250. Industrial Innovation, Where Blitzscaling Doesn’t Work, Why Sector Focus Wins, and Beginning with the End in Mind (Ty Findley)

Ty Findley Ironspring Full Ratchet

Ty Findley of Ironspring joins Nick to discuss Industrial Innovation, Where Blitzscaling Doesn’t Work, Why Sector Focus Wins, and Beginning with the End in Mind. In this episode, we cover:

  • Walk us through your background and path to VC?
  • Why the decision to leave Pritzker and become an MP at Ironspring?
  • What’s the thesis at Ironspring?
  • Lots’ of new firms and new funds being launched…  How is Ironspring different?
  • You’re a “sector-focused” fund… why do you think specialized funds will outperform their generalist counterparts?
  • We work in an asset class that often promotes bliztscaling, exponential growth and often spending ahead of progress… how do you rationalize the expectations of startups in our industry with the much slower pace that many legacy and heavy industrial industries… that your startups are serving… are going to move at?
  • Glacial pace has benefits… long-term durability of cash flows, customer retention, pricing power… the moat
  • Do you think product-led growth can work in these sectors?
  • Talk about the difference between “occupations” vs. “activities” and why this is especially relevant in industrials amidst the pandemic?
  • How do you think your style as an investor differs most from others (ie. discussion of decision making process/thinking in bets… focus on the decision not the outcome)
  • How would you describe your system for investment decision making?
  • 4-part framework of the “Day in the life of a VC fund manager”?
  • Must-haves for an investment?
  • Aligned with your recent collaboration on the article, “Evaluating the Successful Industrial Technology Exits”, you’ve talked about startups in industrial tech “beginning with the end in mind”… why is this important?
  • Rumor has it you’re starting a podcast — lots of new podcasts these days, why will your’s standout and what’s the objective?

Guest Links:

Key Takeaways:

  1. Ty’s journey to VC all starts and ends with the word industrial in some form or fashion. He lived industrials growing up, and he saw if you’re not digitizing, it’s hard to stay competitive.  
  2. After hundreds of conversations with industrial innovators who kept telling Ty about the struggles to raise early-stage capital for their solution, Ty came to a conviction that there was a gap in the venture capital ecosystem that needed to be filled to support these women and men who are advancing critical industries and infrastructure that make our country operate efficiently behind the scenes.
  3. Ironspring Thesis:
    •  First, they are focused only on investing in b2b, digital industrial applications; second, they are stage-focused; third, Ironspring is built by operators for operators. 
  4. Sector-focused funds are bringing a new value proposition and new products to founders that are differentiated.
  5. Ty stresses to founders in the industrial ecosystem to begin with the end in mind. What Ty means by using Dr. Covey’s phrase is for founders to objectively set aside all the hype and posturing present in a lot of the venture ecosystem and take a data-driven approach to where the market is valuing industrial innovation. 
  6. Ty understands the velocity you have to deploy in VC, but the idea that a firm can make an investment decision in two to three weeks worth of diligence and catch on the tail end of a process. It won’t ever be something that’s a fit for Ironspring. 
  7. Ty thinks of the role of a fund manager in a four-part framework. Three parts are in a funnel type setup, and the last part is flywheel around that funnel. On top of the funnel are sourcing and networking. The second part is diligence. The third part is to win the deal for both the founder and Ironspring. The final part is the crucial portfolio and fund support. 
  8. Ty mentions that a unique must to move forward in a deal is to have an unbelievably deep founder market fit. 
  9. Ty is starting his own podcast because he sees a need to share the stories of amazing digital industrial founders and investors so others can learn from how they built capital, or how they made their companies and capitalized them. 
  10. Ty recommends for emerging managers to subscribe to the Kauffman Fellows Journal.
  11. Ty is continually trying to work on his communication with founders. So that when he talks with founders and tries to share his lessons learned. He is not just emphasizing the challenges, but also if they do it right and capitalize on the business correctly. How big an opportunity exists to impact these markets. 

Transcribed with AI

Intro 0:02
Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is the full ratchet.

Nick Moran 0:18
Ty Findley joins us today from Austin Ty’s managing partner at Iron spring ventures, a firm dedicated to investing in early stage digital industrial innovation. Prior to iron spring, Ty spent time at GE ventures supporting investments in desktop metal xometry Insight machine. And he was a VP at Pritzker group venture capital leading investments in plus one robotics freightwaves and augmenter tie. Welcome back to the show.

