160. Better Diversity, Better Outcomes (Elizabeth Galbut)

The Full Ratchet Elizabeth Galbut

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Elizabeth Galbut of SoGal Ventures joins Nick to discuss Better Diversity, Better Outcomes. In this episode, we cover:

  • Her involvement in creating the first VC investment group at Johns Hopkins
  • What the focus is at SoGal and why that creates their edge
  • How she and her partner divide responsibilities
  • How the establishment has reacted to her and her firm
  • We talk about her experience as a design professor and how that impacts her approach
  • She gives an example of a design-centric investment
  • She discusses her thinking when evaluating an early stage business
  • We review their dealflow and sourcing strategy
  • and we wrap up w/ Elizabeth’s advice for a younger version of herself if she had the opportunity to give it

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Guest Links:

Quick Takeaways:

  1. She likes to invest in arbitrage markets– Stanford talent at Baltimore prices.
  2. This generation of startups can access global markets much earlier than their counterparts of the past.
  3. Many established VCs would tell her that they don’t hire women and wouldn’t respect their opinions if they did.
  4. SoGal invests in how the next generation lives, works and stays healthy.
  5. Authentic community and connection will drive business value creation.
  6. The best founding teams have a shared north star.
  7. By investing in more diverse teams they will drive better returns.
  8. Reasons why VC doesn’t have better gender balance: ย Biases (unconscious and conscious), Resistance to Change, Network Effects.
  9. In the $71.4 Trillion Alternative Asset industry, 1.5% of AUM is managed by firms w/ more than 25% women on the management team.
  10. Empathy will become the valuable currency when computers surpass the knowledge worker
  11. Design-thinking is evident w/ founders in how well they’ve identified the problem and are building a solution to address it.
  12. Key things she looks for in founders include level of obsession, what has surprised them, what are the biggest challenges.
  13. In order to encourage more dealflow, their founders become venture partners and receive a portion of carry in exchange for referring deals.

 

Transcribed with AI:

0:03
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

0:22
Welcome back to TFR Today we welcome Elizabeth Galbut to the program. Elizabeth is managing partner of SoCal ventures, a firm that prides itself on being the first female millennial led cross border VC firm. In this episode, we cover her involvement in creating the first VC Investment Group at Johns Hopkins. What the focus is at so gal, and why that creates their edge, how she and her partner divide responsibilities, how the establishment has reacted to her and her firm. We talked about her experience as a design professor, and how that impacts her approach. She gives us an example of a design centric investment. She discusses her thinking when evaluating an early stage business. We review the deal flow and sourcing strategy they use at SoCal. And we wrap up with Elizabeth’s advice for a younger version of herself if she had the opportunity to give it. Elizabeth recently made the Forbes VC 30 under 30 list. She is a trailblazer, bringing a fresh approach to venture. I hope you enjoy the interview. Here it is with Elizabeth Gilbert.

Elizabeth Gilbert joins us today from New York City. Elizabeth is founding partner at Sol gal ventures. Prior to so gal she founded a level capital, the first student led venture capital firm powered by Johns Hopkins students. Elizabeth, welcome to the show.

1:48
Thank you so much for having me, Nick. Yeah, it’s

1:51
a huge pleasure. So can you start off with sort of your story in your path to becoming an investor?

