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?


Guest Links:

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.


Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet

Welcome back to TFR, the pioneer of the post seed round. Paul Martino joins us today on the program. His firm Bullpen Capital saw a distinct opportunity to fund healthy growing companies that had graduated pass seed but could not yet attract a series a stage with a bar for investment seems to go up by the day. On this episode, we discuss why Paul passed on joining Mike Maples at floodgate in order to start bullpen I asked him about the product market fit algorithm that he developed for Mike. We discussed if the stages of funding are moving out or if they’re just more of them. How bullpen is differentiated the metrics they require to engage with startups. How his quant background has helped him make this subjective discipline more objective. The hardest part about developing new young VCs, we discussed lack of innovation in the asset class. Why herd mentality is pervasive. Other contrarian principles key and bullpen embrace if it’s harder to get a or b round funding for the non traditional founders or industries that he invests in how private equity is impacting exits, the differences in sourcing at post seed and we wrap up with Paul’s thoughts on how branding and investment focus helps drive opportunity for bullpen at New sec. We share a portfolio company hologram with bullpen I’ve heard really great things about Paul over the years and had a lot of fun with the discussion today. Thank you to Joe Shenton for suggesting him. Here’s the interview with Paul Martino of Bullpen Capital.

Paul Martino joins us today from Philadelphia. Paul is general partner at Bullpen Capital. He founded bullpen in 2010 and has led several investments including FanDuel, namely Ipsy spot hero classy and AirMap. Paul started out as an angel investing in the first rounds of Zynga to mogul and Udemy. Prior to bullpen he founded four companies and has multiple exits. Paul, welcome to the show. Nick, I

appreciate the time. Glad to be here.

Absolutely. Well, first and foremost, congrats to your eagles on winning the Super Bowl.

I can’t beat that some of us thought we might not see it in our lifetime. So it was a real pleasure. I was at the game with my 80 year old dad. You know, that’s something you’ll never forget. Right?

What a game and that’s the first one for the Eagles. Right?

That’s it. First one.

Awesome. Do you think Foles is sticking around as a quarterback? Are they going to go back to wins?

They’ll go back to whence but they’d be crazy to trade foals in my opinion. But boy, we’re gonna have a whole fun offseason to talking about that for six months. I

know in his early years, it was hard to see. But man, he’s got a good ball. Now. A good problem to have. It is it is all right. So just to kick off the interview here. Ken, can we start off? Can you talk about some of the the early years as an entrepreneur?

Oh, sure. Absolutely. You know, I started four companies as you made reference to in that quick intro. And the first one I started was a little computer game company when I was in high school. Back in the bulletin board days for those old enough on this podcast to know what in the world those things are. But way back then before the internet, we had multiplayer games you just had dial in one at a time to the bulletin boards. And I pioneered six or eight games back then. And a lot of those gaming mechanics were then later used by games like Zynga when you could actually have players on at the same time. But things like figuring out how to make the currency work inside of the games and figuring out how to attack other players, all that kind of fun stuff. I would get checks and shareware registrations to my house and I was 14 years old. My mom was like, wow, this is pretty cool. And so that was my, that was my first taste of it. And you know, that company, you know, it was great. I paid a lot of bills by having that income stream come in. And then when I was in grad school in the in the mid 90s, I started my second company, which was a security company related to research work I was doing when I was a PhD student at Princeton, I ended up dropping out of my Ph. D starting company moved to Silicon Valley and that company got acquired by inner trust in the first bubble. And that was a first bubble that’s first bubble of my lifetime. Not certainly not the first bubble in Silicon Valley, but the big 199 2000 And so that was exciting. Got to participate in the IPO and all the crazy stuff that happened there at InterTrust. So also where I met my partner Duncan Davidson, who I started the fund with. So those are my those are my first two. I then did tribe with Mark Pincus Val sign and Chris law in 2002. That was a successful failure we were in the right place right time got the right credentials didn’t win. But it set us up for a lot of other things mark for Zynga me to be an angel investor and then ultimately Chris law and I to go start aggregate now knowledge, which then got bought by new star a couple years later. So it was a fun ride as an entrepreneur doing all four of those startups.

So why didn’t you win? Then? Why was it a successful failure? Failure?

You know, we were in the right pond, we knew social networking, we’d be big. We knew that this was the next big thing that a great company like a Facebook would get formed by, we made I think two critical errors at at tribe one was we didn’t pay attention to the target audience. Tribe was very much a very alternative Burning Man lifestyle oriented site. And it then therefore was very difficult to cross over and be successful in the mainstream. Compare that and contrast that with Zuckerberg did it at Facebook, where he started with a very desirable Harvard demographic went to exclusive schools before he opened it up wide. By the time we were opened up wide. If you weren’t someone who liked to look at people posting pictures of themselves naked, then you probably weren’t going to be someone who wanted to be on tribe. And as a result, we could never become a mainstream success. And the second thing was we tried to take on Craigslist by doing socially networked classifieds. And it turns out, people don’t all go hang out on the social networks. They can do classifieds together. So we kind of made two big blunders, but that’s why you play the game. Right? Interesting.