Ty Findley 0:42
Great to be on, Nick. Thanks for having me. I felt like I had a front row seat while I was in Chicago to watch you build up your brand in the venture ecosystem. And in all sincerity, super impressive, Nick, and I’m glad we can now jump on a podcast together.

Nick Moran 0:54
Well, you’ve been a great mentor advisor, you know, collaborator for many years. And yeah, we had you on the show as part of a panel. I want to say that was three plus years ago, maybe?

Ty Findley 1:06
Wow, that was what the DNDi that was a few years ago. I forgot all about that.

Nick Moran 1:11
Yeah, a long time ago. Well, welcome back. You know, on that panel, we didn’t really get a chance to talk much about backgrounds and all that. But can you kind of start out with your background and path to venture?

Ty Findley 1:22
Sure, I definitely call it more of a journey than a path that’s for sure. It’s been a fun journey. And for me, it really all starts and ends with the word industrial in some form or fashion. I grew up in the middle of nowhere, East Texas, a couple of generations of family that founded companies in manufacturing ecosystem. So I really lived industrials growing up, and I saw if you’re not digitizing, it’s hard to stay competitive. And I also took away from appreciation for just how big impact industrials have on our daily consumer life oftentimes behind the scenes, and really the amazing skilled laborers who make all this happen. And I can assure you through this pandemic, that work didn’t stop because of COVID. And I think we all owe those workers a great deal of appreciation. And I guess that was really the foundation that set me off on the current path, went and got an engineering degree and was fortunate with my first job at a school with Boeing up in Seattle working on special projects within the CTOs office, really great opportunity to work across all Boeing’s business units really focused on a decade ago deploying some of these technologies like advanced design methods, industrial IoT, robotics, supply chain automation, etc. And as an engineer, getting to deploy those technologies to business units all across the world, was really great exposure. And it really made me sympathetic to why it’s so challenging to sell technology into these industrial markets. You know, there’s a lot at stake and I know you know, this Nick, from, from your experience, there’s a lot of stake within an OEM production environment. And now as a venture investor, I always try to put myself in the customers position when evaluating, evaluating how they’re going to purchase technology. And you know, everyone jokes about the Hey, by SAP before you buy a startup, if you want to keep your job in these environments, but think about it this way, right? in Renton, Washington, you know, just because you deploy new technology, it maybe you’ve inhibited the 737 production line in some form or fashion, it’s less about that one airplane, you’re you’re actually stopping GDP that was supposed to fly between called Guangdong, China in Beijing because of that slip up. So I guess the point here is just an appreciation for the level of stakes we’re playing with when it comes to industrial automation. So then, during my time at Boeing, I also figured out I was never the smartest engineer in any room. So I ultimately decided to make a career change went to business school focused on breaking into tech in some form or fashion. And the short story is that I’ve now been at three different venture funds before jumping out on my own to help start our new digital industrial focus fund artspring Ventures. And one of those three venture firms was GE ventures, as you mentioned, where digital industrial and supply chain applications around sensors and data analytics, robotics, additive logistics, you name it, I was really fortunate to have paired my background is engineer investing in similar solutions that I had experience with and so, great opportunity, great leadership at GE ventures, I owe a lot of my career to that opportunity, from the perspective of venture capital, but also from the perspective of learning how innovation is driven internally at the highest level of corporate management. And I think both of these, as we’ll talk about are critical for startups to understand in tandem, if you’re ever selling into large industrial customers who are relatively less risk tolerant and have slower sales cycles, etc. So did that and then I moved over and spent some time at the printer group venture capital team in Chicago another fantastic experience to really help expand that platforms digital industrial and supply chain footprint in the venture ecosystem and ultimately partner up with some some great founders. So winding this all back home darn spring ventures. The short story here is I ended up leading a deal while at Pritzker group. Were one of my co investors was one of my now current partners Peter John Holt. And so him, myself and my other partner, Adam all hit it off where we thought there was a gap in the market and the rest is history. So they say, Well,

Nick Moran 5:08
I mean, you kind of said it there. And we connected I think pre COVID. And well, certainly pre COVID in Austin talked a bit about the transition. But you know, why leave Pritzker? I mean, you had good thing go in there, you know, career has taken off doing great investments. And you left to found a new firm, you know, why? Why do that?