1:58
Of course. So I think I definitely have an untraditional path which many VCs do. And I think it’s a bit of serendipity stubbornness, and in the end kind of fate. While I was in grad school, I was leading an entrepreneurship club at Johns Hopkins. And I was helping hundreds of entrepreneurial teams and really noticed there was a severe lack of access to early stage capital in Baltimore. And in particular, one of these teams that I was helping was working on a digital pathology solution. And at the same time, my dad actually was diagnosed with cancer, melanoma, and he had been misdiagnosed for multiple years, which is actually quite common for people with cancer. Right now, there’s already a supply side shortage of pathologists, and oftentimes, for certain cancers, their concurrence rate, so if two pathologists were looking at the same image, more than half of the time, for many cancers, they wouldn’t even agree. And so of course, that affects your entire treatment. And I was working really closely with this entrepreneur who was creating this amazing AI computer vision, image compression data in the cloud solution for pathology. And he was having a really hard time raising money. It was about a year and a half in and we couldn’t get a single Angel. And I really felt the pain of what it’s like to be the daughter of somebody with cancer that had been misdiagnosed for multiple years. And I didn’t want that to happen to anyone else. So I made it kind of a personal mission of myself that I needed to fund this company. I didn’t really know how I worked with some of my co founders of a level who were undergrad students at the time. And we honestly thought that, you know, we’d be able to gather $100,000 and just throw it at some companies we graduate and go on to our own endeavors. But that is definitely not how a venture capital fund works. And I learned that rather quickly, thanks to a lot of great mentors along the way. And it was a bit of fate, right? It really helped propel me into seeing that this is what I love doing this is what I have a great skill set and doing and that there’s really a large area of opportunity. I like to say that I invest in arbitrage markets with a level capital. That’s the geography of Baltimore. I like to call it Stanford talent at Baltimore prices. They have some of the top medical data science education, international studies programs in the country, but very, very little capitals being sent into the region. And we’ll talk about it a little bit later. But the same with so gal when we’re talking women and minority founders, again, tons of talent that’s being undercapitalized. And there’s really an investment arbitrage opportunity there. Awesome

4:58
hanging out in the DM The So are you guys geo focus them? So go?

5:03
Yes. So at SoCal, we call ourself a global first borderless business fund. Our main target markets are the US and Asia, because that’s where we physically are. But we’ve actually now invested in European as well as Australian companies. And what we really look for is what we call global first borderless businesses. And we really believe that the next generation of entrepreneurs have lived, worked, studied in multiple places, just for example, my business partner, pocket son, and myself, between the two of us we’ve lived and studied in six countries, tried our hands at six different languages. And we really feel that a lot of the generation is the same. So they’re actually building these businesses that either from day one are entering multiple markets, or they have very ambitious plans to enter multiple markets very early on in the startup lifecycle, which is quite different than what I think the last generation of companies were.

6:04
Got it. So trying to get Baltimore prices globally, then. Yeah,

6:09
a bit. I mean, there’s great deals to be had in Southeast Asia, Australia, different parts of Europe. But I think not just that I think a lot of entrepreneurs want help with bringing their business globally. And we have our SoCal community of diverse entrepreneurs and investors that reaches over 100,000 people and growing every day. And so it’s an excellent network to really help entrepreneurs with whatever they need, whether it’s setting up manufacturing, setting up a second development headquarters somewhere setting up distribution, understanding how to market cross culturally, that’s something that we really are good at, and is a big value add for our fund.

6:54
Awesome. Awesome. I like it. So take me back to you talked about a level and you kind of have this this entrepreneurial movement and incubator going on at Johns Hopkins. But how did you transition that into a capital providing source?

7:11
Yeah, so we made a PowerPoint pitch deck. And we went to alumni one by one, we figured out that there’s over 250, Johns Hopkins alumni who are venture capitalists all over the world, wow. And we just started talking to them and learning from them. We also started looking at venture capital attorneys, one who happens to be a partner at Dorsey and Whitney out in Palo Alto and did all of our legal work and really mentored me the whole summer after I graduated grad school of how to, you know, make this actually happen. And, you know, it started with really small checks, $5,000 here, $10,000 there, and really grew. And in a few months after we had started this all we made our first investment and it was really exciting. The digital pathology company that I mentioned before, we were his first $10,000 into the company. And actually, five months later, the week he graduated from undergrad, he closed over a million dollars for his seed round. So not only did he you know, locked down and cap and gown, but he also was able to go back to his team and start paying everyone and really dig in full time and start to grow.

8:28
Wow, that’s great. That’s great. Where’s the company today?

