subjective discipline objective?
  • As you’ve built your own firm, brought on talent and developed that talent… what you think is the hardest thing to teach young VCs?
  • Talk about lack of innovation in the asset class.
  • Why do you think everyone is doing the same thing?
  • Aside from investing at this new stage we’re calling post-seed– what are some of the other contrarian principles or practices you embrace as an investor?
  • You invest in many non-traditional founders… does this make it harder to get follow-on at A or B?
  • How is private equity impacting exits?
  • Is sourcing different at this post-seed stage?
  • How branding and investment focus helps drive opportunity for Bullpen?


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Quick Takeaways:

  1. A critical founder error is lack of focus on the target audience.
  2. It can very difficult to cross-over from an alternative, early adopter group to the mainstream.
  3. The great Cambrian explosion in new startups occurred after 2010, but corresponding funding after the initial seed round didn’t follow.
  4. Bullpen got lucky in that the Series A funds all doubled in size, moving later in the funding cycle
  5. The check size, milestones and required exit outcomes for the Series A firms also increased significantly
  6. The stages of fundraising don’t really exist anymore. Seed is a process, not a stage.
  7. At post-seed, Paul’s preference is to clean up the note stack and price the round.
  8. Bullpen is looking for companies w/ product-market fit that the rest of the industry isn’t paying attention to.
  9. Targets for Paul often include companies in geographies that investors don’t like, a founder w/ a non-traditional background, or a category that’s out of favor.
  10. To raise a $20M Series A, a company needs ~$5M annual run rate
  11. Bullpen invests in companies that have raised no more than $5M, have $1M+ ARR, growing 3-4x/year, burning no more than $200k/month
  12. Bullpen helped form WAG with the founders of a failed former portfolio company. WAG is now valued at over $1B– a company that was the butt of many jokes in Silicon Valley, only a few years ago.
  13. During their diligence process, they don’t discuss the grand vision, they have founders defend the assumptions in the excel model.
  14. Most VCs put the art on the front end and the science on the back end. At Bullpen, they do the reverse.
  15. There’s a judgment piece of this business that, no matter how smart you are, you won’t get unless you’ve met a large number of companies.
  16. When Paul sits in on an angel meeting, he often finds that companies pitching should not be and the one’s they didn’t bring to the pitch meeting are the most interesting.
  17. VCs are not like the entrepreneurs they are investing in. There’s a million “me toos” and very few people building a differentiated firm.
  18. Most VCs get into the business for the wrong reasons– which is why they self-select away from creativity and contrarian principles, resulting in a lack of innovation in the asset class.
  19. Most investors try to predict the future, while they should focus on the hand they’re dealt and how best to play it.
  20. If they don’t do the deal, the company goes out of business more often than not. Often, no other investors want to do the deals that Paul is doing.
  21. If a non-traditional company achieves attractive enough metrics, they will get funding from downstream investors– whether it’s growth funds or private equity players.
  22. Sometimes a category that’s out of favor comes into favor during the growth phase of a startup.
  23. Many of Paul’s successful investments have three viable options– a) profitability b) venture growth or c) exit to PE.
  24. There are a lot of hybrid funding models in the private markets– there doesn’t seem to be a common approach.
  25. When you’re one of the only people out there doing something, your sourcing strategy is just to get your message out.