Ty Findley 5:30
Yeah, that really the credit for taking the leap of faith here, it has to go to the founders out there. And I mean, that in all sincerity, you know, after hundreds of conversations with industrial innovators who kept telling me about the struggles to raise early stage capital for their solution. At some point, I guess, for anyone that’s jumping out to be an emerging manager, you just come to this complete conviction that there was a gap in the venture capital ecosystem that that needed to be filled to support these women and men who maybe don’t get the flashy headlines like a consumer product, but are advancing critical industries and infrastructure that again, make our country operate efficiently behind the scenes, and honestly, oftentimes, without much credit given to them at all, even if they are successful. So and then on the flip side, from a venture fund perspective, I firmly believe that if a founder from the beginning takes the right capitalization strategy and is capital efficient and attacking these industrial markets, they’re huge. And the ones we focus on are massive opportunities to both drive a bunch of value to customers and in turn, generate great returns for iron spring fun one, right to put it in perspective, manufacturing alone in this country is 11% of GDP 9% of the workforce, construction and other vertical, we focus on six to 7% of GDP with 9 million workers growing 3% a year. So you know, we cannot afford to leave these industries behind as tech expands. And it’s just too important to all of us and we think there’s really great returns to be made.

Nick Moran 6:57
I’ve got one in mind for your tie. It’s stealthy. Oh, we just closed we’ll have to love to chat a bit offline but okay, so iron spring certainly earlier stage at large than than Pritzker. Just give us the high points on the thesis, you know, stage sector check size and kind of how you guys are different.

Ty Findley 7:17
Yeah, I like to define it into maybe three things that help us differentiate a market and the first the first is we are sector focus. We are lasered in on investing in b2b, digital industrial applications only right no consumer healthcare. It’s not what we know. It’s we want to invest in what we’re smart in. And so digital industrial is a fancy buzzwords, but think manufacturing, construction, transportation and supply chain energy, resources, etc. Legacy industries, if you’ll think of it that way, and I like to joke if Mike Rowe and the Dirty Jobs crew, if that team would go film it, we want to find a way to bring software in to support it, making those operations more productive, efficient and profitable. And I mean it when I say I’d run with the brand of micro of venture capital all day, if I could get away with it, but so far, this guy, Mike, he’s, he’s been elusive to my email. So if any of your listeners know him, I’m trying to get a hold, he could be the spokesperson for iron spring, hey, if Mike, if you’re out there listening, hit me up, doubtful. And then maybe second, we’re very stage focus. And our process here from a fun construction perspective is we thought there was a gap between a lot of great seed funds, who will take the risk of two founders and an idea with limited traction, and a lot of great growth funds out there who will pour capital into these companies all day, if they can show the detailed financial metrics of how that company is scaling nicely right in between those two ends of the spectrum, as I mentioned earlier, is is really where it’s the hardest part for founders to raise that post seed Series A, you know, use vernacular loosely nowadays, whatever that round is, where iron spring can lead or CO lead two to $4 million check and more of that seven to $10 million round size, right, right between those two extremes. So and the reason the round is often challenging, though, not always the case, it oftentimes pure revenue ramp can be a lagging indicator, honestly, to more industry specific leading indicators that you’d only spot if you’re really studying these markets deeply. And so on that front, they think like assigned MSA took you nine months to lock it in after a bunch of small pilots or project side engagements. But you don’t really have the revenue ramp to show for it just yet. Or maybe as simple as this sounds, certain types of corporate system of record data access that’s been granted to that company that’s rarely given out at an early stage or you know, especially given all the InfoSec roles that have now matured etc. So lots of these things that we’re looking for like this and diligence that go beyond honestly the wishful thinking you’ll ever find a T two d three revenue trajectory and industrial markets. Maybe Maybe I’m maybe I’m wrong, but I just haven’t seen it. So. And then the final point about orange bring it bring it But really, we want to put the fund out there as were built by operators for operators, and not necessarily as operators usually get defined and venture and tech, but people that have come from industrial backgrounds and all of our partnership, as well as all of our LPS that range from family offices, to corporates, they’re all industrial operators in some form or fashion that can really help these founders understand the true boots on the ground dynamic going on in the industry. So all of that said, we’re, I want to make sure we’re definitely not the first independent venture fund to run this playbook of sector focused investing plus having caught corporate LP backers who had specialized support, you know, just name a few, right? Great shops football on the West Coast done an amazing job defining prop tech fontinalis partners in Detroit, reshaping mobility tech, and maybe on the East Coast building ventures, really defining the built world ecosystem. So we’re really just trying to fold into a similar fast er path, but focused exclusively on early stage digital industrial, and my bet here, wrapping it up would be you only going to see more and more of these funds go down this path to provide specialized support with differentiated networks behind them. Good,

Nick Moran 11:08
good. Yeah. And, you know, we recently had Nikhil Basu, Trivedi on the show, talking about, you know, the specialists versus the agglomerate eaters and kind of talked about, you know, LP preferences, you know, some really, you know, prefer investing in specialized funds. I think there’s an edge there, while others think that generalists will always outperform, you know, I can imagine where you stand on this, but can you give us some color on why you think sector focused is going to outperform, you know, the generalist counterparts?

