237. Advice for Founders — Reaching out to VCs, Pitching over Zoom, and Closing Capital Amidst a Pandemic (Nick Rishwain, Hannah Konitshek, Nick Moran)

237. Advice for Founders -- Reaching out to VCs, Pitching over Zoom, and Closing Capital Amidst a Pandemic (Nick Rishwain, Hannah Konitshek, Nick Moran)
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Nick Rishwain and Hannah Konitshek of The LegalTechLive Podcast interview Nick to discuss Advice for Founders — Reaching out to VCs, Pitching over Zoom, and Closing Capital Amidst a Pandemic. In this episode we cover:

  • How have valuations been impacted from the pandemic?
  • How long will lower valuations persist?
  • Are VCs actively doing deals right now?
  • What’s the most common mistake that founders make when approaching you for funding?
  • How much information would you prefer a founder share with you upfront (deck, financials, incorporation, docs, etc.)?
  • How often have you met a founder early, been added to their monthly update list and then come back to make an investment?
  • Should founders become more clinical when selecting investors?
  • How do you convince founders on New Stack as an investor?
  • There is one area that New Stack is really hands-on — what is it?
  • What are some things a founder can do to get funded while  he’s only got a well thought out idea and business plan?
  • Many founders don’t know if their business is venture scale.  How do you determine if a business is venture-backable or not?
  • How does a sector that hasn’t had huge exits at large multiples (like LegalTech) impact the way you assess startups in that sector.
  • How do you evaluate high recurring revenue vs. low recurring revenue?
  • Do you have any suggestions for a founder that is pitching now that it is completely remote?
  • Overall advice you’re giving your portfolio companies right now?

Guest Links:

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 0:23
Welcome back for a special edition of TFR in May I was interviewed on legal tech live and covered a variety of tips and advice for founders pitching amidst this pandemic. So the team here suggested that we publish it here on TFR as bonus content. A quick forewarning the audio clips a bit early in the interview, but it does improve. Happy Fourth of July at all, and I hope you enjoy this special edition interview. Thank you to Nick Rishwain and Hannah Konitshek for having me. Here’s the interview covering advice for founders raising capital amidst the pandemic.

Speaker 2 0:59
Good evening and welcome to legal tech Live episode 85. I’m your host, Nick rish. Wayne, I’m co hosted tonight by the always wonderful Anna connet Schick and our guest tonight is Nick Moran. He is I’m fanboying a little bit I’ll admit, because I’ve actually found Nick’s podcast the full ratchet to be just a wealth of information about startups and venture capital and investing. And I wanted to bring him on for the legal tech community who I know is hungry for investment and information on investment. So a little bit about Nick Moran. He is the founder and general partner of new stack ventures prior to new stack Nick spent time as both an investor and an operator. He worked in m&a for Danaher, a science and technology conglomerate subsequently, Nick developed one of the most successful products in the company’s history, a novel way of testing compounds and drinking water. And from what I’m reading here, Nick, the full ratchet was sort of I think, like my way into legal technology, and learning more about it full ratchet sort of was your way into venture capital being one of the first venture capital podcasts. Is that accurate? That’s correct. And it’s amazing how how diving into this type of medium allows you to learn a heck of a lot about an industry. Nick, thank you for joining us anything. There’s so much in your background from being in mergers and acquisitions and development to becoming general partner at new stack ventures. Anything that I didn’t cover in the very brief intro that you really need to drive home for our listeners

Speaker 3 2:36
know you about covered at NEC. Appreciate that. Oh, great. Excellent.

Speaker 2 2:39
So again, this is one of those things. Legal tech is got a lot of constraints because of regulation, and so forth. So finding money and finding startup capital seems to be very difficult for those in the legal tech field, at least in my experience, and with the folks that we’ve we’ve talked to so I’m just going to do a little back and forth here. I’ve got some questions from members in our community. And then probably the most pressing question is, what is the impact been on investments as well as terms due to the pandemic? We are in about week seven or eight right now of COVID-19? In the US? Have you noticed any term changes, lower investments or fewer checks getting written? What is your experience been? Yeah,

