174. VCs Ride the Bus, Comeback Cities & Unorthodox Investing (Roy Bahat)

Roy Bahat Full Ratchet VCs Ride the Bus, Comeback Cities & Unorthodox Investing

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Roy Bahat of Bloomberg Beta joins Nick to discuss VCs Ride the Bus, Comeback Cities & Unorthodox Investing. In this episode, we cover:

  • Backstory / Path to Bloomberg Beta
  • Bloomberg Beta has taken a self-described “unorthodox approach”– Tell us about your approach and why it’s unique.
  • I was exploring your page on Github and noticed that you’ve open sourced the entire operating manual– why’d you do so and do you think other VCs should do the same?
  • What’s worked and what hasn’t?
  • You’ve talked about how you struggled figuring out what you wanted to do for a living. Have you figured it out?
  • So, last year a number of SF-based VCs got on a bus and traveled the Midwest in what they called the Comeback Cities tour. Tell us about the experience and why you and others came to the Midwest to look for opportunities?
  • How did the tour lead to a venture fund?
  • Why do you think it’s important to work w/ angels in the Midwest?
  • What surprised you on the trip?
  • Can you talk a bit about machine intelligence and how it’s impacting the future of work?
  • How do you see the VC asset class changing over the next few years?

Guest Links:

Key Takeaways:

  1. Roy served for 4 years in the New York city government during the Bloomberg administration.
  2. He speaks about his beginnings in the industry, being a co-founder working on an android based game console.
  3. The difficulties in obtaining information on VC funds, has led Roy’s approach to reverse aspects that he dislikes about VC’s and implement them in his fund. Ultimately aspiring to be the most transparent fund.
  4. Roy’s focus on investing in the future of work and productivity as well as machine intelligence.
  5. As a true first check investor, Roy believes that the later you invest in a company’s life, the more it becomes a financial transaction and less of a trusted relationship.
  6. By open sourcing Bloomberg Beta’s operating manual and maintaining a high level of transparency, it has allowed founders to do their research and assess opportunity early on, without wasting any time.
  7. Roy shares what has not worked for Bloomberg Beta, specifically taking on the creation of companies and building new software.
  8. What has worked best for Bloomberg Beta is the usage of Net Promoters Score of founders on them as the leading activity metric for the fund.
  9. The importance of seeking to build bridges between other walks of life in order provide alternative perspectives that are beneficial for founders.
  10. Through a project he did with the non-profit organization New America, Roy met Congressman Tim Ryan, which lead to the idea of the Comeback Cities Tour.
  11. Roy shares his experience on the Comeback Cities Tour, traveling to five cities in the Midwest with a group of San Francisco and New York based VC’s, meeting with local entrepreneurs and investors.
  12. The goal of the tour was to learn how to get more capital flowing from different established startup eco systems and then scaling that model throughout multiple locations.
  13. As a result of the tour, Comeback Capital was formed. Roy considers it a “demo fund” with the goal being to discover a template for varying eco systems that can be repeated and scaled up.
  14. Roy foresees the single biggest development in machine intelligence will be the propagation of simple well understood techniques, such as regression analysis.
  15. The idea that we are fundamentally at the beginning of the tech wave and there is still huge potential for change in the asset class over the next few years.
  16. Investors that have influenced Roy the most include his partners, James Cham and Karin Klein.
  17. Roy shares some of his personal productivity hacks such as, Workflowy, Google Suite, Slack and automating activities in their CRM by writing bits of glue scripts.

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

0:23
Welcome back to TFR. It’s an exciting one. Today as we have polymath Roy Bahat of Bloomberg Beta, in today’s episode, right details out there unorthodox investment approach, how they’ve open sourced their operating manual, what’s working, what’s not the comeback cities tour where a group of San Francisco based VCs, got on a bus and toured the heartland, how that’s impacted his investment approach, why they’ve decided to focus outside of San Francisco. And we wrap up with Roy’s thoughts on the asset class and how it may change in the coming years. I don’t think my team and I have had a more fun experience researching a guest. Roy has no shortage of personality, and it’s on display today. Here’s the interview with Roy Hot

1:16
Head of Bloomberg Beta ROI a hot joins us today from San Francisco. Bloomberg Beta is an early stage venture capital firm with $150 million under management and only one LP, they invest in companies that make businesses work better with a focus on machine intelligence, right leads the effort after a series of experiences in nonprofit professional services, city government, video games, academia, startups and investing series is I think, the kindest word ever used.