Ty Findley 11:39
Yeah, well, first, Nikhil and I were exchanging notes about, it’s an awesome article. So if you listeners haven’t read it, I would definitely recommend it as kind of the latest, greatest on this topic that’s been going on for, you know, a few years now in different forms or fashion. But I would say I really don’t look at it in the lens of who will outperform who, as all of our deals to date. And likely all of our deals in the future, we actually have a great blend of investors on the cap table, whether it’s sector focus funds, like us, more generalist funds, or even corporate venture capital, I mean, corporate VC will always have a key role to play within digital digital industrial investing, in my opinion, because of how close and network these type of opportunities are. So ultimately, we believe it’s a very collaborative, all hands on deck approach to support these companies that are facing some pretty brutal go to market realities within industrial market. So I wouldn’t look at as a and or Now that said, I do think the rise of sector focus funds, as I mentioned earlier, are bringing a new value proposition and new products honestly to founders that are differentiated. If the topics of interest, I’d encourage your listeners, check out a recent freightwaves article, I partnered up with some fellow friends and CO investors at other sector focus funds, Dynamo VC schematic ventures and fontinalis partners, really where we were outlining why VCs are starting to specialize further in the catalyzers to this, to me are pretty straightforward, right? Venture capital, getting hyper competitive record number of funds out there, there is a record high level of dry powder on the sidelines, it’s flooded into the venture ecosystem, because it public market growth opportunities are getting limited and interest rates are near zero, right? There’s a lot of great research on this and the Bane private equity report they put out each year. But both of those dynamics of which have naturally in turn compressed the returns potential of the asset class. And I think this was evidenced by Morgan Stanley’s I think it was Michael Moon Boston put out his recent report outlining that the 30 year median PME, which stands for public market, equivalent benchmark for venture capital has been one. And what that really means is, if 30 years ago, you could have just put your cash in the market and probably done just as well. Right? Yeah. So this with more, a lot more liquidity, exactly the liquidity and premium that you’re getting your capital stuck into a fund, right? So couldn’t we could go down that soapbox all day, right? You know, this returns compression happened in private equity, right? And I have to believe, and it’s my opinion, you’re going to see this play out in venture as well. So the point here is if I’m a top tier founder, there is a lot of capital, a lot of options to choose from that look the same. So if if I’m a founder, then looking to de risk her business at the earliest stages with a differentiated and diversified cap table is as we like to see, we would ask why wouldn’t she pull in a sector focus fund who brings deep expertise and associated networks to support building the company, whether it’s adding curated value such as sector specific talent networks, deep corporate relationships, where their target customers and ultimately the m&a teams that are associated with those types of decisions down the road? strategic insights on industry specific go to market topics such as product positioning, pricing norms are typical buying cycles for these markets, to even fundraising strategy. How fast should we burn versus the sector’s propensity to buy and maybe ultimately introducing those founders to which venture capital firms, we think in the next round of funding really understand the sector and would write a check. So all of these variables are things we think we bring to the table to have a complementary and different lens than other venture firms who maybe don’t have the luxury of spending all of their time in our industrial sectors, like we do.

Nick Moran 15:22
Got it. Got it, you know, tie we worked in, in an asset class that often promotes Blitzscaling, you know, exponential growth, you said TTD, three, you know, triple twice, double three times. And often, in a lot of cases spending ahead of progress, right, getting out in front of your skis with, with capital. You know, how do you rationalize the expectations of startups in our industry, when you’re investing in startups that are often entering industries that operate at a slower pace? You know, many of these are legacy heavy industrial industries. And, you know, these are our are the spaces that your startups are serving. And there can be challenges and headwinds to you know, moving at the Breakneck, breakneck speed that’s often expected in venture.