Nick Moran 3:28
good question. You know, anecdotally, I’m hearing that really hot hype startups in the Bay Area have not yet seen a correction or a haircut on valuations. But that’s, that’s anecdotal, right? I’m in the middle of the country. And often we’re backing founders that don’t fit sort of that profile, right? They don’t have the fancy provenance. They didn’t go to Stanford, for undergrad there. They’re not young white males that are technologists, right? We’re back and people in the middle of the country that have domain expertise in a specific sector or an area, they often don’t look like the standard startup founder that’s, you know, worked at Google or Facebook, or what have you. And with those startups, I am seeing some changes. I kind of break it into three different categories. You’ve got the startups that are severely affected by COVID-19. Adversely, those startups are not getting offers right now, from what I’m seeing, you’ve got the startups that are fairly neutral. So COVID is either not affecting them or the sort of the positive effects counter counterbalanced with the negatives. Those startups it seems like are getting reduced offers, right? The offers are coming later. So it’s taking longer to get them they’re often getting fewer offers. So many startups will get multiple term sheets, those are reducing and the haircut on valuation is on the order of 30 plus percent. And then the startups that are in our portfolio that are positively affected by shelter in place and or COVID. For whatever reason, I’m seeing about a 10 to 20% haircut, series A and Series B evaluation. So that’s the data I’m seeing versus the anecdotes.

Speaker 2 5:12
Okay. Excellent. Thank you for that. And Hana. Hana, excuse me. I have a cousin Hana, who I work with her father. And so that comes out pretty easily. So, Hannah. Yeah, no,

Speaker 4 5:23
it’s totally okay. Yeah, and I guess, you know, one of the biggest questions, and nobody really knows, but how long? You know, I don’t know, if you were investing back during the 2008 financial crisis. But how does this play out over the long term can founder sort of expect for these valuations? You know, when they’re going out to raise a seed or Series A round? Are those going to be sort of, you know, compressed for 12 months, 18 months? Like, what does that look like for founders that are sort of thinking ahead to their next financing round?

Nick Moran 5:51
Yeah, I wish I had the answer, right? I can’t really handicap how long the crisis is going to impact everyone. It’s very odd to me that the public markets have not corrected severely, there’s maybe some artificial propping up going on behalf of the taxpayers and the government. Nevertheless, this impact will hit and it’s going to hit middle America and small America and businesses all across America, as well as individuals, you know, on the health side, and it’s going to be it’s going to be a long term effect from my standpoint. So, you know, how does that impact the venture environment? It’s hard to say, but I think it’s reasonable to assume that reduced valuations are are going to be around for the foreseeable future, we’re not talking about severe, I don’t think it’s going to be 50% haircuts, you know, in perpetuity, I think, I think there’s going to be a quarter of people kind of feeling things out and taking a breath. And then, you know, hopefully we level out at, you know, a slight haircut, but steady offers in steady investments, which is my assumption, right, VCs have assets under management, so they have money to deploy, they went out and raise capital, it have capital sitting on the sidelines, we have capital, we have eight more deals to do on fun one, so that capital didn’t just evaporate, it’s still there, we just have to be a little more careful and a little more thoughtful about the companies we’re backing. So we’ll probably operate more slowly, you know, add to that the fact that we can’t meet people in person, so that could slow down our process, unfortunately, but you know, it’s it could be challenging for a while, but the money is still there. So deals are going to be done. And if you look at the data NEC to your earlier point, the data from 2008. And there was not a significant turn in seed deals. So series A and Series B definitely had some effect for multiple quarters. But seed did not really correct in terms of volume of deals and dollars deployed. So that those early stages, I still expect that startups are going to get funding, you know, the startups that are worthy of funding will get their funding.