1:45
Next, but thank you, your LinkedIn profile is hilarious. We should talk about that in a bit. But ROI also plays an active role in the comeback cities tour with other West Coast based VCs that are interested in the Midwest. He’s here to talk about that today. And much more. Roy, welcome to the program. Thank you. So let’s get into it. Tell us about your winding road to venture. Well, I got offered my first job in technology in 1994 by a guy who ultimately became a VC who offered me a job writing HTML. And I looked at it, and I saw these blue links on a page and it’s like, this is stupid, this is definitely never gonna go anywhere, which I guess goes to show you how much I know about technology. And then I went to college during the period of like, the.com, boom, number one. And it all seemed so overdone to me that I definitely indulged. You know, the thing that people who are unfamiliar with startups have, have, like the inner skeptic is just so loud, because you can see in all these things, 1000 reasons they won’t work. And especially if you’re a person who likes to be analytical, it’s really easy to just look around and see a bunch of nonsense. And that’s effectively what I saw everywhere around me. And one of my good good friends from college started a custom t shirt business. And I might have been the kind of stupid person who told him he was throwing his life away or some nonsense like that, that can he is now called CustomInk. And has done very, very well. Yeah. And then basically, I wandered in the wilderness, which is to say, I wanted to do something. I’m definitely an action junkie, I saw how pivotal the media were, and so many questions. And my experience in the media was at the business people held a lot of the cards. So I figured I should study something about this business thing. And then to make a long story short, 911 happened, and I’m from New York, and I was like, my city just got attacked, like, I got to go serve it. And I’d always had an interest, but it was clear that the world that was the time and so I served in city government for four years in the Bloomberg administration. And it was amazing, because I basically got a business education. My boss was a guy who’d run a private equity fund for 15 years or something like that. His boss was a founder who had built a multi billion dollar enterprise. And Mike Bloomberg used to say then, that the difference between business and government is that in business, it’s Doggy Dog. And in government, it’s the other way around. You know, that was my experience is like a lot of the same principles of you’re trying to create systems that work. You’re trying to forge partnerships with people where risk gets shared in the right way. You’re trying to conduct yourself honorably, you’re trying to take smart risks. The customer base is different. But other than that, a lot of things are quite similar. And then the moment passed, and I went to try to go back in the business world, and the only company will hire me was News Corp. They had just bought after Chevron there for a little bit in their kind of chairman’s office. They had just bought a company in San Francisco that was an internet company. And I was like, Well, I don’t really still not really that into this internet thing. But at this point was long past the crash and.com 2.0 web 2.0 was coming back. So I kind of like figure out give it a shot. My wife and I just got married. And so we moved to San Francisco on six days notice thinking we’d be here for a year or two and that was more than a decade ago. And I just went native as soon as I realized how quickly you can

5:00
Exciting, powerful things technology, when dusted off the part of me that like had gone to like a basic coding class when I was a kid and started trying to learn again and really immersed myself. And now I just feel like I just, despite myself lucked out to be part of this industry that I really feel is central. Love it. So when did you start investing? Did you invest as an Angel before?

5:22
A few personal investments. So I was running this company that was an online media business in the video games industry, and called IGN. Basically, a project that we wanted to pursue, didn’t pan out. And I thought as so much the concept and so much potential that I quit, and worked on it with a woman who she was the CEO, we were co founders together. And we built an Android based game console. And so we started that company called we are funded on Kickstarter, but also by VCs. And the whole way I made like an angel investment here and there and served on a couple boards. And to be honest, most of my experience with professional investors, which is to say, people who invest in somebody else’s money for a living, some of it was exceptional. But most of it was really awful. Then I was gonna go start another company. And the Bloomberg guys approached me and said, Hey, we want to do a VC fund. My first reaction was like, No, you don’t, you really don’t. And, you know, corporate VC is like, even worse.

