236. The Four Fundamentals of Investing; the Future of Micro Mobility; and Hunting Consumer Unicorns (Shawn Carolan)

236. The Four Fundamentals of Investing; the Future of Micro Mobility; and Hunting Consumer Unicorns (Shawn Carolan)
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Shawn Carolan of Menlo Ventures joins Nick on a special Crisis Coverage installment to discuss the Four Fundamentals of Investing; the Future of Micro Mobility; and Hunting Consumer Unicorns. In this episode, we cover:

  • Tell us about your background and path to venture.
  • What’s the thesis at Menlo Ventures?
  • Can you explain the “Four Fundamentals” framework for investing and give us a brief description of each?
  • What are you looking for in terms of unit economics?
  • You like to invest in technologies that change everyday life for the better.  Do you have a sense for the needed technologies and then find founders in those areas, or do you identify compelling entrepreneurs that then guide you to emerging technologies that will shape the future?
  • Have you been in the situation where you identified the right consumer trend and technology required to deliver but you picked the wrong startup?
  • Is there a priority of importance amongst the four?
  • Which do you think investors most often get wrong? 
  • Let’s talk about consumer a bit…Many VCs think that consumers and consumer behaviors evolve quickly in unpredictable ways.  And b/c of that many VCs avoid consumer.  What’s your response?
  • We’ve seen an explosion in Cloud and SaaS recently, and some question whether there’s room for another big consumer company, what is your response to this and which areas do you see the biggest opportunities in?
  • Before the pandemic, the future of scooter companies was murky with challenging unit economics and fleet maintenance… while governments were, in some cases, were imposing regulations and putting a halt to deployment.  What does the future hold for the scooter companies?
  • How do you view these situations, like scooters, where there’s low differentiation and a number of players trying to scale and grab share quickly?
  • Any other micro-mobility trends that you’re watching closely, aside from scooters?
  • Changing gears away from micro mobility and into AI for a bit, why do you think we haven’t seen many unicorns in consumer AI?
  • Where (sectors, categories) do you think the initial consumer AI unicorns will come from?
  • Let’s say that you have a micro mobility company that is currently operating in 3 cities within one region, grossing $500K monthly and growing 30% month to month.
    • Which 3 data points do you ask for and why?

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Transcribed with AI

Intro 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.

Nick Moran 0:22
Shawn Carolan and joins us today from Menlo Park. Shawn is managing partner at Menlo Ventures, a firm that invests in seed early and growth stage companies. A major emphasis of Sean’s investments is in technological shifts that improve people’s everyday lives. He’s a perennial member of the Midas list, and also the founder of handle. John, welcome to the show. Snake. Yeah. Talk us through your background in your path to venture.

Shawn Carolan 0:49
Background. I grew up not too far away from you. I understand. You’re in Naperville. And it’s Ryan Allen when I went to high school in Chicagoland area and loved machines, thrown out rode motorcycles. I ended up studying electrical and computer engineering at Illinois, worked at a startup in Chicago, back when there were not many of them. Which one was that? There was called open port technology. Oh, cool. We we wrote servers that would store and forward faxes, and then use the old dial up modem ports to send and receive those faxes. Do you want to

Nick Moran 1:25
explain to the audience what a fax is?

Shawn Carolan 1:29
dating myself for sure. And then I moved out here to California in 2000. went to Stanford Business School and joined Menlo right afterwards and Oh, two.

Nick Moran 1:39
Very good. And tell us what is the thesis at Menlo Ventures?

Shawn Carolan 1:45
Well, the firm, we say we go all in to help uniquely capable entrepreneurs build a better world. And you know, particularly open to any thing within Information Technology, where you say I have this important unmet need good unit economics, I’ve assembled a team that can actually build this thing. And then some pattern that can get you to kind of global scale, you know, we want to find the best company solving the most important problems on the planet. Have

Nick Moran 2:16
you guys made any commitments since the pandemic broke in March?

Shawn Carolan 2:22
Quite a few. We’ve got several in Lille right now, the couple that have closed quite recently and been announced, we’re in the healthcare space. So rivet and particle health, particle health is kind of an information platform that a little bit like plaid for the health course care system. But next gen developers talk to all of these esoteric systems to get health care data out. And then real bit health is really about shortening that pay cycle, a lot of doctors kind of sit on insurance claims and, and other things for six months before they get paid. So this shortens the whole, that whole path of like, you know, consumer, knowing what they’re going to pay Doctor getting paid faster.