Speaker 2 8:00
That’s good to hear for like, because we are an early stage startup show, which I think you invest primarily in early stage as well. So one of our community members actually Pepitone and asked him just straight up, what’s the most common mistake when people approach you for funding? The most common mistake, or if there’s more than one that you can kind of repeating repeating mistakes? That would be helpful,

Nick Moran 8:25
you know, so many people, I mean, the engagement starts typically online, right? A lot of people either reach out cold, or they reach out through a referral. And that’s your first opportunity to make a good impression. And most people don’t, right, like we have a quick filter, we call it a new stack. And if somebody doesn’t reach out with a thoughtful message, if somebody can’t explain to us, you know why they’re reaching out to either the individual or newstags, specifically, if they just, you know, spam email and say, Hey, I’m raising this round, here’s the fancy things I’m working on, we should talk, it’s not usually going to result in a meeting, right? So the the EQ and sort of the thoughtfulness of that initial contact, I think is indicative of the thoughtfulness that the founder puts into all of their strategic relationships, right? Whether it be customers, whether it be recruiting really talented folks that are hard to convince to come into the business or recruiting investors, if you don’t have that, you know, thoughtfulness, if you don’t have some EQ in the way that you communicate with people, then it’s going to be tough to get funding, and it’s going to be tough to execute on some of those other strategic partnerships, in terms of the pitch itself. So let’s say you get past that gate. Let’s say you get into a meeting with us that narrative and the story is critical, and it should be fairly concise. You know, somebody should be able to explain why they’re working on the problem that they’re addressing why it’s you You know, fundamental to their core values, and it’s why they were put on this earth to address this particular startup. And they should be able to tell that story, you know, in two to three minutes or less, you know, probably 60 to 70% of founders ramble on, like I’m doing now, for five, you know, 578 minutes, and the story doesn’t really tie, they’re working on something that’s a big opportunity, or is exciting. But it’s not obsessively connected to who they are, and how they build their career. And it shows, so we can usually make a decision on a phone call in less than eight minutes. That’s kind of where we’re at with because we time like, you know, we time kind of those calls and how we’re feeling on those calls. And it’s usually eight minutes or less, where we know like, oh, we really want to engage, or, you know, this person is probably not ready for venture funding, this might be a great business, and it might be the right business for them. But something about their story, or how they’re articulating it or where they’re at in their journey. They’re not quite ready for venture.

Speaker 2 11:02
That’s fantastic. Anna, please. Yeah. So

Speaker 4 11:05
I guess one question. And I get this a lot from founders too. So I’m part of a venture fund as well. And a lot of my friends like there’s there’s a there’s a lot of and I think it’s subjective, but like, how much information would you prefer a founder share with you from the get go? Because I hear this constant debate? Do I send the deck? Do I not send the deck? Do I send the PDF? Do I send a doc sign? Do I watermark my deck, and I err on the side of give me as much information as possible? Because that allows me to make more actionable decision earlier on. But that’s something that I constantly hear come up from founders is how much information should I be sharing early on in the process with the venture capitalists? So what’s your take on that?

Nick Moran 11:46
I think my preference is to answer the question that’s been asked, you know, sometimes you’ll ask a very direct question like you just did. And I’ll go on for 10 minutes and say, hey, I want to show you a product demo. Or why don’t we jump into our p&l mean, this just happened the other day, we had this fantastic pitch call with a founder in LA. And by the end of it, we were feeling great, we set up the next action, which is always critical. By the end of the call, you got to figure out what the next step is. And the goal, the end of the first call, the goal is to get another call scheduled. That’s the goal, the goal isn’t to close the deal. The goal isn’t to oh, let’s just like start emailing tagging, you know, the goal is to get on another phone call with the investor. So if it can’t be scheduled on that call, then you have to figure out another which could be well, let me send you the deck. And I’ll follow up with the questions that you asked here that, you know, I don’t have ready or what have you. So anyway, this wonderful call we had with this founder in LA went great. And then we’re just getting to the end, we’re at the 30 minute mark, I’ve got another call scheduled. And he says, oh boy, let me share my screen and walk you through a product demo. And I was like you had it man. You had us like we were hooked. We loved it. And then you just kept selling like, once you close like it’s an old sales technique, right? Once you got the Yes, like don’t keep selling stop. And so figure out what the next action is answer the question that’s been asked if somebody asked for your deck, or ask for your p&l or ask for your cap table provided, or they want to see a data room, right, the data room might have many different things in it. But I wouldn’t just start hitting investors with tons of stuff. Now if if an investor goes cold on you, that’s different. If an investor goes cold, or you don’t have that hook, or you don’t know what the next step is, it’s always great to say let me put you on my weekly update list. Or maybe it’s a monthly update, but at the early stages weekly is even better. And you just start giving them updates every week, showing them your momentum, showing them your progress, creating more enthusiasm. And you can turn those updates into another phone call or another meeting,