8:32
Yeah, so they just raised another round. They’re about to start raising their series A and they’ve partnered with the top leading cancer research institutions and hospital systems around the world, including Samsung Cancer Center and Korea. Folks like Johns Hopkins Mayo Clinic. It’s really exciting.

8:54
Well, my best certainly to them and your father as well. Can you talk more about sort of the origin story for SoCal and your partnership with pocket? Of

9:04
course. So pocket and I met at a venture capital program at Stanford. And it was a few months after the Ellen Pao Kleiner Perkins case. And we were both still in grad school. And I was just starting to think about a level of capital. And we both had gone to a lot of VC conferences and startup conferences and really not felt welcome there. Even at some I would talk to different VCs and they’d say, you know, we don’t really think about hiring women, or we wouldn’t respect their opinions if we did, and this would be within the first minute of meeting someone. And I was just shocked. I mean, it’s super highly illegal. But sometimes I’m just so surprised about how people lack filters. But it was really discouraging. And so we are both at this program at Stanford and They had made a very cognizant effort to actually have the class have as many women as possible. So there was about 33 people in the class. 13 of them were women, over half of the class was international. And it was the first time I think, for pocket and I that we experienced, oh my gosh, there’s all these other women who have their own funds. They’re leading deals. We were by far the youngest, and most inexperienced people their pocket while she was in grad school had started a similar community to what I was doing at Hopkins, but really focused on women entrepreneurs, because her professors actually couldn’t find women’s speakers to come into class. So she took it on herself to make that happen. And actually, one of the speakers during this program at Stanford, Jason Calacanis, which I know you’ve had him on your show, pocket, it raised her hand and said, you know, this is my background, what do you think I should do now that I’m graduating, and he kind of laughed and said, you know, with everything going on right now, maybe take a year or two and try and raise your own fund, and create the culture that you really want to have in your fund. Wow. And if it doesn’t work out, at least in that year or two, you’ll have a ton of network and access compared to you just trying to pass around your resume, coming from a non top tier school right now. And so we kind of looked at each other. And that was where the idea really started. And it took us, you know, some time to really flush it out from that point. But that was really the catalyst for us starting.

11:38
That’s amazing. Love that story. And can you talk a little bit more about the sectors or categories you guys invest in? You talked about sort of the the geographies and the global reach? But are there certain types of startups that that you guys target?

11:56
Yes, so, so gal, we invest in how the next generation lives works and stays healthy. That breaks down to consumer tech, enterprise software, and health tech, in some major components that are sort of bare minimums, for every deal we do, are that global first borderless business sort of aspect, as well as them being designed centric teams. And we also find that almost all of our startups have been very successful with having community driven approaches. What

12:27
do you mean by that a community driven approach?

12:31
Yeah, so whether it’s a marketplace and actually building community around that marketplace, or it’s a consumer product, and the building of community around that, or, for example, a media company, and how you build a community around that. We really believe that for Generation Z and millennials, authentic communities and connections will be what drives a lot of the business value creation. And we’ve seen that be incredibly successful for customer acquisition, for retention for really just sort of viral brand loyalty for what we’ve been investing in. Sure.

13:09
Couldn’t agree more. I’ve got a community based investment in your backyard and Maryland company called Cybrary. That’s built an amazing thriving community around cybersecurity professionals. But can you talk more about sort of the way that you and pocket divide up responsibilities at the firm? Are you both kind of doing similar activities and run and deal flow? Or do you have sort of a balanced set of functions that you, you divide up?