Nick Moran 3:05
Any changes to approach or categories of interests due to shelter in place or anything that’s going on? Yeah,

Shawn Carolan 3:13
I mean, as you I’m sure have seen, you know, this pandemic and sheltering in place has either I think, for pretty much all of our companies gone one way or the other, for the business, and another Chicago company, just as one example that that we’re investors in called shipbob. has, has seen business boom, you know, they’re, they’re, you know, well ahead of their plan right now, because a lot of people are ordering a lot of stuff online, what do you know, and then anything that touches, you know, travel or real estate has just been hit? So, certainly, I think the ones that we’re looking at right now and moving forward on are those that benefit from the tailwinds, I guess of, of these crises, and so remote real estate type of stuff where you know, you have to get to job sites and assess what’s going on. There is one that we’re in legal in right now. I mentioned these healthcare, recently wheels of health care next generation systems to help people make decisions remotely. We’ve got some coming in on the evaluation list right now. And basically, I think anything that touches How do you get to be more productive without being there together?

Nick Moran 4:31
Yeah, I was. I was looking recently and shipbob made the anti portfolio for new stack. Right? Yeah. And I was trying to figure out what we pass I went through all the old emails and it turned out at the time we we only had an AngelList syndicate. So this is pre fund, and we had done one investment. And our second investment was coming down to two different options. And we didn’t we couldn’t run two at a time. So we had to pick one And we pick the other one. Now, the good news is, the good news is the other one did great. So

Shawn Carolan 5:07
it’s something you don’t actually know yet.

Nick Moran 5:10
Right? Well, you know, all these things take a while to play out, but Well, good. Well, you know, I want to talk consumer. And I’d love to get some of your thoughts. I mean, yet, you kind of have a who’s who have investments that you’ve done Uber and Roku and chime jump Siri, amongst many others. But before we do that, let’s talk about your four fundamentals. I think that sets the frame, well, can you explain what they are, what the framework is, and then maybe a brief description of each? Okay,

Shawn Carolan 5:39
sure. So yeah, without the benefit of a, of a whiteboard, it’s always best to draw these out. But you have to imagine, you know, four overlapping circles, we’re right in the middle, all four of these cross. So it looks a little bit like, you know, cloverleaf pattern, and you find a bunch of companies that have, you know, three of these, and then there’s dysfunction of some form or another. And then these, you know, unique companies that happen to have all four of these fundamentals are the ones that we found, go on to be the, I think I’ve almost pillars of the tech ecosystem, right. And then all of the names that you mentioned, and the ones that, you know, maybe in the Menlo anti portfolio, you know, Google’s or Facebook’s, whatever, they all have these four. Okay, so I’ll walk you through them. So one, and I think is where it all begins is serves a widespread and important need. Okay, so need is like, I think depending on the customer, and you could kind of I’ll talk about and consumer attorneys, but you can also use this for enterprise, but for consumers, you say like, I don’t really care that much about technology. I have a life and I want my relationships to be, you know, strong and loving. I want food on my table, I want a roof over my head, I need to get where I need to go, I need clothing, like the basic staples of life are pretty stable and have been that way for many 10s of 1000s of years. And so if you say this is truly an important knee, it probably taps into one of those. Okay. So that’s the important part. The widespread part is everybody has this, right. And so, you know, as great of a company as peloton is, I think not everybody, you know, needs a $2,000 bicycle in their basement, you know, as opposed to chime, which everybody needs a checking account, right? Like, if you have a paycheck, you probably would prefer not to cash that and put it on your mattress, you know, you want. So that hits the widespread important need part. And that’s where you know, in the world, if you’re not creating something that the world already kind of wants, then just nobody’s going to buy it. And ultimately, the customers on this planet are humans, and the human has to make a decision that like, I like my life better with you in it. When it’s speaking of the product. Yep. So that’s the first fundamental. And some people may call that market. But there’s a lot of nuance, I think, to get very clear in in it being a need. Okay, so then fundamental to is a uniquely capable team. And that, of course, is depending on what that is problem is that you’re trying to solve? What exactly is required of that team in order to solve it? It varies, right, I think you look at, yeah, kind of a chime. And you need a lot of financial regulatory know how there’s a lot of interesting pieces of the way that system works. To navigate that, well. You needed like that kind of compliance and financial services mindset to build code that can scale and interface with these payment processing and other things you need, like a uniquely capable, technical team that knew that that world, and each company is a little bit different that way, you know, what is it about this company, some companies, Pinterest, need great designers, other companies Google need like great algorithmic engineer. So you really need that right team to unlock that problem. So that’s fundamental number two. Fundamental. Number three is the scalable, repeatable growth engine. And this is, you know, how do you take the widget that’s creating this value solving the problem, and basically give that widget to everybody in the customer base, right? You want to give the same basic thing to a million people. That’s where you get leverage out of information technology, there’s like one piece of code, or one piece of hardware that I can send off to a contract manufacturer and I could basically take that and give that same product to everybody and scale it up. Right? There’s some scalable production engine software is particularly easy because it’s just bits and as long as there’s hard drives on the planet or you know, flash array on the planet, you can just copy those bits zero marginal costs for production. Yeah. But the idea of of I mean, this becomes particularly nuanced when it comes to how quickly can the customer find this value. If you see all this focus on onboarding processes, and first time user experiences, like, if it takes me three or four days before I can get capture that value, it’s not a scalable, repeatable growth engine. Because there’s, there’s not that many people on the planet that have three days worth of patience to figure your thing out. So you know, this time to value you want somebody within the first minute to really understand here’s why this is important to me. And then like within the first, you know, 510 minutes really like start to see, I’m getting value out of this. Because even if you’re not asking for money, you’re asking for time. And then the last one is compelling unit economics. This is another one that advantages software where you basically have zero cost of production, you may have your server costs for AWS of a SAS. But when you get into the hardware markets, it’s really important, right? The scooter markets or something like Roku, where you’re shipping, little black boxes, to make sure that you’re able to ultimately generate more value in the form of revenue and contribution margin than it’s costing you to serve. And this is probably where you see the most expensive mistakes is you have all of those other three fundamentals, you do not have compelling unit economics. And then you find yourself with your, you know, s one perspective going out. Like we worked it and everybody’s like, wait a minute, this is a crappy business. And we call those the crater. You know, each one of these, if you’re missing the fundamental has like a trap associated with it. So the crater is it’s gotten tons of capital, it’s gone to way too big of a scale, but without the solid unit economics. And so you just, you know, you don’t have a great business there. What