Yeah, I had an entrepreneur suggest to me the other day the book Crossing the Chasm. Right. And I’ve read quite a few times. But But yeah, good suggestion. Hard, hard to get from that early market to to mass market. Yes, very difficult. So when and why? Why did you start bullpen?

So bullpen got started? It really is a math problem. So my PhD work was a was in security, high performance computing, predictive modeling. All the stuff that aggregate knowledge was aggregate knowledge was a DMP, or a data management platform for the big advertisers. That’s really kind of what my bread and butter classical training is in. And so Mike Maples called me up as I was stepping down as chairman. He said, Paul, look, you’re pretty good angel investor, why don’t you come join me over here at floodgate? I was like, Mike, I’m gonna go start my fifth startup. I don’t want to be an adventure person that’s like, I don’t want to be no sell out this fast. I mean, I’m ready to go do my next thing. So no, Paul, look, I need you to put on your analytic hat. The whole venture industry is being restructured right now, what your buddy complement figured out at first round is led to a complete change in the way the industry works. I’m one of the early LPS in First Round Capital. And I was like, Yeah, I guess that’s right. The front end of the funnel is getting taken over by you super angels. And, and well, what’s that mean? And so this led me to do six months of brainstorming with two buddies Rich Melman who started Electronic Arts back in 82. And Duncan Davidson, who I worked with at InterTrust, to start at COVID, back in 95. And we sat around Rich’s office for about six months, just just be asking about what would it mean, if there’s a lot of seed funds? There were like, 2030, super angel funds at the time, there’s now 500, were like, What happens if there becomes 100 of them? And what happens at the series, a funds get bigger, and we go into another bubble. And so after six months of kind of brainstorming, we realized that my fifth startup was going to be to figure out how to make money on the venture restructuring that Mike Maples clued me in on and Mike came back, and he kind of got the ultimate laugh on me. He’s like, Paul, he’s like, look, I’m glad you figured this out. I wish he joined me here at floodgate. But you know, the joke’s on you. The only way you’re gonna make any money off this is you go start your own fund. And that’s how it happened. And so my fifth entrepreneurial endeavor was to start a venture fund, which was really not what I was planning on doing. And that was 2010. That was Christmas time. So really, we made our first investment there like the 28th of December, so it’s really 2011. But we snuck it in there right at the end of 2010. Got it.

Got it. And I’ve read about this sort of product market fit algorithm and exercise you went through with Mike Maples. Can you can you tell us a little bit about that?

So So to use Mark Pincus first, we were again swimming in the right pond, just like with tribe, we knew social networking is going to be big. We knew that playing the structural inefficiency of a explosion of seed funds was right. But that doesn’t mean that anyone gives you a roadmap on how the hell would you do it, it was the same problem at tribe, we knew we were in the right pond, but no one gives you swimming instruction. And so So we’re sitting there, like, we know that some great thing is gonna happen here. How the hell do we figure it out? And, you know, we experimented the first two years 2011 And 12 is a lot of experiments. What does it post seed deal look like? What does a What does a second seed look like? What does the seed extension look like? Which ones are good to do, which ones are not? And I’d say about 18 months, and we figured it out. You want the seed money to have gotten too early product market fit, and you want your next dollar to go into the early scaling of the company. And so at about midway through 2012, we figured out what the formula was. And then we were off to the races. The second half of fun one all the way into fun two and three, we got very systematic about what the good markers of a Posty deal were. And now going into fun four, we pretty much have it down to a science of which kinds of companies do we need to look at? Which kind of companies do we need to spend time with? And it’s exciting because we did figure out how to swim this time, unlike the prior time being in the right pond.

So it was Is it partially a lack of supply side capital, then at that sort of post seed phase is, is that is that part of it, and then also sort of Enough, enough traction enough meat on the bone that the, the major risks are alleviated?

Absolutely. So you’ve now got 500 seed funds doing awesome things. So this pace of company formation was as we predicted, it would be massive. The whole front end of the funnel would get democratized. People from different geographies and with non traditional backgrounds would become founders. And so that great Cambrian explosion of startups happened, which was the seed fodder required for our model to work. Now that that was the part we predicted here was the part where we got lucky. The part where we got lucky is the series A funds went from 400 million to 800 million, they went from 800 million to 1.2 billion. And when that happened, it meant that the milestones and sizes of checks that they needed to write got bigger and bigger. So on the left, you have an explosion of companies to play the post seed game with. And on the right, you have ever increasing milestones ever bigger cheque sizes, making the gap for posee, bigger than we ever imagined. That was the lucky break, we didn’t know that the series A funds would get so dang big over the same time.