13:38
So I’ve always really believed that the best teams have a shared Northstar that they identify with very clearly, and that it’s identified and iterated upon frequently within the team. So what’s great about pocket in my relationship is we’ve always been very clear of what that North Star is. So our big mission is to redefine the next generation of diverse founders and funders. And so whether that’s through our venture capital fund, through our SoCal community, or through businesses that we may start up in five to 10 years together, that really has been that driving north star. So pocket lives in Singapore and often is traveling all over the place, as well as I’m often traveling all over the place in North America. And so we’re often 12 to 13 hours difference. And a lot of people always ask, how do you make that work? Well, it’s quite simple. I’m a total night owl. She’s an early bird. So we have about eight to 10 hours a day where we’re actively working with each other. So we make unanimous investment decisions. We both look at all deal flow that comes in, but I think from an operational and sort of marketing branding for fective she’s much more sort of on the outer facing side of SoCal. And I’m much more internally focused on the strategy and operations, and making sure everything runs, whether it’s working with our legal team, our accounting team, or our back office team. Just making sure that everything’s in order.

15:18
Got it? And I promise is my last question on thesis. But do you guys have a diversity component as a requirement? You know, is there some sort of diversity or gender component that you invest around? And then also, you know, what’s, what stage do you guys invest at? Is it just seed? Or do you go earlier or later than that?

15:37
So we invest anywhere from pre seed to small series A rounds, and we reserve half of our fund for follow on investing? Got it. So we’ve already followed on into multiple portfolio companies that have gone on to raise next rounds. And we love doing that. Sorry, can you ask the

15:56
part of the diversity diversity and gender piece? Oh, diversity,

15:58
of course. So we believe in broad based diversity. So when we started SoCal, we were very specific that we didn’t want to say that we had, you know, a women’s only gender specific lens, we are women. And so we do bring that women’s perspective. But we actually believe in broad based diversity, we’ve never wanted to create a conversation where it’s us versus them. Because we don’t think that’s helpful for progressing. Someone of, you know, the future of inclusion forward, we think the big goal should be inclusion, where everyone has a safe space to work, equal opportunity, and feels like they’re nurtured and able to perform to the best of their abilities. And so what we mean by broad base diversity is everything from gender, national origin, immigration status, sexual preferences, disability, whether somebody was a veteran, what languages they speak, what did they study, both things you can see externally, but also things that are internal as well. And so we really like teams that are incredibly diverse, because that’s where research points to better performance. And so we don’t see it as this is a social mission, we have we actually see it as our fiduciary duty, as fund managers is to create superior optimal returns. And by investing in diverse teams, all research points to will be able to do that.

17:38
So you talked about sort of the the gender component before in some of these sort of chauvinist jerks that you’ve encountered, but I want to get your take, why do you think there’s so few women in venture capital? Yes,