6:24
And then, you know, they said, what I’ve now learned is a very Bloomberg thing is they said, Well, okay, well describe a way that it might work. And that’s what we did is we sort of thought, Okay, well, what could work and we decided to go very early, which is still what we do to invest only for financial return not as a strategic, we’re just an investor. And then a lot of the approach that we’ve taken is just to take things that we didn’t like about how venture works, and reverse them. So for example, one of the things I really didn’t like is how hard it was to get information about venture capital funds. And so we aspire to be the most transparent fund and our operating manuals open sourced on GitHub, another thing I didn’t like is that it was always hard to figure out who had power and how the decision making process worked. So our decision making process is, if any one of us says, Yes, we do a deal. You know, those are just examples. And I think that that adds up to just trying to really take to heart a thing that a lot of people I think now do that we just treat as religion, which is the founder is the customer. And we focus on you know, our knitting is very narrow, then we stick to it, which is to say we decided on the first day that the broad areas that we’d be interested in, were all kind of the future of work on making businesses work better. And that’s where we invest today, we changed in that AI became a more relevant technology. And one of my partner’s again, over my objection. So again, the theme is Roy really doesn’t know and keep looking out. But she said in geez, I think it was like late 2013. Even she said, We shouldn’t really be focusing on AI. And my attitude was, you know, way too early. And then she started doing some research and found a couple 1000 companies doing things in machine intelligence, and we just swam like a school of fish in that direction. And that’s been our kind of main technology area, still all focused on the future work, trying to just spend every day serving the founders and connecting them to the kind of resources that we can sort of the bigger, broader world outside of the narrow ecosystem of tech, which is part of what led us to this comeback cities thing. We could talk more about that. But that’s been the joint. So you guys are true. First check investors. That is our preference. We’re not always the first check, because companies have histories. But the earlier we can do it, nothing is too early for us. And we love being in from the beginning. And the reason is not so much because I can make like a economically rational argument for it. I mean, you and I were talking about how all funds kind of hand wringing a little bit about do they want to be bigger, you know, more, because it’s the stage that we understand, and which what we like, and I feel like the later you go in a company’s life, venture investing is always a mix of a financial transaction, and a personal relationship. The later you’re going to company’s life, the more it becomes like a financial transaction, and the less it becomes like a trusted relationship, right. And if we want to serve founders, as our customers, we kind of feel we need those relationships based on trust. And the earlier we go, the higher the chances of that. You mentioned your approach in your operating manual on GitHub. Why did you guys choose to publish that?

9:23
Mostly so like this is take a page from software engineers who have developed a lot of principles of how to work that function. Well, one of them is dry, don’t repeat yourself. And so I did not want to show up in meetings and bore myself giving the same speech about like we invest between half a million and a million Baba Baba. Yeah, when it’s not sensitive information. And I remember as a founder having these awful experiences where you ask somebody who’s a precious, you know, relationship for years to introduce you to some investor. The investor agrees to talk because they maybe feel socially obligated to that person or something you find

10:00
When you show up for the meeting, they’re like, Oh, you do that. And we don’t do that. That’s a what they wanted.

10:06
When we published it, it goes into a lot of detail. I mean, everything from our investing criteria to geography, you know, I probably include a link to it in an email to somebody five to 10 times a day, it goes through a lot of stuff. And the reason is, so that founders don’t have to waste their time founder times the most precious thing in the whole startup world. And so if they can see it, and say, I’m not a fit, whether because they don’t like our approach, or we’re not a match for the what they’re doing, or whatever, then they can just go off and do their own thing. I don’t get why so many VCs hide behind a website where they don’t provide any information on their investment criteria. So you know, what I think about that I have a hypothesis is, in a lot of ways the VC industry is the legacy of the private equity industry. Yes, in terms of how it was born. Private equity funds, I don’t know very well. But I know that there are all kinds of rules around what you’re allowed to disclose as a fund. And I think those rules like compliance lead to extreme conservatism, about disclosure. And as a result, the safest thing was Mitt sometimes to say nothing to shame. Yeah, I also think that we have the benefit of being an attacker, which means we can start with a very clear and focused strategy. You know, we’re a company that sells money. And so we’re attacking an industry, whereas the incumbents have a much more generally varied and diverse strategy. And so it’s like, well, how do you describe things that like this partner who started investing in 1988? Well, things he likes, you know, that’s not like criteria. And so we had the advantage of being able to, and it was a lot of work to get specific on it, and a lot of debates that we still have as a partnership, but I think being new has its advantages. It’s such an advantage, I mean, not just going on the attack, but just publicizing your investment criteria. On our website, we have all our stuff on new stack VC. Yeah, the entrepreneurs that reach out, I mean, it’s already pre vetted. If it’s a fit, right series, a entrepreneurs are not reaching out, typically. And then the really thoughtful entrepreneurs are actually going through all the things we list out, and they’re talking about how they fit in. So it’s, it’s a really nice filtering mechanism as well. Yeah, put differently, like, it’s a check on whether the founder is doing their homework, right. And I’ve mixed feelings about it. Because there are definitely some kinds of domains where the founder not doing their homework kind of doesn’t matter. And others, which tend to be the ones that we invest in, which is a if you’re selling things to businesses, usually preparing is a good idea. And so it’s just nice to see that there’s some way I love also interview processes, when you can find a way to make the Get to know your process, simulate the job, the actual relationship, it’s just like that for this, which is you want a founder who’s going to prepare, give them an opportunity to try to prepare before reaching out to you and see if they do. Right. Right. With Bloomberg Beta. So far, what what’s worked and what hasn’t. Great question. So I’ll start with the habits. When we started the fund, in part because I was a founder, and in part because I wanted to go early. We were one of these many, many funds, or vehicles, because some of them aren’t even funds that say, Oh, we’re gonna invest, but we’re also going to build stuff, you know, we’re going to make our own things and we’re going to incubate them. What I remembered is the superhuman levels of intensity and effort required to do that. I was a new investor. And although my partner’s had much more investment experience, and we’re an equal partnership, where we all learn from each other, and any one of us can say yes, and that’s all great, except that I recognized how much I had to learn. And so I wanted to focus. And so we dropped that part of it, the building part now, we still build software for ourselves, and we occasionally can’t help ourselves and do a side project and have some partners that we love to work with on that stuff. But in general, we have dropped the the part of our thesis that was to create companies.