Speaker 4 14:00
how often have you found that that’s worked? How often have you engaged with the founder, they’ve given you weekly, or monthly updates, and then you made an investment six months later,

Nick Moran 14:09
almost in every case. So we’ve done to almost 25 investments, we don’t invest unless a founder sends regular updates. And those updates reflect positive momentum and reflect great communication, great emotional intelligence follow through like, here’s here’s a tip for your audience. One One trick that I’ve used for years is at the end of the first call, I always ask for something, I always ask for a cap table or a p&l or a market segmentation or some of your customer personas or something that’s not in the standard deck, but they should have thought through, right? It doesn’t need to be a fancy visual, it could just be a paragraph, but you know, send me some of your thoughts on this. I always ask for something and 80 to 90% of people forget or don’t do it. And when they don’t do it, I pass so all the best of the best founders communicate often more often than you would expect. They’re on the All About everything all the time. They’re fast. You know, speed is everything. Communication is everything we don’t invest in. Like I said before, we don’t invest in the most elite IQ people in the world, but we do preference EQ very highly. And I think it’s, you know, it served us well.

Speaker 2 15:15
That’s excellent. Well, and those are great tips. When I want to thank our folks for watching, we’ve got to Adams here, Blaine, Johann Peter and sudesh are all here. And you guys are all welcome. I know you didn’t get questions ahead of time. But if you post them in the q&a, we will try to get to them. Chris can Gero had asked he is a former guest of the show. And he asked a great question. He says he’s become more clinical in his approach to investors that he’s willing to work with in his business, which is he’s been he’s been in. He’s been an entrepreneur for quite some time. So he’s had that how does he know that you or essentially any investor? And I understand we’re only talking to us, so you can’t speak for the others? But how do you show that you’re the right investor for a particular company? That’s

Nick Moran 16:00
a good question. I try not to sell too much. And I try not to push too much a new stack on founders, really smart and insightful founders are going to have some questions for me to write. So before the end of the call, they’re going to ask them questions about how do you work with your existing portfolio? What value do you provide? How involved do you like to get? You know, how, what’s your cadence of touching base? Do you like to do weekly meetings, monthly meetings? quarterly meetings? Do you take board seats, right? Like really thoughtful founders ask these questions, and then there’s not a one size fits all. It’s not like our approach at new stack is perfect for every founder, because we have a very unique approach in the way that we work with founders. So it really needs to be a match, you know, to the question that you got, he should be surgical. And he should be careful with who he partners with. And if he’s building something of value, which many founders are, you got to be careful with that value. And make sure that you’re partnering with people that understand your vision, and are strategically aligned. So like to give you a real example of that is, there’s one thing that we do at New sec, where we get really involved and really proactive, and I can talk about what that is if you’d like, but outside of that we are very hands off investment, we’re not going to wear your marketing hat, we’re not going to help you design your tech stack, we’re not going to get in and tell you, you know how to build out your leadership team and who you need. And when we’re very hands off. So when you want to do a meeting, if you need some coaching or some advice, or you need pitch back help, or you want someone to review your financials, let us know. And we’ll be there in a heartbeat. But fundamentally, we’re investing in founders that we believe have all the capabilities to run their business. And we’re just a support and an accelerant. So we don’t want to come in and subsidize the management team, we want to come in and supplement or support.

Speaker 2 17:47
That makes great that makes great sense. And you said there is one area where you are very hands on in please do elaborate on that, or was that?