So is this just the stages moving out? Or are there more interim phases and gates, you know, in the in sort of the capital stack and the capital, fundraising deployment lifecycle, in

many ways, it’s that the stages don’t even exist anymore. We frequently tell our founders and we wrote an article about this about seed as a process, it is a set of rolling closes a couple of CAP notes followed by around we’re in a lot of companies in the post seed round that have raised call it three to $5 million. It’s the fourth close, it’s the fifth close. And you think about that this is a company that’s raised three $4 million over two years. And we come in and put another three to 4 million bucks in. And it’s technically the fourth institutional round of funding in the company. Because to some extent, the smart entrepreneurs are realizing, take a little money, hit the next milestone, take a little money hit the next milestone, kind of don’t give away too much of your company. And we’re seeing that the really smart entrepreneurs almost game the system and eliminate the notion of around pretty much until you get to that $20 million, big quote series a check. Now that’s the funniest part of all this series, a check is the seventh close in the company, but we’ll call it series,

it gets a little tricky. Will you guys do notes, if it’s, you know, all the notes up to your stage and the entrepreneur wants to do a note or safe while you do it, we

much prefer to actually go and price the round and quote, clean up the notes that, you know, we’ve got three three note rounds in front of us with different caps, kind of in Ely formed board, but a good product market fit, let’s go price it let’s go set the company up for success, etc. So most of the time we do that. But we’re also not religious about that. If it makes sense. We’re joining somebody else’s syndicate and the notes are there. And it’s the easy thing to do. We won’t be religious about it, even though we have a preference for pricing the round, because we find our role is to kind of position the company for the next round of growth. And it being a priced round is one of those elements of positioning for the next round.

Got it. Got it. Tell us tell us more about how you guys are different at bullpen.

So we’re different in in many, many ways. We’re very unusual, and how we look at companies, how we think of the world and how we execute our strategy. So let me give you an example. We basically say we’re looking for a company with product market fit that the rest of the industry is not paying attention to Yep. Well how do you define the rest of the industry is not paying attention to it? Well, we got formulaic about it turns out that the deals nobody’s paying attention to our either one in a geography that they don’t like think Edinburgh, Scotland for FanDuel. Yep. Two, they’ve got a founder who has a non traditional background. think Michelle Phan starting Ipsy. A YouTube celebrity from Florida not exactly your standard. Stanford PhD dropped out, right, we’re number three, they’re in a category that everyone thinks is out of favor, think Grove collaborative. And in our fun three where we’re Stu was from Central Casting lives in San Francisco, but was just dumb enough to start an E commerce company When don’t you know everybody is gonna get killed by Amazon? Turns out turns out Steve’s got a dang good business. But no one wanted to take the meeting with them because the zeitgeist said, it’s all over for E commerce. Sure. And so so if you’re gonna play the biases of the industry, you’ve got to basically build the taxonomy. So are you in an out of favor geography? Are you an out of favor category? Do you have a non traditional background? And so we say, hey, I’ll take all comers. I’ll take a cold email off my website. I’ll take a LinkedIn email from you. Send me your operating plan. Let me spend 10 minutes with it. Let me see if your post Product Market Fit have neat numbers. And you know what if you got neat numbers, and no one else has taken the meeting, I’ll bet on the guy who’s going to take the meeting. And many of our best deals came in without even referral because it was someone some CEO heard me on a podcast like this say, Are you frustrated? No one’s taking you seriously but you’re making a million bucks in revenue. Come see me and that leads to a very different kind To fund we do much more traditional PR and marketing as opposed to sourcing the way other other firms do. And we have a much more analytic front of the funnel, it means I spend my day in a very different way. I’m not meeting first time founders when they’re thinking about leaving to start a company so I can get into the seed round, I’m only taking a meeting after the company’s already got a product with revenue traction, and they can send me the Excel spreadsheet. So we look real different than other firms in the way that we execute our strategy. So

tell me more about metric requirements for you to invest, is it? Is it a million bucks in ARR per quarter per year? Or, you know, what sort of sort of absolute values as well as growth metrics are you looking for?

Hey, so I’ll get to that. But I’ll tell the story slightly in reverse. Our objective is to get you 12 to 18 months of money, so that at the end of our round, you’re going to be able to walk into the quote, series A investors and be able to go do your 1015 20 $25 million check. Yep, that means that you probably need to be somewhere at about a $5 million annual run rate. Okay, so play the game backwards. Where do you need to be 18 months prior to being able to bring down a $20 million check for a $5 million revenue company, it means you probably got to be doing about a million to 2 million in revenue grow in three to 4x. Year over year. It means you’ve probably raised three to 5 million bucks and are burnin no more than $200,000 a month. And so that’s my first level the screen. Have you raised no more than five? Are you burning? No more than 200 a month? Are you to one to 2 million arr? Did you grow three to 5x? Year over year? Yeah, bang, if you’ve done those things, I’m gonna take the meeting. I don’t care if you’re selling socks to kittens, right? I mean, literally, we’re in WAG, which is we joked Uber for dogs. We joked about the existence of this company before it existed, everybody will be. And I’ll be damned if we didn’t only invest in it. But we actually help the company get formed because it is a failed former company in our fund one portfolio called shirt me that the vinner brothers did so. So we were complicit actually at the formation stage of the company. And now it’s a company that just raised 300 million bucks from SoftBank. And so you sit there and you go, as long as you’ve got the numbers, I don’t care what you’re doing. Because you know what the rest of the venture ecosystem cares who you are, where you’re from, how cool you are, who you know, I don’t care about any of that. I’ll ask all those questions at the end. But the way that I find the fan tools and the ellipses and the name leads and the classes, classes in San Diego named Lee’s an HR company in New York started by an ad tech exec, the way we find these things is by saying, Send us your operating plan, show us your numbers. And then I’ll ask myself if this is a business I want to be and not the other way around. Yeah,

I was just reading the newsletter from Samuel Shaw about wag. And I don’t remember how long ago it was four ish years ago. But everyone or were even longer, maybe. But everyone, it was kind of the butt of a bunch of jokes. Oh, Uber for dog walking now. And it’s a great company. And it’s, it’s, it’s a unicorn now. I mean, it’s incredible.