13:54
What has worked is a much tougher question. Because who knows, right? I mean, you gotta wait a decade in venture the way I described ventures, you know, I’m sure that there’s some quote from the VC. Maybe it’s Bill Gurley or somebody who, you know, brilliant guy, and he said something like, Well, it isn’t a home run business. It’s a grand slams business. I don’t even think it’s a grand slams business. I think that it is so concentrated in the outliers. That VC is a business that is about the tape measure distance of your longest home run. The balls traveled through the air for a decade, or if you invest as early as we do 12 to 14 years, maybe yeah. And so you’re just staring there and saying, I don’t know what works. So, you know, paper value looks good. But what does paper value? It’s a measure of the fundraising market. Yeah, really, and the opinions of other VCs. And so the other thing that I think really works is we decided as part of our effort to treat founders as our customers to use Net Promoter Score of founders for us as the one guiding metric for the activities of our fund. And that’s been magnificent. Yeah, it’s really given us actionable feedback whenever we survey on it, you know, gives us a

15:00
way of resolving, you have a lot of these things that happen in business life or just life, which is what I call a right versus right dispute of like, well, we could do x, which would be good because maybe it’d make more money, or y, which could be good because of some other reason. And they’re both good. And NPS gives us a great yardstick to use for making those choices. So is it MPs of founders on other founders or on us? It’s on you guys. Okay, got it. Yeah, our customers are now with that doesn’t get out is do we pick? Well? Do we source well, and all that stuff. But that can only I think the unfortunate thing about venture is you can only find that out ultimately, over a very long period of time, and over many investments. So I just don’t think there is a good way to know, right out of the gate, whether or not you know what you’re doing? Sure, sure. Yeah, I was just talking to David Cohen, about a startup we were talking to. And we had made them an offer to lead the round. And this other big firm came in more of a brand name firm came in and offered to lead. And so we thought we were Sol. But fortunately, I asked the founder to call some founders do some reference checks. And they didn’t come back good on the other guys, and they came back good on us. And we led the round. And that’s amazing. Another fortunate thing I would say about being new in our industry is a lot of the incumbents have lived through periods where they had a lot more power than they do today. And so therefore, they kind of I don’t want to say they misbehaved because it wasn’t like you always I mean, sometimes it was, but it wasn’t always a bad action, if you will. But it was frequently just stuff that wouldn’t fly today. And I think that’s an advantage for us is you know, we have a consistent track record of at least trying to serve the customer. Yeah, especially the young, the young hustlers in the business, I mean, you have to over deliver, to some degree to I actually think the hardest and most valuable thing is serving experienced founders, because they kind of know the basics. Therefore the level of game required is so high. I mean, one of we’ve got a couple of founders in their 50s. I don’t think we backed into in their 60s yet, although I’d love to. I’ve got to tell you like I think it’s such a joy back it goes founders because they really know what they’re doing. And so then delivering value is harder. And that’s more fun. Sounds like you’re having fun. But I did want to ask, I’m having fun.