Nick Moran 17:57
Yeah, so the strategic thing. So most of our approach is opportunistic, but the strategic thing we do is on the capital side. So we say to founders, we want you to be an expert in all things your business, but we don’t want you to become an expert in all things venture capital, you can leave that to us. So in light of that, we built something called the next round plan the NRP, which is a capital strategy. So as soon as we invest, we say let’s put together a 1218 month plan and a 36 month plan to get you to Series A, here’s what series A looks like in your space. Maybe it’s enterprise SAS or maybe it’s a e commerce business series A looks different for those two businesses, the metrics required, the growth required some of the hallmarks of you know, what, what investors are looking for. So we say, This is what series A looks like. And then we go and we build a personalized database of all the best firms for you at the next stage. So let’s say your next stage is Series A, who are the best of the best firms that are series a legal Software as a Service in certain geographies? You know, maybe it’s a startup that’s focused on, let’s say, remote work, right or telehealth, right? Like we figure out what are all the hashtags or categories that apply to your specific startup. And then we we run a fit analysis with every venture firm, and we say here are the firms that invest at the right valuations at the right stage in the right sectors in b2b for you. And so we’ll put together usually it’s a list of like 150 to 400 Different venture firms and we’ll rank order them and then we’ll make a lot of referrals in so I just completed this process for a company that we invested in and we ended up making 40 introductions to high quality post seed and series a firm’s so that was the result is we made 40 introductions and then that founder could send the list so all the connections I don’t have personally, because I haven’t had that person on my podcast friends. because he can send that list to his other investors and say, Hey, do you know any of these folks at Sequoia and excel and NEA? And so it becomes like a, like a sales? CRM of sorts. Excellent.

Speaker 2 20:11
That’s, that is very hands on. I like that.

Speaker 4 20:15
Yeah, that’s really cool. I know that NSX kind of tried to build out something that’s like very similar to pitch book, but I don’t think it’s very personalized. So it’s great that you guys are kind of doing that extra sort of like value add service to help them distill down the information. And

Nick Moran 20:29
I appreciate that I think that’s what we’ve become known for. If if you were to ask our founders, you know, what’s the best, what’s the best thing about new stack, many of them say this next round plan was awesome, because I mean, the goal is you want multiple term sheets for multiple investors, right? You want to be able to pick and choose to your to your friends point earlier, you want to pick and choose the best investor, if you only get one term sheet at Series A, then you have no leverage, you have no negotiation, leverage, you have to go with that. And if it’s whether a firm awesome, but our goal is, let’s get multiple term sheets from multiple firms, let’s create a lot of interest. Let’s make sure we manage your dilution. Let’s find you the best strategic partner. And so fortunately, you know, we’ve had success with that so far. And hopefully to continue.

Speaker 2 21:13
That’s great. You have Gani asks, he he’s a first time viewer, and I’m thinking that you’re the Nick responsible for that. Not this, Nick. So you have any please come back and view again in the future. He had asked ahead of time, what are some things he can do to get funded with with more success? While he’s only got a well thought out idea in business plan? So he’s very early stage, it sounds precede? Is there you ever worked with precede? And do you have any advice for him in that space, so

Nick Moran 21:45
we do precede investing, but we don’t I, we don’t define that as idea stage. So we actually we do define a stage that’s earlier than us, which is more of that hypothesis or idea stage. And that’s more in the realm of angels and independent investors. So my suggestion, you know, I have calls with founders all the time about this. And really, a founder is not ready for institutional capital at the idea stage is not the best idea to take institutional capital, because as soon as you take venture capital, institutional capital, you’re on the clock. So you’re on a 12 to 18 month cycle until IPO or exit. And so you have to, you have to drive real tangible results really fast. You know, it’s it’s the hamster wheel, and it’s pretty intense. So the nice thing about taking angel capital and not taking that venture route is it allows you more time to really formalize the business, get it structured, figure out the business model, figure out the go to market, figure out your ideal customer personas. And sometimes that can take 234 years, but that’s okay. As long as you haven’t taken venture capital, you’re not on the 12 to 18 month clock. And so you can take your time to figure things out. So usually, I advise really early founders, first and foremost, get some momentum, right? Get out there and build a prototype, even if it’s not a functioning prototype, right? Even if it just looks like like, it’s a wireframe of the screens, you can take that to customers and get feedback on that. It doesn’t need to have a back end database, you know, that’s responsive. So you build something, get some momentum, get it in the hands of customers, refine it, and start speaking with people in your network that have had some success in business that potentially could Angel invest, or at least have friends and have a network, if you go to people that you build trust and credibility with that trust and credibility is transfer, right? So if they like you, and they believe in you, and they’re helping you achieve your vision and think through your idea and your hypothesis, then they’re going to say, You know what, you should talk to my friend over here who does some angel investing, I don’t do angel investing, but I know three or four people that do and then when they refer you and recommend you that person is going to say, All right, this is a credible person that I trust. So I’m going to give this person time and and treat it seriously. So if you don’t have your own venture network, VC network, or if you don’t have your own Angel Network, just take the successful people that are in your network that have their own networks and start reaching out to them for advice, not for money, right that the old cliche is true. If you ask for money, you get advice. And if you ask for advice, you get money. So you know, start just early stage to start asking really credible people for advice, and they’ll help you.