Nick Moran 11:47
are you looking for in terms of unit economics? And how do you assess them early stage when they’re not? Quite fully baked? There’s no economies of scale?

Shawn Carolan 11:59
It’s a great question. I think there’s, I’d say a set of things. That, I mean, you assume obviously, as an investor, you know, what are via what, what assumptions in a plan are violating the laws of physics? And what are straightforward engineering? Alright, so I’ll give you an example. I’m a scooter company, and you know, right now, and my cost of goods on the scooter are $400, right? I’ve got the frame, I’ve got the engines, I’ve got these sub assemblies. And you kind of say, Okay, well, maybe you’re losing some money right now, because you’re selling your, you know, scooters at $500. And it’s caused calling you it’s costing you $100, and CAC. So you’re kind of like breakeven, essentially, the economics, but the contract manufacturer is charged me 400. As soon as I hit this volume, then they’re going to, you know, willing to do a quantity deal on some to me for 300. So there is a pretty straightforward assumption. Right, like, I see, I know, economies of scale. I know, volumes. I know, you know, the cost reduction patterns and other things that I’ve seen manufactured volume. So that’s kind of like in a business plan. Okay. I think that’ll happen, as opposed to, you know, again, not to pick too much as we work today. But but you know, that is a pretty tricky one, because it was like, we’re signing these long term leases, right? The on these buildings for, you know, 10 plus years. And I’m trying to get those desks to 100% utilization. But you know, nobody’s ever at 100% utilization, you can kind of look across all the markets, what percent utilization do did I get to? What are the rents, rent revenues? How many people do I need to staff that and you look at that whole economic equation? And it’s like, wow, well, you’re already in, you know, four or five, six cities, and none of them are really printing money yet, you know, that’s a problem, because I don’t know what else you’re going to do. to juice the rents up. I mean, real estate is a competitive market, people are looking at we work and they’re looking at this empty office down the street, on your vision, cost

Nick Moran 14:07
that is fixed if you’ve got a 10 year lease, right? Yep.

Shawn Carolan 14:11
You so it’s really that I think, I think early on, you’re just forecasting, you know, what do I know, you know, smart people who are working hard are going to be able to figure out and what are these things where, you know, they need to kind of like magic has to happen, I always am skeptical of the business plans where you get to this point, and then like something magical happens. And then all of a sudden, we’ve got a great business.

Nick Moran 14:37
I want to talk about magically but I’m not gonna go there. So you’d like to invest in these technologies that change everyday life for the better. Do you have a sense for the needed technologies that will need to come? And then do you find founders in those areas working on those problems or, or do you tend to identify, you know, compelling talent, compelling entrepreneurs, and then they guide you to kind of the emerging trends or technologies that that will shape the future.