And its operating metrics are among the best of any company we’ve invested in real. And so So I won’t, I won’t say anything more than that. But some of the key statistics about repeat usage for that app are mind boggling on the rival Uber in terms of repeat usage, monetization per use excetera. Because you know what, when you’re stuck, and you need your dog walk, you need your dog walk, and it almost becomes a daily habit. For some people, they have customers who use the app 10 times a week. And so So you sit there and you think about this, wow, this is actually a pretty awesome business, you have the chance to build one of the great pet brands, but without having to build a store or shipped or shipped 40 pound bags of food to somebody this is awesome. Turns out they’ve stumbled into one of the great businesses of of I think maybe the decade and like I said it started, like you said, as a bit of a joke. Who’s going to do Uber for dogs? Well, they did it. And it turns out, it’s a hell of a business.

Unbelievable. Yeah. I mean, I love these businesses with super sticky customers, you know, super high retention. And I feel like sometimes that gets glossed over in the gross stories. But, Paul, can you talk more about this operational plan? You know, I’ve read about sort of your math and your computer science background and your algorithmic approach to things you know, what, what, how do you bring that sort of sentiment to your review as an investor?

So it’s twofold. First, the simple metrics I outline there’s a couple more detailed ones that are beyond the scope of a call like this to go into any any analyst with a with a couple of months of experience could look at an Excel spreadsheet from a CEO and in 10 minutes be able to say is this a company bullpen needs to speak to? I mean, you need essentially no professional training for that. That’s what’s so cool. I can systematize and outsource. I mean, we don’t do it this way. But we could take a set of people in in pick pick your favorite outsource country and we could have our whole funnel go through it because it’s that easy to describe the fundamental front of the funnel. So that makes my use of time Awesome, because now I’m only engaging with a company that has gone through the operational screen. So now when the CEO comes in, hey, where are you from? Why’d you start the company, I can spend all my time getting to know a CEO that I know I have a chance to invest in. And oh, by the way, the thing that’s very unusual when you come in and pitch bullpen, I don’t want to see a product demo, I don’t want to sit up see a product roadmap, you know, I don’t need to know what’s in version five, your numbers and your operating plan tells me that your product works, not your product demo. So some of our founders are kind of jarred by this. We’re like, Okay, that’s great. I saw your presentation, pull up that Excel spreadsheet, I want you to stand up there and go through and defend sell D seven on the plan for the next 30 minutes. And that’s literally what our diligence meeting feels like that as opposed to tell me your vision of the universe. Tell me why your product will change the way, you know, kids consumed blank. And like, no, no, show me how you’re gonna go from 1.2 million to 3.8 million over the next 12 months. Oh, you have an assumption there on D 27. I don’t agree with that. Tell me why that’s what it is. So there’s something very blue collar operational about what we do, as opposed to highfalutin kind of, you know, pie in the sky. Paint me a big picture. You know what that got de risked by the seed round investor in front of us, a Mike Maples a Josh complimented Jeff Bobby, they already validated that this markets interesting. That’s why they wrote the seed check. Now guess what you got, you got four operating partners who start at 14 companies, between them gonna come in there and see if you know how to run your company. And that’s why our process, it feels very different, I think to a lot of entrepreneurs as well. Love

it, you’re making a very subjective discipline, you’re making a very objective.

Yeah, that’s right, there is something very systematic about what we do. It doesn’t mean that we get rid of the art, don’t get me wrong, I don’t want to overstate it. This is not a machine that you plug in inputs to and outcomes, the answer, this is just a more efficient way to spend our time, because there is real art in the way that you spend your time. But if you’re spending too much of your time on deals that you’ll never do, then you can’t engage in the art enough. But by having this systematic framework of knowing what to engage in, me and Eric and Duncan and James, we can spend our time in the art with only people who have made it through the operational screen, we just think that’s a way better use of everybody’s time.