Unknown Speaker 24:27
That’s great. I like that. Hannah, go ahead. Yeah.

Speaker 4 24:30
So I think one of the most common things that I run into is people that are early stage, and they are fundamentally uncertain as to whether or not they have a venture bankable business, right? They have a business idea. They might even have some momentum. But the difference between a company that’s venture packable, you know, and has the opportunity to become one of those unicorns. Not every business fits that. So how do you address that with a founder or help them think about it in terms of whether or not they’re Are businesses truly a good fit for venture?

Nick Moran 25:01
It’s always a tough question. There’s a lot to unpack there. You know, there’s market sizing, there’s a lot of thematic things that we have on our website that sort of illustrate what’s what’s a venture scale business and what’s not, I think the most simple sort of way that we think about it, and illustrates quickly for us whether something’s venture scale or not, is the difference between kind of the short term beachhead, and a long term vision. So every successful business has both in the venture world, but many businesses that pitch us just have one, they either have this huge vision of creating this massive platform that’s going to reinvent the wine industry, for instance. But there’s no near term tool or software product, or really value providing a way that they can get into the market and start working with customers improve their value and build credibility and rapport with a customer base. So we see that a lot. And then we see the reverse to we’ll see people that have built like a really valuable tool, and it performs a function, it provides a real benefit. They’ve identified a real customer market, maybe they’ve even got traction. So they’ve got people using a workflow tool or something. But the vision isn’t there. They don’t know, how does this trojan horse or wedge or beachhead product provide access to build something even bigger? Later, right? And so really to be venture scale, I think you need both you need the near term narrow product that gets you in and allows you to kind of go from there. But you also need the big vision. So how does this product take us to a huge product suite? Or a big market? Or or something beyond just that first tool?

Speaker 4 26:51
Yeah, that’s a great answer. And I guess, on the backside of that, too. So I think something a trend that I’ve noticed, especially in the legal tech industry is that the, the exit path for most of these companies ends up being one of two things, either you just continue to take on private equity money, or you ultimately end up getting acquired by one of the big guys, right? So like LexisNexis, Thomson, Reuters, et cetera. So how does the potential I mean, for the entire industry, like there hasn’t been a really big, huge exit yet? How does that factor into your mind as a venture capitalist? Great. Wow,

Nick Moran 27:29
you’re hitting me with the tough questions.

Speaker 4 27:33
It’s very, like specific to legal tech. Right. We had an IPO and, you know, somebody like Justin Kahn tried, it didn’t work out, right, you know, atrium shut down a few months ago. upcounsel. Also shut down, you know, how does that play into your mind? Yeah, I

Speaker 2 27:49
will, I will say, Nick, that I have forgiven you from any legal tech specific knowledge until so you don’t

Nick Moran 27:57
get the memo. You should have had my partner at new stack. He’s a former attorney. So we

Speaker 2 28:03
will get him for the next time. If the next time he probably

Nick Moran 28:07
have a better answer. I guess I would say this. So if you weren’t, we invest in the pre seed stage, which means it’s going to be a long journey to exit or to IPO. And the things that can happen in 678 10 1215 years are substantial, right? The market completely changes. I mean, 12 years ago was the day boom, 1212 13 years, 13 years ago was the debut of the iPhone, that was just 13 years ago that we had this major macro shift in the way that humans interact with technology. Massive, right? And so in light of that, by being a precede investor, I’m quite honest with myself that I’m not going to be able to predict what the exit environment is going to look like. By the time my companies are ready to exit. All I can predict is how strong is that founding team? How clear is their vision? And how committed are they to building something that’s transformational. And I have the fundamental belief that if they do that, in eight to 10 years, the market will appreciate it right. Somebody in the market will appreciate it. Like we had, it was either Tom TOMS shoes at red point or LEA Sullivan at fuel capital was just on the show the other day. And I think it was Leah, she was saying they avoided ed tech for many years until like Ed Tech had a massive unicorn exit at like a really attractive multiple, but prior to that all the EdTech multiples have been like two to 3x Arr. And so they intentionally avoided it. But there’s such a lagging effect, right? The cycles are so long, it’s like a seven to 10 year cycle that they missed it they met for five years. They missed investing in ed tech and now it’s like it’s hot. It’s never been hotter because of you know, the shelter in place and whatnot. So yeah, my philosophy is, you know, invest in the best people building the most transformational businesses and the acquires will be there when the time comes. That’s a