Shawn Carolan 15:08
It’s both. This is something we track internally really closely. And I think of that as, you know, proactive versus reactive investing. And we’re about 5050, our internal KPIs to be north of 50%. Thesis oriented, investing, but you don’t see everything. And sometimes you’re near an area, I think of our Uber investment, you know, we had gotten very early into mobile, and we’re like, okay, 2005, I think it was our first mobile investment, a company called mobi TV, that was streaming TV. And it was pretty obvious, right? You understand technology, okay, this is a little computer in your pocket, it’s connected to the internet, and it’s just gonna get more and more capable as time goes on. So being in mobile, and then, you know, we had our first location based investment, I think it was 2007, maybe was Telenovela, which was the very first turn by turn directions. It’s kind of like, wow, you know, people have maps, and they’re trying to get where they want to go. And this is going to be really useful. So you, you start to see it one thing at a time, but I was not saying Oh, my God, I hate being at the corner, with my hand up waiting for a taxi. Somebody needs to reinvent this market, it was just kind of like learned helplessness is how we kind of think about it, you learn to deal with the constraints that you have, given your mental model of the world at that point in time. So that when Uber came along, and I experienced the product, I was like, wow, you know, that was magical. This is something I do all the time, I gotta get from point A to point B. And this is a better and faster, cheaper, better, faster and cheaper way to do it. So so that was reactive. I mean, we heard about the product obviously sought out, you know, chasing the entrepreneurs to get it. But it wasn’t like we had up on our whiteboard, reinvent transportation at that time. There’s other ones that we do. And I think, you know, part of this four fundamentals framework, and what we call our utilitarian consumer thesis, is just look at humans. Where are they spending their time? And where are they spending their money? Those are ultimately, you know, the two commodities that you and I and everybody who’s listening to this podcast have that we make a decision over? Where are we going to put our time? Where are we going to put our money that represents our value system? What do we think is important, and if you see, all of a sudden, hey, here comes a new technology that can save them time, or save them money, or in that time and money, give them a better, better experience. The needs are already there. But you know, now you can do that, that better. And so all of the companies we’ve talked about so far, and I’m happy to dig in any one of them against the framework, but you say like, that should change. I mean, autonomous driving is a great example. That’s a pretty obvious one. You just see how many people spend how many hours commuting? And yeah, I used to listen to podcasts and drinking your milkshake and, and maybe talking on the phone, but you would certainly rather have your laptop out or be taking a nap or something like that. So an autonomous car is kind of an obvious one. Wow, there’s both a lot of time and money that’s going into getting me commuting to and from work. The ones that are kind of less obvious, but very subtle, are projects we’re working on right now. You know, we have a seed company that lets you order a full basket of groceries based on a recipe. It’s called any cart. So you can say like, well, hmm, you know, there’s 100 million uniques, two recipe sites in the US right now. What are they probably doing with that recipe, they’re probably printed out, or putting it on a grocery list, and then going over to Instacart and typing that in or going to the grocery store and picking them out? Like what if I could just you know, push a button on that recipe. And all that stuff would show up at my door? That would save me time and money. Right? Well, that’s existing behavior better? Yeah. So I could give a bunch of examples. But I think when you start looking at the world, like an anthropologist, you just start to see all of these crazy things that we still do, I mean, email to this day, and I know 37 signals just launched a, which I think is a good kind of cool reinvention of thinking about what are you actually trying to accomplish with your inbox, but think of like how many really smart, really valuable humans? How many hours goes into looking at emails that my life would have been just as good if I never spent those mental cycles on them? Yeah, I’m with you. It’s insane. I mean, there’s trillions of dollars. It is. Well, I

Nick Moran 19:43
mean, there’s so everyone, every venture person who says that, like the application layer, you know, is has been fully baked, and there’s no more technology opportunity there. And it’s all about new platforms. I just, yeah, I couldn’t disagree. More I feel like we’re only scratching the surface of all the friction that can be eliminated from humans lives.

Shawn Carolan 20:07
For sure, for sure. You just don’t they don’t they don’t see it. You know, I’m not gonna name names but percent that needs to spend some time. Die with me. I mean, I see these problems everywhere. It’s almost like an affliction.

Nick Moran 20:23
Right? Yeah, I call it sort of the the optimistic, contrarian, it’s like you walk around, you just see problems everywhere. But you also think, well, that could be solved this way. Yeah,

Shawn Carolan 20:33
like, I mean, screentime, I’ve got three kids are on lockdown, you know, two of the boys. I mean, they love the video games. And you look at how many parental fights are just trying to steer behavior patterns of kids towards some mix of like consumption and production, like that should be really easy. For me, as a parent, I should be able to say, hey, you know, for every hour, a good time, one of these guys is spending on the internet, learning something, you know, researching, testing themselves, pushing their knowledge coding, like all of those are good activities. And, you know, YouTube, tic tac, you know, that he listed things are like, less good. I mean, I don’t think they’re bad, they’re fun, they blow off steam, everybody deserves some some downtime. But I just want those to be in balance. And so, you know, where’s my dashboard is apparent where across all their devices, I could just say, like, yeah, you know, 5050 Feels good today, or no, I’m gonna, you know, 75% production today, and just, the system works for me. So there’s just a million things that could get better.