Love it. Time is just incredibly hard to manage in this business. But you did mention bringing on new analysts and how you can have them apply your pre screen or your your operational screen based on sort of these these, these, you know, fixed lines that you’ve drawn. I’d be curious, what are some of the harder things you’ve found to teach young talent young VCs that you brought in and are trying to develop

a feel for is this accompany you want to have an investment in, there’s a certain kind of error of fun like bullpen can make check all the boxes CEO has mastery, the numbers Check, check, check. And then you get to the bottom of the chart and you go, Well, geez, that’s a business I have no desire to be in. We had two companies like that in the last quarter. One was in a sporting goods space, and one was in a home good space, broadly speaking, and you just at the end of the day, you said to yourself, wow, they have great numbers, but I can’t possibly see how that company will turn into a massive company. Now we’re not trying to predict what segments will turn into companies. But every once in a while you’re gonna sit there and go, yeah, they’re gonna have their operating plan and a year from now they’re gonna be doing 5 million in revenue. And that’ll be it, because that’s how big the market is. That is the harder part to train because that’s the art of the business as opposed to the science, which is what we put on the front end, most venture firms put the art on the front end and the science on the back end, we put the science and the front end and the art on the back end. And that’s why I think our fund really, he’s got a chance to really do some amazing things.

So play devil’s advocate on that, you know, I can bring in MBAs from town from I’m based in Chicago, so I can bring in MBAs from Northwestern or Chicago and you know, they’re trained at McKinsey or Bain or BCG, etc. And they can do market sizing exercises for me pretty easily. You know, how does that compare with what you were just describing the the art and the ability to kind of predict if a market is going to be interesting and if if a company can be large

Well, now you really are picking on me, you know, my my lead analyst whence is from booth there in Chicago, so you really, I mean, you really are picking on me there, you know, I’m just kidding stealing our talent now, Paul? Yeah, no, it just turns out actually Wentz is our lead analyst is an amazing guy. And he’s he’s a booth guy helped get, you know, do things early days of Hyde Park ventures, etc. So, you know, a good friend of the Chicago ecosystem and we’re very glad to have them. But you’re right. I mean, I’ll use Wentz as an example. There is a judgment piece of this business that no matter how smart you are, I just think you need to, you need to have met enough companies to be able to get a sense of it. And I don’t say this, I don’t say this lightly, because remember, I am a classically trained computer science hardcore number crunching person. And so for me to say that there is an art piece to our business that just requires enough sample size, real world experience. That’s not a conclusion that I’m natively fond of. Right? There’s a part of me that doesn’t want it to be that way. But I’ve now been in this business long enough is both an angel and now a venture fund, almost 15 years between the two, to say that there is a piece of this, that even watching Wentz over the last year and a half, when he’s been in the fund, get a better sense of what kind of company we do a deal with, you see him learn it, because it really is part of the process. And it’s not just about the numbers.

Yeah, I couldn’t agree more I’ve been, I’ve been thinking about this a lot myself, as you know, it’s been difficult to train the talent pipeline. And, you know, I can go through a million whiteboard sessions, but it just doesn’t really help. And I had this epiphany yesterday, I was telling one of my analysts, I’m like, You need to take 50 calls with entrepreneurs, and they don’t have to be long calls. But you got to do it, you got to kind of begin speaking with entrepreneurs to, to get a sense for how this all how all this works, and where the real opportunities are. And you know, what makes for some of those real special personalities from the founding teams?

Yeah, and I agree with that. And I occasionally sit in on ANGEL meetings around the country, just friends of mine, people who have sent us deals, I’ll go in and ask that, yeah, I’ll sit down in the angel meeting. And it’s really interesting to kind of sit down with the angels who are investing and say, Look, I’m a Silicon Valley guy, I’ve been in companies that have gone to billions of dollars, the three companies that came in here, none of them are ever going to do that. And I’m not saying that because I am trying to be mean or throw water on it. And then oh, by the way, there’s this one company that you didn’t even take a screening meeting with. That’s the one you need to be spending the time with. And you see that a little bit of nudging in that direction can really help a group out because they just maybe haven’t seen the template because they’re investing in Nebraska. And they’ve never seen a Silicon Valley company come through the door. This is what it looks like.

Right, right. Talk more about sort of a lack of innovation in the asset class. You know, I know that you found a bullpen on some contrarian principles. And you kind of found a stage where others weren’t operating, you know, what are some of the other areas where you think practitioners in the asset class have not evolved and not gotten better? And highlight some of those gaps that you’ve seen that maybe you guys are filling it bullpen? Yeah,

so I this is a topic near and dear to my heart. I think that most people who turn CEO into venture fund runner, I want to be the 87th venture fund focused on blank and blank, if they were that undifferentiated as CEO, they fire themselves. And so it kills me that there’s this complete utter lack of innovation in our asset class was so many two copycats, you would have never done that if you were CEO, but somehow now that you’re a fund manager, do you think that behaviors Okay, yeah. And in the big scheme of things, there are only a dozen, maybe two dozen innovative venture funds out there. I mean, you’ve got, you know, groups like data collective, and Lux doing the real hardcore science that no one does anymore. You got groups like gray Croft, that took a very different model to how they syndicate etc. You know, you’ve got your outliers like that. And those are the companies that we really try and be groups like Founders Fund who go after truly contrarian deals. But you know what, you get past the list of 20 to 25, you then realize that the other 400 to 500 funds are completely undifferentiated other than their brand and who the individual partners are. That, to me is amazing. And at some point, I think that needs to get rationalized. So when we said we’re going to do something different, we would have never started the company. Turns out the company was a venture firm, unless we were comfortable that we would be able to stand up and say we are different for these reasons. Not we’re better than Blank, blank and blank, because I’m better looking at him in better deals. That’s a branding exercise. Our model is different. And I would have never started the fund if I didn’t feel like I had true differentiation.