Speaker 2 30:05
good answer. Yeah. Yeah. Meyer had asked a question ahead. I’m sorry. This was from Bruno. And I thought it was a good question. What how do you see the trade off between the high non recurring revenue and low recurring revenue? And he explain that a little further? Do you prefer a startup that gets like $300 a month from a user with no commitment whatsoever, or one that gets, say, $100 a month and they’re committed for a year they’ve got a year contract is? Do you have any preference on that higher low recurring revenue?

Nick Moran 30:40
Well, I think the name of the game adventure these days is recurring revenue business models, right? Like you can run DCF. And you can run a lot of financial analysis on the recurring revenue business models, you can assess, you know how long you have customers in different cohorts, what their lifetime value is the cost to acquire, and it becomes a much more efficient financial exercise for the downstream funding players, right. So the series B, Series C, and then the private equity players, they want to see all that sort of stuff, they want predictable financials, and recurring revenue models are predictable. Even in the hardware space, like we do a lot of hardware investments, we will not invest in hardware, unless there’s some sort of subscription or recurring revenue component. So like, you know, all these mattress companies that are popping up the caspers. And the helixes. And the Merkel’s of the world. Yeah, those are great businesses, and they’ve done really well. But we had an opportunity to, to invest in one of those early and we passed, because there isn’t that recurring business model, there isn’t that subscription. And when that’s the case, you know, all the focus for the business is really transferred to the growth marketing department, like you need to become best in class world class and acquiring customers, if there’s no recurring nature to your business. Whereas if there’s a recurring nature, you have to become best in class at product and providing customer value. Because if you don’t, then people will churn. And my philosophy has always been the latter, like companies fundamentally should be long term focused, they should be incentivized to provide more and more customer value over time. And then customers and companies win together. And that aligns really well with the recurring revenue business models. Excellent.

Speaker 2 32:25
And and I don’t want to we’re almost at about 40 minutes here. I don’t want to keep you too long here. But Blaine, it asks here in the Zoom Room, you have any suggestions for a founder, who’s starting to raise particularly now that it would all be remote, I’m assuming meeting you and meeting other venture capitalists or even angel investors? Any suggestions? What is Is there anything stood out with you, to you in in those now remote interactions with founders that you think would be good to do it in a remote meeting,

Nick Moran 33:01
I mean, you have to whether you’ve got the remote environment or the in person environment, you really have to be your best self, when you’re raising capital. You know, in all respects, you have to be prepared, you have to have your narrative down, you have to have your numbers down, you have to have your product roadmap down, you really need to be ready, you know, before you get into meetings with venture capitals. And I think that that’s now important more than it’s ever been. The weaknesses show through more over video. I can’t remember who it was. But somebody very recent was on the show. And they were saying they had two offices, one in the Bay Area, one on the East Coast. And when founders would come in for a partner meeting in one of those locations, the other partners would dial in on Zoom. This is pre COVID, right. And the feeling in the room for the founders that were present with the partners was always really positive on the partners behalf. Right. And the partners that had zoomed in, they called it the Zoom discount. The partners that had zoomed in always had a worst feeling about the founders, they didn’t get quite as warm and fuzzy of a feeling so I wouldn’t advocate overdoing it. I wouldn’t like put on a show I would just make sure you’re really you know your best self and you’re really prepared because you don’t have the same opportunity to connect on that human level over video that you do in person. Yeah, I know that that’s not super helpful but I thought it was really interesting to hear that you know for for people pre COVID They didn’t get as positive of a sense over zoom as they had in person.