17:15
I’ve read quite a bit of your work. And it sounds like you’ve struggled figuring out what you wanted to do for a living for a time. Do you think you’ve figured it out? Yes, I love what I do. And I want to this is the first time in my life I’ve ever been able to say that this is the first job I’ve had where I don’t want another job. Like I’m happy to do this for the foreseeable future. I love doing it here. You know, Bloomberg has been exceptionally supportive, really interested in technology. We work closely with the engineering teams in particular, but many parts of the business who just have like lots of genuine curiosity. And curiosity is a great accelerant for startup learning, you know, so it’s been fun. I started out with misgivings because I like didn’t really love the idea of like being thought of as a VC, you know, going to the dark side. But I got over it because I realized I’m in a customer service business where I admire my customers. And now I’m totally into it. You know, the struggles that came before I think was just a matter of wandering and not quite ever hitting on it yet. And not that didn’t have great experiences. I did I had some awful ones too. But I’ve mostly had really great experiences with great people. It just took some time. So I want to talk about comeback cities a bit. Yeah. So bunch of VCs, get on a bus, SF base VCs travel around the middle of the country. Yes. Tell us about the experience in you know why you and others came to the Midwest? And okay, let me zoom out for a second and describe how we got there in the first place. Yeah. And then I’ll tell you about the experience. So one of the principles of our fund has been that if there’s one risk to companies that they underestimated in the beginning that hits them, once they’re successful, it’s narrow thinking. And the hard thing is early startups have to focus. And therefore they have to be narrow in a certain sense. So we don’t want them going around, you know, meeting with every random person who might be interesting to them in the future. But our view is that that’s one of the areas where we as a fund can come in, is helping to create bridges, with other walks of life that might help founders think differently, in particular, in the domain that we’re in, which is the future of work, one of the major areas, which is kind of what’s the future of the economy of our country going to look like? And you know, what policy solutions? What cultural solutions? What business solutions do we need to have? We did this project for a year with a nonprofit called New America, which was fantastic to do scenario planning for the 10 to 20 year effective AI of machine intelligence and other technology on work in the United States. You know, I learned a ton and doing it builds a ton of relationships with people. And one of the things that came out of it is we’d start talking to people in government about what we learned about work. And one of the guys that we met was a congressman named Tim Ryan, who represents Youngstown and other places in Ohio. So at the end of the meeting, I remember he said, well, so what’s your ask that

20:00
Don’t even ask, I just want you to understand this stuff. So you can make good laws. You know, and, uh, you know, I get that it’s obviously not frequent to show up, you know, without an ask. But then the end of the meeting, he pulled me aside and he said, Hey, do you think investors who do what you do where you do it would be interesting and like come into our, you know, the district that I’m from in that region, and just seeing what’s going on. And without hesitation, I said, Yes, because I know we in Silicon Valley are desperate to understand other, the best of us are desperate to understand other forms of innovation other than the one particular variation that exists in San Francisco. And I think it’s a moment in our country, where there’s just a lot of desire for many people to understand places that they’re just not as familiar with. And I’d never been to Youngstown. But I called around to a bunch of VCs. And fortunately, the response rate was extraordinary. And the group was really amazing. There was a group of investors who was diverse as far as stage everything from, you know, multi billions to teeny weeny, diverse as far as personal background, gender, race, etc. and diverse as far as politics, but also just thoughts and perspectives on the world. And so we all then gotten this bus with the congressman and the Congressman represents much of Silicon Valley, Ro Khanna, and we went around to five cities, basically meeting with local entrepreneurs and investors and just trying to learn about what it would take to get more capital flowing from established startup ecosystems. It wasn’t just Silicon Valley, we had some New York investors with us as well to other places around the country, starting with the Midwest, the Heartland. You know, in principle, the idea is if it can work in one place, you know, maybe it can work in multiple places, and we can find a way to scale. And the irony, just say is that our fun didn’t invest in still doesn’t invest directly anyplace outside of the Bay Area in New York. I mean, we do occasionally when there’s an exception, but that’s really our focus. And the reason is, because I think they’re great investors, and all these other places, I don’t think I can win. And I don’t like to do games where I don’t at least have a shot of winning. And so we did find others we want to collaborate with. And maybe that turns into stuff down the line. The intent really wasn’t though, to source investment opportunities it was to learn.

22:15
Got it. And so, you know, our mutual friend, Scott Chang, I pinged him and asked him, you know, what questions I should ask you, and he wanted me to ask you how the tour led to a venture fund. Yeah. So very explicitly, when I invited everybody on the VC side, we said, this is a no next steps, expected kind of thing. Because we’ve all been on things where, you know, the soft expectations, you’ll have a plan and next steps. And, and I believe that sometimes that’s necessary, because you want to action. And sometimes you want to take off the pressure, you just want to learn without thinking, what’s going to be asked of me. And so this was very much like that. And then some point through the trip, a couple of the people on started saying, Hey, I think we might actually want to figure out if there’s a way to formalize our involvement in putting money to work in this ecosystem, and being supportive. And why don’t we just start, you know, very typical Silicon Valley approach, why don’t we just start small, and execute and iterate. Sian Bannister talked about it. She’s from Founders Fund. And one of the other investors who was along on the trip, this guy, Robert Wolf, who was an investment banker in New York, and then now has a fund that advises and invests based in New York to others basically just started talking about it, then we’ve just said, Let’s put a few million dollars into a fund led by somebody who is in the place where we want to invest, and where we as investors commit to create relationships between the companies that that person invests in and those who we know, whether it’s mentors, I mean, you know, we spent some time in Flint, Michigan, and it was the most harrowing experience I’ve ever had as an American, just seeing what was there. And then I just thought, how many founders would just love to be a mentor, or just a sounding board to somebody starting a business in Flint, and my guess is that many would, and then we saw ecosystems that are really I think, thriving like South Bend, and not too far from where you are in Chicago. And it was just easy to imagine all the ways to work together. In fact, one of the investors on our trip woman who runs basis set ventures, which is an enterprise focused AI fund, one of the companies she invested in actually parked because of the relationships from the trip opened the second office in south bend. So the idea was to just create a node that could collect some of that bridging, if you will, and the hardest part was to find somebody to run it. And then got Shane, who been an active angel investor, among other roles, sent me an email shortly after the trip, sort of saying, Hey, can we talk on the phone and how do we you know, can extend on the trip and in typical Silicon Valley transactional ism as well, I can’t talk on the phone, but we have this thing going and you know, if you’re interested in talking about that, and then basically, you