Why do you think everyone’s doing the same thing? It’s because

most people who go into venture do it for reasons other than the ones I just described, it’s my turn to give back. I’ve been a good angel investor, it’s my if my expertise in SAS that makes me good to be a good investor and I can help my entrepreneurs so much and I want to have the lifestyle of being a venture person and pontificating on panels and, and tell you these things. So I think there’s a self selection process of people who want to be in venture who basically say, I want to be better looking than the person next to me, and that’s okay because you know what, I am better looking than the person next to me. And as a result, the almost kind of ego reasons that you go into the asset class, make it such that an operational reason once you go into the asset class which is what we do becomes a few and far between, you know, we have a good adviser to the funder, a very famous venture person who teaches at Stanford some of the time and kind of poses bullpen as a as a model to the students sometimes, and basically says it like this, you know, what if I had this model that was an analytic screen, and I went into the funding gap, and I looked at contrarian companies, and you know, what do you think of that, if you you know, this is to a student who’s thinking they want to go to venture? Invariably the answer from that student is, well, that doesn’t sound like venture. That’s not what I want to do with my life. And so so so when you pose a model, like bullpen that’s, I say, I say this very seriously, very blue collar, there’s something Oh my God, why would I do that? Like, no, I want to go preach on high about why self driving cars and 25 years will revolutionize the world. We don’t do that. We sit down and we ask to sell D 27. Tell me why that’s what it is. And I think that’s where the mismatch happens. It’s a self selection of the people who want to be in venture and they self select away from this kind of creativity, contrarian ness and operational focus. And therefore we end up with a ton of knee twos. It’s

an interesting point, you know, I have had the same issue kind of in a different context, but I invest really early at precede, and I’ll be recruiting talent, and a lot of people will, you know, loud, their, their chops in Excel and their ability to do DCS and ROI C’s. And when they find out that this is, you know, my stage is very people centric stage. And it’s, it’s just really about getting to know people and founder market fit and product founder fit. It’s, it’s kind of confusing to them. Yeah, isn’t this about, you know, huge trends and AI and machine learning and, and, you know, complicated Excel models. And for me, at least at my stage, it’s not right,

and that’s exactly right. And so our good friend, Sam Wilshaw, who runs haystack, he invested the similar stage and he’s out there meeting college kids before they start the companies because he’s doing that kind of network building. And I think that’s a very hard, very labor intensive job. God bless you guys for doing it. Because without you doing it, I don’t get the fodder to do my later stage operational play with, but this is this is the this is the thinking. I think that’s missing in the venture ecosystem. I remember having this conversation with Josh Koppelman years ago, I’m like, Josh, you know, you figured out this, this whole model of the seed model, and you got a lot of copycats, and there’s tons of seed money. How come no one’s asked what comes after this? And it’s funny, he’s like, Yeah, that’s right. Everybody’s like, how do I go be a better first round the first round? Which by the way, you can’t, because there’s only one of them, and he’s won the branding war. But but everyone asked that question, and, and he says something that effective. Yeah, Paul, you you’re the first person to kind of ask the right next question, which is, well, what is the logical conclusion of what first round figured out? bullpen is the logical conclusion of basically playing the hand you’re dealt, I think if you use the poker analogy, too many people in venture want to control the cards that they get, they want to, they want to, I’m going to get dealt two Aces here, because I’ve got this theory around AI, and I’m going to be the only person to do it. You know what, dude, sometimes you get dealt, you know, the nine, seven offsuit. But you make a straight on the board. That’s way the way more that we think about it. What was the hand that we were dealt, a massive explosion of seed meant something else had to happen? Therefore, what company do I start to be successful? And for whatever reason, I don’t think enough people go into venture with that point of view of what hand Am I dealt? How do I play it the best, as opposed to I want to control my fate by predicting the future?

Do you play cards with investors, other investors? You

know, there’s been known to be a poker game in our office just every once in a while,

who’s the best in the valley? Is Paul Martino?

Well, you know, I, I, I don’t think I’m comfortable answering that particular question. But there there are, there are quite a few good players. And you go look at our portfolio We’re in. We’re in companies like Jack pocket and lottery Derby, jackpot and horse racing. We’re in FanDuel, and fantasy sports. So needless to say, the people who have an affinity for games of skill of these kinds find their way to our office more often than not,

awesome. Awesome. Yeah, I think we’re in hologram together. So very pleased that you guys, you guys are there and you guys are filling this gap that very few others have. So any other elements to your strategy that’s contrarian that we haven’t touched on?