17:53
so this is going to be a long winded answer, but stick with me, I promise you, it’s going to be worth it. So first is there’s a bias, right? There’s conscious and unconscious bias. There’s stuff that as humans we don’t even know we’re doing. And then there’s stuff that from societal norms have been pushed upon us since childhood. And I think the most important point there is, as individual human beings who want to be empathetic and inclusive, we just have to, you know, acknowledge that our own bias exists, and then figure out how to counterbalance that bias. The second part is really, venture capital did start as a predominantly boys club, and it’s a partnership model. So in a partnership model, there’s often a fear that by changing the dynamics of a firm or partnership, it could change the decision making capabilities, the office culture, it could lead to bad outcomes, right. So change is always scary. And so I think that’s something that especially at the upper levels of leadership is often difficult. And then there’s, of course, a network effect, too. So in human nature, it’s easier to hire people that look, think and reason like you, it’s also easier to find them. We often hear a lot of even the top VC funds are only getting about 10% or less of women applying for their analyst associate roles. And we really believe that’s actually a network issue. Right? Who’s following who on Twitter? What email list? Is everyone on? What events are different people going towards? And so some of the more diverse, AWARE funds are actually going to organizations like ours and other women and tech and minority and tech organizations to actually say, Hey, can you help push out these applications? Because we don’t want to, you know, hire our friends, son. Right, right. We want to have A bigger outreach of that, and we want to see these types of candidates. And what we’ve also heard from other firms is the way to be successful. And that is if they are having a recruiter, having a mandate that says until you come back with a list, a diverse list of candidates, like I’m not even starting to look through it, right. And then I think there’s a lot of arguments that are just complete bullshit, like the tech engineering pipeline problem. Sure, on a grander scale, when you look at the numbers, that’s a problem. But venture capital, as an industry is so small, any firm is only hiring one to three people. So I don’t think it’s that hard to find an exceptional handful of women or diverse potential candidates to fill those very, very small positions. I think when you look at a company like Facebook, or Google, who you know, has 10s of 1000s of employees, versus a venture firm that maybe has 20 or 30. Max, not even, like that’s a very different problem. So I think that excuse of venture capitals, completely bullshit. And then there’s often the excuse that, you know, there’s not many women successful exited founders, or you know, it top engineers. But the truth is, is many notable VCs weren’t founders or engineers before. And they’ve still been successful. And there’s also dozens of women who have built billion dollar companies that had been taken public. So both of those arguments, in my mind are also valid. And then, so about when we were starting to actually look at, you know, how does diversity drive returns, we actually went back through decades of studies, there’s academic research studies, there’s financial research reports and studies. There’s everything quantitative and qualitative you’d like and what’s really interesting is that all these studies, the data only points in a single direction, like there really isn’t any data that goes against it, which is very rare when you think about any type of problem you’re looking at. And across the board, it’s diverse teams perform better diverse teams have higher ROI, right? When you know, there’s women, as investment decision makers, whether it’s hedge funds performed better, or venture capital funds perform better, just performance is better. Right. So I think, as a fund manager, our ultimate duty is to return a great amount more capital than we received from our LPs. And it’s actually a fiduciary duty, right? So I actually think, although legally, my husband’s a fund management attorney, and he always says this is not a good legal argument. But my actual argument is that fund managers are actually breaching their fiduciary duty, if they’re not examining how diversity or the lack of diversity on their own teams creates potentially suboptimal returns for their fund. And I think it even goes further than that to actually when you’re looking at limited partners, who are the people behind the money, that venture capitalists are then funding to entrepreneurs? The actual gender and diversity problem is even worse when you look at the LP, and GP of venture funds, or alternative asset class relationships. So when Interesting, yeah, so in the 71 point 4 trillion alternative asset industry, only 1.5% of assets under management are managed by firms with at least 25% Women and the gap. Right, so that means 98.5% of the money being managed and alternative assets. Are teams with less than 25% women on the team.

24:04
Wow. It’s an alarming stat. Yeah. And

24:08
when you think about these limited partners, right there, many of them are institutional investors representing things like pension funds, right University endowments, nonprofit foundations. And all of these are actually to serve a very diverse base of individuals. So it’s really surprising that many of them are not really looking at their alignment with their own customer base, as well as looking at if we do have all this data and all these studies, shouldn’t we be probing our potential managers to make sure they do have diverse teams, and they do have, you know, policies in place that prevent things like sexual harassment being covered up right? Or just we’re going to start you You know, if there’s 1000s of these firms that have less than 25% women in the GDP, maybe we’ll fund a couple of dozen or maybe 100 firms that are predominantly women or have a good representation.

25:16
Yeah, to some degree, it’s almost self reinforcing. You’ve got the LPs are dominated by men and the GPs are dominated by men. And so the analysts coming in are most often men and it’s probably take some, some contrarians and some, you know, new ambassadors to embrace the opportunity that diversity provides and gender diversity. So, out of curiosity, how has the VC establishment reacted to you and in your firm, so go?