25:00
He came to life and just had an idea after idea and practical can do spirit and overcoming obstacles because nothing, even something small is easy. And so now he is leading what we are calling combat capital. And we are proud to be LPs and his fund. And we think of it as a demo fund in the sense that the goal of the fund is to discover a template that we can repeat and scale up. It’s awesome. Scott’s a great guy. He’s telling me about working with him.

25:27
So what surprised you most on the trip?

25:30
Ooh, good question. Well, I wrote a piece for recode on kind of observations on the trip, I would say it was less about shock, than it was about painting in a picture. Like if I tell you, Hey, you’re gonna go on, I don’t know making something up a roller coaster. And it’s going to be thrilling. You’re like, Okay, I gotta be thrilling. And then you won’t be surprised that it’s thrilling. But seeing it come to life and experiencing, it will give you so much of a sense of like, what is that thing, actually, and so seeing the range of concepts that we saw being worked on, and the fact that there were not just one, but many alternative models to the typical, you know, I call it the typical Silicon Valley of throw a Hail Mary to a unicorn, the fact that there were so many alternatives that play was just it just expanded my imagination.

26:18
Awesome. Can we talk a bit about your focus on machine intelligence, and the future of work? Because I know you guys at Bloomberg Beta have this focus on the future of work? The next few years? How do you see developments in machine intelligence impacting this category. So I think the single biggest access for development is not the technology of machine intelligence advancing, although that will influence the very biggest technology companies, companies like Google and Bloomberg and Facebook, etc, I think the single biggest spread we’ll see in the world is just the propagation of simple, well understood machine intelligence techniques, the number one of which is just a simple regression analysis. Invading more and more parts of business, I think, as a modern corporate world don’t really know how to use software that even simple things like statistical thinking, are very uncommon, not the statistical thinking is simple. But even simple statistical thinking is still very uncommon in the modern organizational world, you know, the man in the gray flannel suit, you know, still controls too much of how corporations work. And I think we’ll start to see organizations where software keeps propagating, and it sounds boring, but that’s gonna be the axis. And so we think about I call it my partner’s don’t love it, but I call it little machine intelligence, which is to say applied examples of things where the data is special. And the problem is special. And the opportunity is special. But the technology may or may, every technology requires lots of work to apply it. But the whole of the academic invention aspect, the science invention, part of the technology is not where most of the risk lies. Got it. I’ll give you an example of that. We invested in a company in Seattle called Text EO, that is a word processor, that instead of checking spelling, which is an error you’ve already made, predict the future and tells you about an error you might make. For example, it’ll say, as you’re editing the job description, hey, change this word, and you can get higher quality applicants to apply change this phrase, you can get more women to apply based on data from other job descriptions. And when I met the founders for the first time, I said, Are you guys inventing new technology or just bringing it to market and a lot of founders love to believe that they’re doing something heroic, which but being a founder is heroic, in virtually every case, but a lot of cases founders love to believe they’re doing something heroic whether or not they are? And in this case, they’re like, no, no, we’re just bringing it to market. You know, most of this been invented, we need to do a lot of work to bring it to life. And they’re right. They just won, by the way best company to work for and their size category in the state of Washington. So they definitely worked hard at creating something special. But what they created that was special was not scientific invention. Love it all. Are there other applications? I’m sure there are of what they’re doing beyond? Oh, yeah. Yeah, they’ve already moved into email marketing, emails, recruiting marketing emails, and they’re going to keep expanding. You know, augmented writing is the kind of idea and we invest in robotics companies that use commodity components to provide something really useful that kind of the building blocks are set. Vc is not the source of innovation, we harvest the last 18 months required, you know, government invests in fundamental scientific research at universities and it big companies invest in long term research, we come at the end of the process, and I think it’s just important to be humble, and understand that we are not the Damocles sword of innovation, that we are literally just picking up the last piece, somebody left the plug on the floor, we just stretch the cord a little further and plug it into the socket. You know, that’s what we do for a living. So speaking of VC, what do you think about the asset class and how it’s changing and it may change over the next few years? So I struggled to answer this question. The reason why is that I’m convinced I see such a small portion of the market that any investors need such as