Nick Moran 21:40
Good point. I mean, there’s a lot of lossless entertainment out there. And then there’s, there’s plenty of things that kids or adults can do that entertain and also level up skills at the same time. But, you know, you brought up something interesting, you know, as I think about forever, Uber, there’s, there’s the sidecar. And for every Siri there’s, you know, a slew of voice assistants. It’s just did not work. Right. So have you ever been in a situation where you identify the right consumer trends and the right technology require, but you just pick the wrong startup?

Shawn Carolan 22:16
Absolutely. I mean, my very first board seat was a company called a cinema now, that was in 2004. And they were streaming movies over the internet, in 2004. Wow. And then this little other company here in Los Gatos, called Netflix, you know, came up with a better way to do it. So there was yeah, what am I quite like, that’s, fortunately, you know, we got roku. So some of the times you make mistakes, you’re still pushing your own mental model getting really smart in space. And then you can find other investments surrounding them that can make you the money. But yeah, it’s certainly challenging and suddenly trying to do I mean, especially as a multi stage fund, sometimes you like a company, or you like a space, and you’re like, I just, you know, I, I like this lower cost basis right now, the a round, but I just can’t convince myself that this is going to be the winner. And, and at least as an investor, you’re always better off if they raise the next round, making sure you pick the winner versus, you know, getting in early,

Nick Moran 23:23
I guess, as part of the challenge of being hyper specific with a thesis, right? If you’re really, really focused, there’s, there’s a lot of risk and picking the wrong winner in your space.

Shawn Carolan 23:36
It can happen, certainly, but that’s part of I think, what makes it hard, like, you know, Siri, I think is a good example. That was, let’s see, I think that was 2008 when we invested in Siri. And like, like, this has been in sci fi movies for decades, right? Oh, you know, talk to the computer, and it talks back. And so I think part of what got us there is three different thesis series that came together for that one and the one you know, it was like web three IO, how do these API’s talk to one another, there was this kind of chatterbot thesis. For theirs. There’s like a sort of humanoid thing at the other end of a communication channel and just lights up people’s imaginations part of the human nature. And then the third was a voice as a user interface. And you know, when we came across Siri, even though it was early, it was just a spectacular technical team. Doc hitless is another Chicago resident, who is the founder you know, he came in to Sri as an EIR. Adam Shire was at SRI as a research scientist. And then Tom Gruber was their third co founder, but they just had a you could tell he’s this is an incredible technical team, like great operators, good storytellers. The the architectural approach that they were taken was very differentiated from everything else I had heard. And as a computer scientist, it just made sense. Like, look, I don’t know Think this is gonna be AGI you’re not just gonna like, hey, computer, you know, tell me what I should do tomorrow to lead my best life? You know, that’s pretty hard question for, for a computer to answer. But hey, what movies are showing within 10 miles of my house? And can you buy me a ticket for that? Like, that’s a pretty constrained problem. Weather reminders, right? They had a list of five or 10 domains where they could get expert and just, you know, reducing that friction was going to be a good one. So anyway, that was when we took an a round bet, but it doesn’t always happen that way. Sean,

Nick Moran 25:34
you got to keep some of these University of Illinois computer scientists and engineers here at home in the Midwest. Grid, taking them all out to the coasts, I know that you’re gonna

Shawn Carolan 25:47
fly to Chicago. We love team ship. All right, well,

Nick Moran 25:51
we’ll send some your way. So Shawn, you know, many VCs think that consumers and consumer behaviors evolve too quickly, and in unpredictable ways. And because of that, a lot of VCs just say we’re going to avoid consumer altogether. What’s your response?