25:47
So I think with any new fund, there’s always going to be people that are doubters, there’s going to be haters, there’s going to be people that are incredibly supportive view, right? I think it’s you’re just trying to prove yourself as a new fund manager, whether like, Yes, I’m a woman, but I’m also just a new fund manager. Right? Yep. So we’ve been busting our butts working, you know, around the clock to prove ourselves and our returns speak for themselves. And they’re pretty good so far. And I think it definitely takes a while for you to get respected in this industry, right? We often joke, it’s like venture capitals, you take a test today, and you don’t know the results of that test till 10 years from now. So it’s a long path in row K with people doubting us or not recognizing us now, because we really believe in our investment thesis and the sort of arbitrage opportunity of women and minority, diverse founders that we’re investing in. And we think that we can be the leaders of that. And by the time, most of the other funds are looking towards that, it will already be too late. And we’ll be you know, 100 miles ahead of them. So

27:02
if I were to transition a bit, I’ve read a lot on your profile, and in many of your posts and your content, sort of this design element comes out. And I know you are a designer, and even a professor of design before becoming an investor. How does design and how does this design philosophy impact your approach toward investing?

27:27
So I think it’s incredibly valuable. So a big sort of key to design is actually the idea of empathy, and empathy. And every part of the process, from the research you’re doing around a problem, the eventual product you build, and the product, you then improve and grow. And so I think in a day and age, where we’re talking about things really clearly, like, you know, autonomous vehicles, AI robots taking over jobs, health care being performed by algorithms, empathy actually becomes the valuable currency when computers have surpassed what knowledge workers can actually do. So what’s really interesting about this is actually, Jack Ma from Alibaba, is a big sort of proponent of this as well. So he recently started Alibaba schools. And traditionally, in Chinese schools, you’re really focused on math, science, Chinese English, his schools are actually focused on the arts, in music, on sports, and teamwork and leadership, because he actually is looking towards the future and saying, I know we’re going to build all this technology that’s going to be able to replace much of the knowledge work that humans do, the machines are just going to be better at it. So what are the things that humans are better than machines at right? And that is actually empathy, and human understanding and ingenuity and creativity, and teamwork, and looking towards the good of humanity. And that’s what he wants with Alibaba schools to be the skills that he teaches his students. And back to how that goes towards design. Design is deeply rooted in that empathy. So it goes from making sure when you’re starting a startup, are you actually solving the right problem? I mean, we see hundreds of startups that have incorrectly identified the problem they’re trying to solve, then you could go for years, and you could be marginally successful, but you’re never really going to hit that product market fit that helps you explode as a startup if you haven’t properly identified that you’re actually solving the right problem. And where that happens is a lot of people will do market research and market research is great. But it’s very different than something that designers call ethnographic research, which is really rooted in cultural understanding, observational research, as well as interactive research. And it really helps you understand how are people interacting with this problem and a potential solution. So that you can really create a much better product, as well as iterate it in the future, so that your loyalty to the product only continues to grow and grow. Right? So I think design is so key to everything that technology is going to need in the next 10 to 20 years. Because we’re going to have the AI we’re going to have the data science, hopefully we can get right some of the privacy cybersecurity stuff, right. But it’s how are we designing this to live with us as humans, right? And what do we want that world to look like? Do we want a world where the outside universe is so bleak and gray, because, you know, we’ve completely polluted it? And there’s poverty everywhere and economic inequalities, but that we have great virtual reality headsets, and we just zone into those 24 hours a day to find happiness and fulfillment? Ready Player One, right? Or do we want a different world, right, and I think that’s what’s so unique about being a venture capitalist, is you’re investing in technology, but you’re really investing in the future. And so I think, as a fund manager and VC, you get to put your spin on what you want that future to be. So, for example, I know pocket and I do not want that. We’re all on VR headsets, absolutely miserable in the outside world, but really happy in virtual reality to be our future. Right? Yeah. And so what does that mean? What type of technologies do we have to invest in? And what type of teams are going to be creating those technologies? Because it’s really the people, right, that are spinning, how these things are created and used. Mm hmm. And so really understanding their motivations as well as really important.