No, I think I think we hit it. I mean, it’s it’s a contrarian stage and a contrarian kind of company. And I’ll say this, the upshot of what we do is very rewarding for the following reason. I know I got asked a question in advance about this about, you know, what are some of your anti portfolios and I get that question sometimes and I go, Well, look, our anti portfolio is kind of almost tough to describe because if we don’t do the deal, the company goes out of business more times than not. So Matt, Matt strats, who started namely was at our annual meeting two years ago, and he basically stood up and said, Look, thank god bullpen invested in my company. it was seven people, because you know what I was an ad tech exec doing an HR software company in New York and no one wanted to take me seriously because I was an ad tech Exec. And SAS was never something you could do in New York City. And you know, the bullpen guys took me up, and they led that round, and no one else wanted to do it. And they help recruit the CO investor to come in and do the round with him. And you know, what, if they didn’t do that, I probably would have went out of business. And so there’s something very, very satisfying about CEOs who stand up at your your annual meeting and say things like that, because by being contrarian, we’re actually doing a real service for the ecosystem. We’re funding companies that deserve to be funded with with companies and spaces and founder backgrounds that are different. And if we’re not the ones able to write the check, they might not exist. And you know, I hope to, you know, see, namely, get public one day and sit there and be able to kind of complete the story. Because, you know, that’s just an exciting thing to know that you’re in a business that helps find these false negatives, and promote entrepreneurship in places where it would otherwise be missed.

So, you know, I’m curious. We’ve also funded some non traditional founders at at earlier stages. And, remarkably, they’ve turned out to be some of our better performers. But do you find it’s harder to find capital providers later? So if you’re, you know, working with series, a firm Series B firms? Does it become tricky? Even if the metrics are looking good? And going up? And to the right, does it become tricky because your funding these non traditional founders and the establishment might not have the same comfort level?

Yes, and no. First off, if you get to a high enough number level, that the the downstream investors might not be benchmark and and in Greylock, they might actually be TCV, and insight. So let me give you a good example of this. We invested in spot hero right there in Chicago. That’s right. We were in Stuart Larkins round from Chicago ventures. He was a direct investor in aggregate knowledge, we had known each other for years. He’s like, I got this great CEO doing awesome things here in Chicago. And you know what Mark was going into a space that everyone thought Silicon Valley would win. You know, these fancy dancy on demand valets luxon, zerks. got started, and they raised a whole bunch of money. Why would the why would the Midwest kid who talks to garage operators ever win? Well, it’s very rewarding, by the way to see the spot heroes on the top of the heap now, and actually really, really beat a lot of those other competitors who had the Silicon Valley pedigree. But what was the finance history though? The round after US market generated so much revenues that he went to Insight Venture Partners for the next round, right? He he almost skipped the entire venture ecosystem, because his revenue traction and numbers were such that a later stage more like private equity firm did that. That’s what happened with FanDuel shamrock comes in, and KKR comes in. So a lot of our companies, actually, by getting to a high enough revenue level can go to either the growth funds inside of the venture ecosystem or directly to the private equity players. This is why our model I think, is kind of cool. I don’t need you to cross over and become a category everybody at Greylock loves. That does happen. By the way, we have plenty of companies that a year later, the category comes cool, like happened with Grove e commerce became great and Mayfield and then Norwest came in and did the next two rounds. And everyone was happy about that. But you know what, he probably could have gone over to Insight Venture Partners and to KKR directly as well, because he had enough numbers to justify that raise. And so that’s exciting that our companies have two ways to win. Actually, they have three ways to win. We have other companies like Ipsy, that never even needed to raise any more money because they got profitable. So let me let me write you a check. And one of three good things can happen. You can get profitable, you can become a traditional venture company, or you can go right to private equity. And of course, you can fail to I mean, that does happen. Don’t get me wrong, but I like it, there’s so many ways that our round can turn into a good outcome for our LPs.

Is there a wide range of private equity exits from like micro cap, small cap mid cap? Or is there kind of a group of private equity investors that play within a certain exit range?

You know, I’m not the right guy to really answer that question. Yeah, you know, I dealt with some of them. I’ve been on boards now with a couple of them. I think I’ll say this, I don’t know that the dichotomy you’re outlining is correct anymore, in the same way that the dichotomy for seed doesn’t exist anymore. Seed, soil stage, pre seed, pre product market, the same things going on in that part of the industry, too. You’ve got so many hybrid models, and you’ve got companies that do big secondaries, and you sell half your position into them. And so I think that there’s a lot of continuous pneus of product offering over there as opposed to discreteness of product offering, so that that taxonomy might be changing in the same way it did in the CD ecosystem, but you’d have to talk to a later stage investor Through the meeting really get more detail on that question? Yep.

Yep. Yeah, I’m kicking myself on spot hero, because we think we had we had Troy henikoff on the program who used to run TechStars accelerator here in town. And he talked about spot here about three and a half years ago, and I’m kicking myself that I didn’t invest then because they’ve gone on to do good things, great things.

Yeah, that’s gonna be that’s gonna be one of our biggest winners in our fun to portfolio that’s in the same portfolio as wag. I mean, so the dog walking guys from LA and the parking kid from Chicago are two of our biggest value drivers and fun too. And, and there’s something very satisfying about that being the sentence I get to tell you. Well, it

is you talked about sourcing a little bit before, do you feel like sourcing is different at the post seed stage, or at least, you know, the the sourcing strategy that you guys employ?