Shawn Carolan 26:10
I think that’s great, because we’re happy to invest in companies. No, seriously. It’s nuanced. I mean, like, I think you talked to anybody who’s good at their job. And they will have a an algorithm that they use to deal with new situations. And like I said, I mean, there’s certain consumer companies, I just don’t think I’m the best step at picking or Menlo is the best to picking. I think if it’s like, what’s going to be the fall fashion? Or what’s it gonna take to sell a new type of bottled water? I don’t know. No idea. Right? Like, that’s branding. And I’m sure there’s people who could unpack branding for you in a way that would make sense. I mean, my, our consumer, theses are pretty straightforward, right? Again, it’s like, look at the behavior patterns. See where the new I call them? ingredient? technologies. So So AI, robotics, machine, vision, you know, voice assistants, IoT, AR VR, like these are all just pieces, right? Those are not solutions. Those are new pieces that small teams can use. And I think of almost like assembling those pieces with new software into a solution that solves one of these problems. So you say how are these new pieces able to reinvent these existing needs? You know, that’s where you unlock. And I often explained Uber as, like if you didn’t have a smartphone, right with a broadband connection if you didn’t have an app store so that both writer and driver could download the app if you didn’t have a cloud telephony API from Twilio. So that to be who never met, could set up a synchronous voice call with each other, you know, all of those pieces, those ingredient technologies were required for a two pizza team to make Uber. But once those were there, it was like, wow, this is just obvious, right? All of a sudden, now you’ve got this kind of globally scalable, logistics network where anybody who, you know, got the driver’s license when they were 16 can become part of the supply. And then anybody who needs a ride can become part of the demand. And the software does the matchmaking it’s pretty incredible thing.

Nick Moran 28:29
Totally, it’s amazing. So we’ve talked about mobility a couple of times now. And, you know, before the pandemic that the future scooter companies was a bit murky. And there’s been some challenging unit economics and fleet maintenance issues. Of course, they’re the government’s in some cases, were imposing regulations putting a halt to deployment. What do you see as the future for these micro mobility and scooter companies?

Shawn Carolan 28:59
It’s a good question. I mean, it’s still a challenge time because just people are not moving as much right under shelter in place. You’re in place. So we’re we are definitely seeing upswing. I mean, there’s two different fundamental models. One is in shared, one isn’t owned. And I think both of those serve serve different markets. So we’ve got Investment Committee called skip, which is in the shared space and the open space, a company called you Nagi. And I like to think of the archetypes of these Micromobility users as there’s sort of three clusters. One is the commuter. One is the tourist. And the third is kind of like the ad hoc trip, right? And you just say again, in the spirit of this job to be done. Anything under three or four miles in an urban center, you’re probably going to be better, faster and cheaper on a micro level. ility vehicle, as opposed to take in a car. And so you look at a commuting use case. And it’s like, you know, I used to take the Cal train up to the city, every time I get off the Cal train, I need to get another half mile to my office. So that’s one, I just, I never want to be there and have a scooter not be available, or I never want to see the scooter I’m about to get on be broken. And it’s something I do, you know, in my case two days a week, but most compute commuters, it’s five days a week. So if it’s a regular repeated pattern like that, we think that’s better for ownership. If I’m a tourist, I’m in DC this weekend, or I’m up in San Francisco walking around the bridge, that’s much better for shared, right, I don’t want to have to have to haul my personal scooter around in order to cruise around at 15 miles an hour instead of walking around, you know, three miles an hour. And so frankly, I just think both of those are going to be big markets, but just you know, different different use cases. So still, like I say, a challenging time, but I actually feel like the future future Micromobility is very bright. And I’m frankly, you know, happy to see a lot more rational economic behavior. I think this is a great example of unit economics not being in place, a lot of the, you know, the bird the limes, the skips, like, everybody was so aggressive to get out there and get, you know, these permits and get their scooters in people’s hands. They didn’t, you know, shouldn’t they didn’t pay attention to the unit economics but didn’t emphasize solid unit economics as a constraint to growth. They sort of grew, despite the unit economics. And then it was like, wow, the more scooters I put out there, the more money I lose. Yeah, when the capital markets are strong, and people will write you 100 million dollar plus checks. That’s a good thing. But when the capital markets tighten, you know, he actually care about that human economic equation, kind of

Nick Moran 31:54
a disappointing situation for jump the way that things played out.

Shawn Carolan 31:58
It was there was super disappointing. You know, it was still many would argue the best ebike on the planet. But you know, I understand it, it is because of the nature of this business, right? It is something where you have to put out a lot of CapEx, right, you’re buying these vehicles, and then you have to make your money back on those vehicles over some period of time. And obviously, you know, Uber is on a path towards profitability. So you know, for them, it just, I guess it felt like, we had invested in jump, and then Uber bought them. I guess it was 2018. I think I’m remembering right. So yeah, you know, it’s one of these things, sometimes there’s there’s no right answer, you know, for Uber getting to profitability, it was probably right not to, you know, pour hundreds of millions of dollars more scaling that to global scale, but you know, for having that great of a product and team not be able to see their dream later realize I’m sure it was both disappointing to them. And certainly to me. I mean, I partly do this, obviously, to create financial returns for our investors, or I’m not doing my job. But, you know, I care a lot about just what are these things accomplishing on the planet, and I just think Micromobility is one of these things, it’s great for the environment, it’s great for people and if we really remake the cities, to be conducive to that I mean, it’s a it’s a very different place, you know, reclaim some of these parking spaces on streets and turn them into bike lines, make them protected so that people aren’t getting hurt. And I think you know, just spirits will be lifted as you buzz around the city with wind in your hair instead of like, you know, in a in your metal cage. Yeah,