32:20
I like it. You’ve

32:21
talked about investing in companies that use design to propel their business model. Can you tell us more what that means? And maybe give you an example of some company that’s

32:35
doing that in your portfolio? Yeah,

32:38
of course. So we have this great company called love every baby in our portfolio. The founder, and CEO Jessica rolls. She’s a serial entrepreneur. Her first company happy family was one of the first organic baby food companies and sold for hundreds of millions of dollars to group Dannon in Europe. And with this, as a mother, she really saw as she was raising her babies, that all the toys that currently come out from, you know, the Fisher Price, the Mattel, they’re super loud, they have tons of colors, they have tons of sounds, it’s all about distraction. And then you throw an iPad in there, you’re trying to distract your kids some more. And you’re just trying to placate them and right and shut them up in a way. But you’re not actually engaging with them in a growth and development perspective, because toys haven’t really been created for that yet. And when she looked actually at all of the academic research, there’s a plethora of it available from all the top universities in the US around childhood and baby brain development. So 80% of the brain develops before a child is three years old. Right? So it’s really, really important. What happens in those three years. Yet none of these toy companies or baby companies are thinking about how do you optimize that? And how do you create, you know, this good environment. And so she basically went and took all of this research, and has attacked it with creating products. So her first product is what’s called a bit a baby playgym, she really felt that there was no playgym on the market that addressed a lot of the needs, and she completely revamped how it was designed. And not only is it designed for optimal brain development, and they actually include this really thorough book, that for each month from zero to 12 months of your baby, it tells you exactly where their brain is in the development, what you should do to play with them in a proactive way to help them get to the next stage and really the reasoning and logic and academic research behind it. But then the play gyms absolutely incredibly beauty feel to, like, when you read the reviews, everyone’s like, Oh my gosh, I can leave this in my living room before I was so embarrassed by all of my children’s toys. But now I’m actually proud of them, you know, organic wood, organic cotton, beautiful pastel colors, that are really just great to look at from a design aesthetic.

35:22
The ugly ones in particular.

35:25
Exactly. So I think with that it’s really thinking about not only how do you design, right, a product was optional functionality. But how do you also design a product with optimal aesthetics as well as optimal than user experience design. So before they even launched their product, they actually went to household, almost 100 of them all over the country, from all different socio economic classes, all different races, all different, you know, city, suburbs, religions, all different types of people raising their babies, right, and tested their products. And actually, as the co founders watched how these families interacted with their products, and that’s, you know, ethnographic observational research at its root. And from that, they were so quickly able to iterate and create such a superior product, that within a few months of launching, I mean, it’s completely blowing up off the charts. And that’s where I think design is powerful.

36:29
So cool. What was the name of that portfolio company? Again? I want to look it up.

36:33
Yeah. Love every baby. Love every

36:36
baby. Love it? Well,

36:38
I mean, if you look at the most valuable company on the planet, or I don’t know if it’s still the most valuable right now. But Apple, I mean, they differentiated on unbelievable industrial design, and UX, I think.

36:51
Exactly. Particularly with the with the iPhone, but But yeah, I hear you on these, these, these baby things. My, my wife won’t even allow the TV to be on in the household anymore with with our son. So it’s, it’s killing me. But shoot, if 80% of the brain develops before the age of three, then she’s probably right. She’s right about

37:12
Yeah, it’s really important.

37:15
All right, so let’s, let’s, uh, let’s take a step back. So when you’re looking at an early stage opportunity, a prospective portfolio company, you’re evaluating them for investment? Can you talk us through some of the design thinking and design elements you’re assessing? You know, I’ve noticed with a lot of really early stage stuff particularly precede stuff, design might not be, you know, in focus. And, you know, there might be Tech Tech folks that are really focused on the stack, or, you know, just building an MVP with some utility. I’m curious to hear kind of how you’re sizing up that that design side when you’re vetting out a new prospective investment.