30:00
A small portion of the market that it’s kind of like going to your local supermarket and picking out some delicious fruit and being asked what’s going on with the world fruit industry? And I just don’t know, I guess I’ll put it slightly differently, which is I believe there’s huge potential still, I still believe we’re fundamentally at the beginning of the technology wave. I think that the model of taking risks on people to back them is one, we’re just starting to figure out. People say, Oh, the asset classes overcrowded. It’s like, if you’re chasing the same nine deals started by a three time founder between Howard Street and Folsom Street in San Francisco. Sure, then the markets super crowded, if you are thinking about other places, other models, other industries, you know, we love boring industries, if you told me that one of the most valuable companies in our portfolio, and not boring at all, to me anymore, would be a freight forwarder, you know, shipping broker have laughed at you. But the world in which we live, part of that just personality of optimism, and part of it is I just have to admit, I doubt that I have enough data. And I think one of the cool things about tech is that people in tech tend to think incredibly, logically, and abstractly about problems, which is where they often see new solutions. The problem with that is like every strength that has a weakness associated with it, and the weakness of that way of thinking is that you tend to get into these total views of the world where, well, if I’ve thought about the logic, and it’s logical to me, it must therefore be correct. So a lot of people will reason from analogies and personal experience. And venture capitalists are no different. You know, they’ll see 1000 deals, or 5000 deals in a year. And they’ll assume they’ve seen enough of the market because the market is they defined it as small. I just don’t want to play that game. I think it’s the same reason why a lot of startups and venture firms have had such ethical challenges, challenges with their social engagement is that they convinced themselves based on their own narrow experience, that what they’re doing must be the right way to look at things without the humility and imagination to say, hey, we don’t know. And we’re just trying to figure it out. There’s lots of stuff out there in the world. But easier said than done, right? Like, how do you keep an open mindset and not let whatever criteria maybe you guys have published on get get in the way of the next great founder? Please ask my wife because she’s not figured this out. And she’s right, I think that it starts with wanting to be wrong. Like, of course, we all want to be right. Really, like we want to pick things correctly. But if you act based on wanting to be right, then you prove yourself to be right. As often as you want. You do motivated cognition, you know, where you assign reasons to things based on what you wish were true. But if you want to be wrong, and you take the attitude of a scientist practicing the scientific method, which is you got hypotheses, and you can never prove them, you can only disprove them, and you go around looking for the opposite evidence, then at least you’re more open to it. So that’s one thing. The second thing is seeking out as wide a range of experiences as possible. I mean, I have little kids. And so I really try to avoid travel as much as possible. It was so important to me to go to Flint and Youngstown and Akron, and South Bend and Detroit, because I recognize how different a little bit of knowledge might be about places other than my own for expanding my thinking. It’s one of the reasons why diversity and inclusion are so important, is those are all different ways of incorporating knowledge, like different life experiences make us better in the startup world that what we do, because we’re a world that is fueled on learning. It’s an amazing feeling when you sit across from a founder, and they totally change your perspective. It’s the best. It’s like, wow, what’s what just like, it’s not the first thing and what’s even better than that, I think is once you get to know that founder, and then six months later, they change their perspective, because they’ve learned something new and really change your perspective and are not just addicted to it. I mean, Jeff Bezos has this line about smart people change their minds a lot. Yeah, and I really buy that. Because I think you get new information. And none of us is smart enough. To really understand how the world works. The world is too complicated. We can have approximations for a period of time and we can do our best. Ultimately, we can never know what we don’t know. But if we assume there’s a large, unknown unknown out there and go chasing it, well, then you gradually start to shine light in places where it wasn’t lit before. It’s part of the reason why this job is so exciting. Every day, I feel very fortunate. Hopefully, your wife hasn’t convinced you to switch allegiances to the Packers yet. She has done it this way. We’re not if there were a team, we’d be wearing cheese on our heads. But we’re not a family football team. But if we did, let’s put it this way, good or bad. You’re gay once a year. That’s about you know, that’s about where it comes in for us. Love it. Right. 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? Oh, good question.

34:49
So there’s a bunch of things that I’m curious about that I’ve never been able to get at. One is who the earliest investors and funds are like who says Yes, first.