Nick Moran 33:47
the first time I got on a scooter was was actually an Austin. It was a lime scooter, I believe. And it was just such a refreshing thing not to have to wait for the Uber nothing against Uber. Yeah, wonderful. But I mean, just grabbing it and go, and then just parking it. I got to my destination. It was over a mile away. It was multiple miles, but I got there much quicker. Yeah, for sure. So, you know, how do you view these situations like with scooters where there’s maybe low differentiation and a number of players that are trying to scale and grabshare quickly?

Shawn Carolan 34:24
As in like, how do you pick pick a winner there? What’s

Nick Moran 34:28
Well, yeah, how do you navigate a space like that as a venture investor where it’s, you know, it’s a land grab, and it’s just going to require, you know, gobs of capital to grab the market, you know, as opposed to building maybe a sustainable differentiated product that has kind of a more of a moat around it can’t be just copied. Yep.

Shawn Carolan 34:54
Let’s see it so so in ownership space, I think it is much more like a traditional product. company and you look at like naggy, that’s what they’re doing is okay, let’s go with a vehicle design that’s sleek and light, and has the power balance ratio, right, let’s kind of market it in a certain way. And they’re just trying to make the absolute best scooter for ownership. So and they are, you know, they’re getting great, great reviews in the shoot offs. So it’s kind of like back to that job to be done. If I’m trying to solve this problem, I have a business strategy that reinforces that. So that’s the analogy. One is, let’s get it, you know, light, let’s get the range, right, let’s get it to be beautiful. And let’s get it at a price point, you know, people can kind of afford and really fall in love with and enjoy as part of their vehicle arsenal. For the shared space, it’s actually much different right there. You say, you know, being a great steward to the cities, and consumers of the cities and to business owners is actually really key. So I need to operate in a way that the cities will think of me as a partner, and give me more permits. I mean, ultimately, that’s just a constraint to growth for every one of these scooter companies is I have to put in a part of my physical infrastructure on the city streets, which I don’t own. And I do that at the good graces of the city, usually the Department of Transportation for that city. So there it matters a lot, you know, can I get the permits one to you know, can I operate? The scooter fleet? Well, you know, get the scooters to the right places, keep them maintained, keep them clean, keep them safe. Three is is the vehicle design still be think of like, if I’m going to optimize a vehicle design for a fleet first scooter, it’s going to be very different than an ownership first scooter. I want it to be you know, robust, I want to be solid, I want to be able to run over a pothole. And for that, to fall off it, I need GPS, instrumentation in case somebody you know, walks up with this thing. So I could find it, I need range, because it’s not just one trip to and from work. It’s, you know, 20 trips during the day from each person who rides it next. So, you know, for that particular market, the ownership, I think what matters a lot now is probably the permits and those that unit economics like can this scooter which is costing, you know, somewhere on the order of $1,000? Let’s say, can it lasts long enough not be stolen, and produce enough contribution margin over the life of that asset to you know, throw off cash or else you’re gonna you have a crappy business.

Nick Moran 37:31
Right, right. Yeah. And just final one on mobility here. Are there other things aside from scooters in the micro mobility space that you guys are tracking closely?

Shawn Carolan 37:45
Probably that micro, I would say mobility for sure. I think there’s some really interesting ideas. We haven’t made investment grade yet. But I, I’m a huge believer in long term of V tall, the vertical takeoff and landing, think of like a drone, right, the quadcopter. But that can carry humans. So Uber has this program called Uber Elevate, but there’s a bunch of next gen vehicle suppliers for that space. So that I think is just going to be transformative cities, it’s the noise profile and the range and the weight. You know, there’s a lot of engineering problems to solve there and even regulatory with the flight that FDA flight one drawn a blank. FSA. FSA. Yeah, let’s safety. So, you know, that’s gonna be a really interesting one. I think there’s some interesting ones out there for more like mass transit. So, you know, my father was an ironworker on the l love the L, you know, I’m probably got to get go to college paid for because of the L so not to knock it. But like, Okay, that’s a, I don’t know, how many 100 innovation like, Okay, if I had smart, autonomous electric vehicles, that were going, you know, kind of, on and off that shared rail and knew where each other was and optimize for speed. I mean, like, you know, you could you could take a public transit, take public transit through fares that are already there, and, you know, retrofit them in some way with more intelligent electric, autonomously controlled vehicles and it could just like, you know, the throughput numbers could go through the roof. I feel like look how you look at a train tracks, you know, what percentage of the time is that train track idle? I mean, that that gives you a sense of what’s the potential opportunity for improvement, you know, 100x Yeah.