Speaker 2 34:46
Yeah, interesting. And naturally, we’ve been doing the show live for several years now and in hoping that more people will get that positive feeling from from video that they got in person I’m not sure about that. Anna, do you have one last question for Mr. Moran?

Speaker 4 35:06
Yeah, I mean, what is your overall advice? Like, I hate to keep coming back to the COVID thing, but you know, I think everybody read I forget if it was Sequoia or Andreessen, sort of like memo about the black swan event, right? Like, what is the advice that you’re giving your portfolio founders right now about how to manage, you know, trying to build a startup in this crisis? Well,

Nick Moran 35:26
I mentioned earlier that we, we want our portfolio to be founder, first founder led, I should not be dictating strategy to any of my portfolio companies. So I’m calling them on a regular basis, but I’m reasserting the fact that I’m calling you just to check up on you not to check in, right, I want to hear that, you know, I want to hear what you’re doing and what you’re thinking about. And I want to make sure none of the other VCs are calling up and suggesting, hey, you got to pivot over here, where you got to do this, or that, we really believe in the mindset and the creativity and the ingenuity of our founders. And I feel like they’re the most qualified people to find a new direction if a new direction is required. And I’ve seen it already, like the startups that are super adversely affected by COVID are adapting in ways that I like could never have predicted, and they’re being super creative. And I’m really glad that they didn’t just do a, you know, hard 90 degree pivot into a different business, because an investor, you know, thinks they’re in trouble. I also think that, you know, many of our portfolio companies have been smart about money, they really not a stretch a buck, the average runway across our 20, some odd companies is 17 months. So even the companies hit super hard by this, like, if they buckled down, you know, if they, if they reduce their expenses, which many have, they should be able to ride this out, and not have to, like ruin their complete vision because of what’s happened. Like, we have a travel startup, for instance, it’s a struggle, right, but travel is not going to go away. It’s it’s going to be impacted, but people are still going to travel. I mean, my wife was talking about like, she was dreaming of Hawaii today. And it’s probably gonna be a long time before we go there. But people like are freaking out, they want to get out of their houses, like they want to go do stuff, and road trips are going to become huge, and whatever. So like, this isn’t going to be a forever thing. And I’ve got faith in my founders to kind of find, you know, find their way. I guess, if I was providing advice, I would say, here’s what my founders are doing the most of which is they’re getting really close to their customers. They’re talking to them about their key pain points, their key frustrations, the things that are taking the most time, the things that are giving them the most grief. And they’re based on all that, you know, the customers will lead you to water. Usually, if you really listen to your customers, they’re not going to tell you the right solutions, but they will illuminate all the right problems. And then it’s really up to you as a founder to figure out what’s what’s the ideal solution to address those problems.

Speaker 2 38:16
Excellent suggestions, Nick, I don’t want to keep you I’ve we’ve watched the sun go down behind you and I like it. So we’re gonna let you get back to your family. Thanks so much for doing this. I really appreciate it. Nick, how do people get in touch with you? Please? Go ahead and plug, plug the show and plug a new stack?

Nick Moran 38:37
Yeah, so we’re new stack.v.vc. The podcast is full ratchet dotnet you can find me on LinkedIn. Find me on Twitter. I’m at the full ratchet on Twitter. And you can email me I’m Nick at New stack.vc

Speaker 2 38:52
Excellent. And I do recommend any of you who are in the startup space who most of my guests and a lot of our audience are in that space. Please give it a listen. The full Ratchet is the name of the podcast find it on your favorite podcast player. It’s a great, very well done and as I was doing a little prep today I found out that that you have your production in house with with somebody on your team. She does a fantastic job. Really great job. I really enjoyed the podcast.

Nick Moran 39:21
Awesome. You guys are great. You guys are pros at this for me,

Speaker 2 39:25
anytime. Anytime. I don’t know that I can do what you do, but I really enjoy it. Don’t disappear. Nick. When we stop recording. I do have something we will be back next week next Thursday night with episode 86. So stay tuned for that. Thank you all for watching. Thank you in the Facebook group. Dausa. Good to see you talk to y’all soon

Nick Moran 39:49
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 At angel.co in search for new stack ventures there, you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us.