35:00
With as far as LPs and funds, what does that whole world look like? Because I know that’s very difficult. It’s just not a part of the world that we live in. The other is I’m super curious, especially because of where you are about companies that have multiple locations early on, or experiment with partially remote, partially in person, you know, my views on that keep changing, and I’m just trying to get more information. So it’d be great to have most roundtables on that kind of thing, as opposed to any one person. I mean, I think the thing about our modern industry is that any one person usually already has a microphone, so you can get to know them. But it’s more about topics that I’d love to hear people riff on.

35:42
Right, right, what investor has influenced you most, I would say my partner’s James Cham, and Karen Klein have definitely influenced me the most, they both came to this with much more experience than either I or Shavon, zyliss, who has another partner with us have brought to it. And so there’s just a lot of learning in it for me, and I’m really lucky to have them as my colleagues, I’ve learned a lot from Shawn too, especially about machine intelligence. But those are the two who I’ve learned the most from. Earlier, you had mentioned productivity, and how you’re really focused on that. Are there any productivity hacks that that you use on a day to day basis?

36:19
Tons? Give us give us some tips?

36:21
You know, it’s funny, because I don’t even remember which ones of them are hacks, because I’ve incorporated them into my way of being what I will say, is this. Inbox Zero twice a day. Yep. Batching emails, as much as possible, has completely changed my way of doing things. We absolutely love finding, I think it’s less hacks in some ways than it is tools. And what I mean by that is the following. And I wrote about this once, people talking about oh, organizations are changing, and, and everything is now fluid. And, you know, we went through this thing that was a training on new methods of organization called holacracy, which probably probably some people have read about. And at the end of the two days of holacracy, non hierarchical leadership training, I asked them, How do you implement this complicated system? And they said, Oh, well, you just use our software. It’s called Glassfrog. That’s it. But why did you even put us through training, just give me the software. And if I use it, I’ll be using your system. And I’m exaggerating a little bit, but I do think they, you know, could reverse the emphasis. And it would work just as well are really well, you know, I think about a lot of tools that I rely on on a daily basis, like workflowy, which is an outlining tool that you really, it’s a list maker that allows you to keep nested lists nested within lists of everything. You know, we are Google Suite addicts, obviously, slack in which you know, we have a small steak is another and we like right little bits of glue script to automate our own activities. Like, you know, sometimes the way I put it as I am, my CRM is Mechanical Turk, because it just tells me what to do a lot of the time, and it tells me what to do, because I programmed it in the past. So a lot of it is just systematizing things by picking the right tools, as opposed to oh, well, every day, I look to the right for 25 seconds while I flip my you know, I don’t know, my Pomodoro timer upside down. And that makes me more productive. Like, I’ve just never been able to get an A system like that to really work. It has to be dead easy for me. And so it’s more about what tools I choose than anything else. Yeah, yeah. What CRM do you guys use? By the way? You know what, I’m not sure that the guy who makes it would be saying the name, but I’ll tell you, I’ll describe it. And then separately, I’ll ask him. He’s a one person shop, who makes a CRM for private equity and venture capital. I know you love it. And we just switched for our own company, contactless to affinity, after trying a few different options, admit we’re biased. We’re not the target market. But we are investors in CRMs, that are for other target markets. You know what, I won’t go through them? Because I don’t want to just talk my book for the sake of answering your question. But we use to one for deals and one for people think I know the one you’re talking about. But we’ll save that for another time. And just wrap up here, what’s the best way for listeners to connect with you? Honestly, if you use any platform on the internet, and you can’t find me, please tell me because I shouldn’t be there. And if you can’t find me on the major platforms, then you need to look for another profession because I’m very findable. But I’m on Twitter all the time, you know, robot. And also just add another thing that I think would be fascinating to hear from people on is their own tools. But what do VCs and founders use everyday and people who have thoughtfully assembled their personal productivity stack? I always learn a lot from hearing how people think about that. Yes, yes. That’s why as we don’t really talk about the nuts and bolts very often. We run this monthly event for founders that we call turpentine talks and their founder, the founder kind of practical learning, and it’s named after this Picasso quote, where Picasso says something like it’s the art critics who when they get together talk about form and structure and meaning the big ideas when real artists get together they talk about where do you buy the cheap turpentine? Yes, yes, it’s all about

40:00
The nuts and bolts. Awesome. Well, Roy, this has been a real pleasure. I really appreciate the transparency and clearly everything you’re doing with the comeback city store. You continue to and would love to find things that we can collaborate with you and anything you see out there that we do that you think we’re doing wrong, please tell us and there’s more excuses in the future. Awesome. All right. Well, thank you so much for I appreciate it.

40:25
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 dotnet and until next time, remember to over prepare, choose carefully and invest competently. Thanks for joining us