37:53
So when we’re looking at really early stage pre seed investments that may not even have a product, yet, the design aspect is really focused on how much does the entrepreneur know about the problem they’re trying to solve? And have they really done? The work behind that to validate it? Right? And is it something they’ve personally experienced? And if not, why do they really resonate with this problem, other than, you know, perhaps you can make a lot of money from it, and just really assessing their understanding, as well as their obsession with that problem, right? We want all of our founders to be creating the best products and services humanly possible. So there really has to be this high level of obsession around it, even if they don’t have a product or service that’s currently live, right are developed. But how are they going to make it so it’s, you know, the 10x 100x solution, not just, you know, the iteration of additional features, that’s nice, but, you know, doesn’t have a real long lasting impact. And I think what we do in the diligence is a lot of questions around the types of research they’ve done. What has surprised them, that they’ve found out during this process? What do they see as some of the biggest challenges whether it’s, you know, getting to that market of people who has that problem? Or maybe even in some of our companies, they’re addressing a market where the market doesn’t even know they have the problem yet, right? Yep. So I think at the very earliest stages, it’s that and then, of course, there’s, you know, what does their pitch deck look like? Do they have a logo, what’s their branding? If it is something you know, that is an actual tech product? You know, what’s their UX? Like, if it’s a service, what’s their service experience design like, and a lot of those things you can improve. But if the founders don’t care about design and don’t think that it’s important and actually a competitive differentiator, that will likely be their highest competitive advantage in the future, it’s probably not a good fit for our fund. Got it?

40:24
How do you how do you guys source? What is What are the the pipeline? Pipeline sources look like? You know, where are you getting your deal flow? And why do you have an edge on on sourcing?

40:36
Yeah, so our pipeline is crazy. There’s only two of us, we’ve seen over 6000 deals in the past two years. So it’s very sink or swim, we find a lot of deals sink very quickly, we have to say no, very rapidly, just because of our own personal time constraints. And we see deals from all over the place. So we have the SoCal community, which is in 13 cities currently, and growing to over 20 in the next year. So that’s a great pipeline are so gal leads act as venture partners. We also have this great initiative, where we really believe that the pie isn’t expanding rapidly enough for women and minorities in investment. So we’ve actually enabled all of our founders that they want to, to be Venture Partners of our funds. And when they refer deals actually get a percentage of carry if we end up investing. And we also give them sort of insight and transparency into the investment process after they’re one of our portfolio founders. Because our hope, right is that many of them will end up becoming billionaires. And then they’ll either start doing their own angel investing, or potentially as we grow as a firm, potentially, they may be another GP for our fund. There you go, as their next leg. So we think it’s really important to educate our founders early on about investing. And it’s a really fun way of getting them actively helping us source as well. We get a ton of cold inbound we’ve had, we’ve been lucky enough to be featured and enormous amount of press for such an early fund in our first, you know, year and a half. So that’s really exciting. Of course, investor referrals. And then my business partner and I, we both speak at so many events. So just scanning the market everywhere. Awesome.

42:37
Elizabeth, 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?

42:46
Yeah, so we’re big fans of holistic entrepreneurship at SoCal, which means really taking in wellness and the physical and mental health into consideration for our founders and treating them as whole human beings. I think if you haven’t yet had somebody from the reboot IoT team on your show, they’re fantastic, and would definitely be great at covering that topic.

43:11
Awesome. Elizabeth, what investor has influenced you most and why?

43:16
I absolutely admire what First Round Capital has built. They have amazing content, amazing community, great investments. I think when you talk to founders, you can tell how much the founder community respects them. I would be honored to build a firm if it you know, ever met that type of quality and reputation. I think

43:40
we all would. And then And then finally, what’s the best way for listeners to connect with you?

43:46
So you can sign up for our email list at SoCal ventures.com. You can follow us on Twitter at SoCal ventures on Instagram. We’re at I am so gal. And then if you want you can try cold emailing me too. And you may have to follow up. It’s Elizabeth at SoCal ventures.com.

44:07
Well, Elizabeth, congrats on the Forbes 30 under 30 and venture thanks so much for taking the time today. And I look forward to connecting next time you’re in Chicago. Thank

44:17
you so much, Nick, for having me. And thanks, everyone for listening.

44:25
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 Joe Joining us