When you’re one of the only people out there doing something, your sourcing strategy is to just get your message out, it’s no longer to actually have to, you know, go to the Y Combinator demo days, which by the way, we never really did a lot of that anyway, I want my message to be as loud and clear as possible. I want to be on forums like this talking about are you are you a founder who is doing a million in revenue and no one’s paying attention to? If I get that message out to everybody, including the 500 seed funds in front of me, what else do I need to do? I don’t think I need to be cold calling anybody I don’t think I need to be introspectively. Looking at portfolios, guessing who’s going to show up nine months from now, I just need to go hit up my favorite seed funds every once in a while, hey, remember being sent me some cool stuff and make sure that the CEOs out there know that I exist. My partner, Eric Wiesen, likens it to Silicon Valley Bank. You know, what percent of people who get venture debt go see Silicon Valley Bank? Well, the answer is probably close to 100%. Because they’re one of the only people who do it. So if you need post seed financing, what percent of all post seed deals is bullpen see, well, probably a pretty similar percent that Silicon Valley Bank does a venture debt deals. And that’s just been a lucky break that so few people decided to engage in this particular segment of the business.

Yeah, if you’re the only game in town, then you’re gonna see most of the deal flow.

That’s right. And by the way, that has been remarkably difficult to convince LPs. So we tell LPs, they’re like, tell me how you source tell me how you source I’m like, if there’s one thing I lose no sleep about my fund is how I source like, well, that’s well, then you must not know much about your former entrepreneur, you must not know much about running a venture fund sourcing, proprietary deal flow. That’s the only way you live. I’m like, Yeah, two decades ago, maybe a differentiated strategy and a new ecosystem is what we’re doing. And it works really good. But I gotta tell you that a lot of LPs ago no, no, no. Who are you friends with? Who are your proprietary deal? Sources? I’m like, No, it doesn’t work that way. And if that conversation, in many cases, we can’t get past that conversation. Because they’ll be like, well, your model can’t possibly work, then I’m like, okay, good. I guess I guess we’re done now. Well, I

can’t speak for other venture firms. But I’ve had a number of entrepreneurs, portfolio companies and otherwise come to me with certain metrics. And I’ve said, have you talked to bullpen? So even though the two of us is the first time we’ve spoken, I mean, you guys have the brand. You’re You’re the posi. Player,

that and that warms my heart? Because, Nick, that’s what we tried to do. We, you know, we actually, as former CEOs took the branding exercise the way a corporation would take the branding exercise as opposed to the way a venture firm would. And I think this is really paid dividends.

Paul, if we could cover any topic here on the program? What topic do you think should be addressed? And who would you like to hear speak about it?

Well, since you already hit those Super Bowl champion eagles, I’m not quite sure. Maybe we could get on some some some Boston people there who feel feel a little disappointed about about how that how that game went last

year, terrible.

I’m a Philly fan. I mean, by definition, that’s what I’m supposed to be. You know, I would love quite frankly, to see more people on the program, talk about what they’re doing different innovative, at the end of the day, that is my beef with the business is that there aren’t enough people highlighting the innovative things are doing. And by the way, you can’t hear here’s the cheat sheet for trying to escape. Let me tell me about something innovative, you’re doing. Oh, let me tell you about this cool company I invested in No, no cool company you invested in is not what you’re doing innovative. I’ll ask you again, what is the cool and innovative thing you’re doing? Oh, let me tell you about this new CEO I met. And so so not only what I love to see, I have some people on the program. Don’t let them get away with that as their answer. Yeah.

Now I’m with you. I was on a podcast few weeks ago. And they asked me a similar question. And I said, You gotta be able to say why you’re the best in the world at what you do. Why are you the best? If you can’t answer that question, then you you probably shouldn’t be in the business. I couldn’t agree more. Paul, what investor has influenced you most and why?

Definitely the most influential investor has been Matt ACO. He has been my kind of investor mentor for many, many years. And Matt now runs a huge and successful firm called Data collective. Matt and I met my first night and so Ken Valley when I dropped out of Princeton, and we’ve been friends ever since. And it has been just a tremendous experience to have learned the business from someone who has done so many interesting things and, and has been as innovative as he has. And so I would say he’s been my number one coach along the years is being an investor coach. Awesome.

And just to wrap up here, what’s the best way for listeners to connect with you?

Send me a mail Paul at bullpen cap. I’m quite serious when I say I don’t care if I’ve never heard of your business and I don’t know who your investors are. You’re doing a million in revenue and no one’s paying attention to you. You send me a mail at Paul bullpen cap. I will personally be taking a look at it. My analyst went so make sure you look through the operating plan. And please don’t be insulted if I don’t want to see your product demo.

Love it. Well, the man is Paul Martino. certainly reach out if you have the metrics and let them know that you heard about it on the full ratchet. Paul, thanks so much for joining us today and look forward to meeting you in person when you’re in Chicago. All good, Nick.

Thanks for the time. Awesome.

Thanks, Paul. Appreciate it. Take care. That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us