Nick Moran 39:48
Unbelievable. Yeah, I’m still waiting on the the Marty McFly. True hoverboard.

Shawn Carolan 39:55
You gotta look at some some of these beetles are really, really amazing. And you know, Are you looking at a drone like, okay, it works like that thing flies around and takes great pictures. Now you just gotta get it to the point where, you know, you and me can hop in and fall out.

Nick Moran 40:13
I spent my career taking chemistry technologies that were human scale on bringing them down to nanoscale and Oh, interesting. And now we’re talking the opposite, right? How do we bring small little drones and bring them to the human scale? I love it. Right. So last consumer question, sort of on the topic of conspicuous consumption? What about needs that are real needs that only apply to maybe a, you know, mass affluent population today, but may apply to all consumers in the future? You know, how do you approach consumer technologies like that?

Shawn Carolan 40:54
Well, I would call it Uber was kind of like that, you know, their initial tagline was everybody’s private driver. So I mean, you could just look at the, you know, look at the income levels across the country. And you can say, like, Okay, how much can people afford in different areas. So, you know, a true private driver, hey, I have somebody, let’s just say I’m paying him $20 an hour, okay. And they’re going to work for me 40 hours a week, for the whole year, that’s roughly 2000 hours in a year. So 20 hours an hour, that’s a $40,000 employee, I mean, not many people can hire a $40,000 employee just to follow them around away for them. So that’s very expensive, but, you know, rich people had that private drivers, and then you come up with this different system that just fundamentally reduces the cost structure of offering that. Now, it’s a Prius instead of Lincoln towncar. And now it’s somebody who’s on their lunch break and is happy to, you know, pick up 10 bucks, even if it takes them 45 minutes, right, like, so. That’s the key, I think, is is is less, I think, always people want these needs met in a in a superior way. And that’s where you see people who do have a lot of disposable income, you know, finding solutions for, for meeting those needs. And the key is, how do we now bring the cost structure down, I think this is where AI, I think is going to be very interesting is, you know, a lot of the human decision making that AI does are things you have to offload to, I need an assistant to do this, or, you know, it’s gonna take me two or three hours to do, you know, as AI becomes more and more part of our lives in a lot of these decisions, will be automated, a lot of employees are just doing, you know, super routine, manual labor, you know, there’s gonna be algorithms that’ll do that. And frankly, they’ll just get freed up to do other more creative things that the human mind is particularly good at.

Nick Moran 42:54
Shawn, what do you know, you need to get better at

Shawn Carolan 42:57
context switching? You know, forever is easy. This is my I think my number one. Don Quixote is quest in life is a productivity tool that will help me always stay focused on the right, the most important thing and get it done before moving on to the next thing, so if I could do that, I think that would be pretty amazing. I’m working on it. Have a little project on the side, you know, and that entrepreneur that’s, that’s doing that? So that’s one and then two is empathy? I think you know, you, you always go forward to your deathbed and you say, you know, what are you going to care most about? And it’s like, you know, to the people that I love, be loved by me. And, you know, did I help other people on their journey, and that’s something that I’m trying to get better and better and better at, I think, as an engineer, you know, I just deeply trained to be an individual contributor. And I think as a manager, I really want to, you know, be an exceptional, you know, mentor and teacher and support other people in achieving their dreams. And it’s just, you know, it’s a it’s a tension, always between those two.

Nick Moran 44:13
And finally, Shawn, what’s the best way for listeners to connect with you and follow along with Ben Menlo?

Shawn Carolan 44:18
Probably email Shawn SHA wn at Menlo vc.com.

Nick Moran 44:26
We’ll have to get you all set up on hey,

Shawn Carolan 44:28
there you go. I do have an HEI address. I am not using it that much. Maybe I should actually give that one too. I think it’s Sean C. SHA wn C.

Nick Moran 44:41
I haven’t checked it out yet. But I’m looking forward to it, you know, Chicago based company there. But John, this is a real pleasure. Thanks for doing it. I really enjoyed it. I thought we had some great insights here and looking looking forward to the next one.

Shawn Carolan 44:54
Thank you so much for having me, Nick. Really appreciate it. With

Speaker 3 45:03
that, we’ll 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 to 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