Ty Findley 16:11
Yeah, I mean, this is this is the challenge and to be clear to a massive opportunity if you do it right. So before, I’m a little cynical on it, but to the question, what I usually stress to founders in our ecosystem, is to really begin with the end of mind and what I mean by using that Dr. Covey phrase is for them to objectively set aside all the hype and posturing that’s present in a lot of the venture ecosystem, and really take a data driven approach to where the market is valuing industrial innovation. Because this this thought process really should be the guiding light of how a digital industrial startup goes to market and thinks about a capitalisation strategy to match as you mentioned, how quickly you can actually scale in these environments, right? Not taking a blind look at other venture round sizes and valuations and say the consumer or pure database DevOps, it ecosystems that really buy in scale, completely different, in my opinion. So I do think it’s an education that needs to happen. And maybe to bring some color here, I think examples are always the best way to highlight. You know what I mean by this, and I’ll start with some bigger exits that recently happened in a couple more that are well known in the venture ecosystem. OSI soft is an industrial data collection and storage company that just sold to Aviva, which is majority owned by Schneider Electric for 5 billion bucks. That is a massively successful exit that most people forget. That company is actually a 40 year overnight success, right, that founder, Dr. Kennedy, he’s well known for having been building this company in defining Industrial Tech as a data historian pioneer. But even for him, it took decades to generate that type of value that is oftentimes nowadays and venture capital may be thrown around is call it a mediocre unicorn status somehow, if that even makes sense. So that’s one and then the other big one. And I think this is the largest enterprise software exit of 2020. So far, so far. Epicor, right, which is a major player in the manufacturing and supply chain software ecosystem sold for 4.7 billion. So another massive exit, although this one seems to be playing the PE, PE, hot potato, still a big exit. But again, the company was founded way back in 1972. Right. So again, if you think about those numbers versus where ventures scale, thinking unicorn status, it certainly kind of breaks the model a little bit. And maybe I’ll compare those two more legacy companies to some of the largest industrial exits over the last year with companies that are relatively new entrance to the scene, if you will, that had the more traditional venture route. One of them was six river systems is a warehouse robotics company founded in 2015. They sold to Shopify late last year for 450 million. Only 60% of that was cashed, I think 270 million ish and 40% in stock. So while definitely not an earnout situation on the stock side of it, it’s not cash and the founders really need to stick around to drive that value to the purchase price implied. Again, don’t get me wrong. $450 million dollars is yet another amazing exit. But in most traditional venture eyes, that is in a power wall type exit, right. And this exit with a co founder, these were the co founders of Kiva, robotics itself, the best in the business where the warehouse robotic movement all started. So it’s kind of tough rationale for other robotics businesses to project and outpace that effort. And that exit reality, at least in the near term, right. And so, lastly, I bring up onshape cloud based engineering design software founded in 2012, that was bought by PTC for about 470 million bucks. Another big exit, but again, 470 million bucks, not necessarily the Powerwall type return, given where the early round prices were pegged, and not to mention the series B for that company was done at 800. million dollar post valuation where I’m guessing cash was likely given back to investors out of that round. I don’t I don’t know that. But I mean, that’s just the magnitude of what we’re talking about here when it comes to pricing correctly with these companies. And like six river systems, this company was founded by a guy named John Hirsh stick, who is the pioneer of engineering design software having founded solid works. So again, the best in the business with a very successful exit, but maybe not in the eyes of the pure venture capital asset class that usually only puts unicorns on a pedestal right. And so maybe a parting comment on those toe those to bring even more salient point home. Well, I won’t speculate on what I’m pretty sure their revenue levels were for both those companies. Let’s just say those acquisition comps were done on strategic multiples that far outpaced where revenue levels could have ever justified exit. So net of all of it is I just think founders really need to be thoughtful as they launch businesses in these markets and not let the entire ecosystem of venture capital deals, sway them to bypass the more salient realities at play here. And finally, you know, aligned to this whole discussion around exit potential and beginning with in mind, I do want to give a shout out to my digital industrial partner in crime over at energize ventures, John tuff. He recently wrote a great post called evaluating the sex, successful industrial technology exits to try and bring this important discussion more out in the open. And I was able to support and chime in on some data points toward what I think is truly an underserved discussion about exit realities for founders who are building in this industrial space. And anyone who wants to further discussion which ultimately, I think we need to all rode the boat and help do, please reach out to John or me, we’d love to talk more about it. Yeah.

Nick Moran 21:43
Yeah. You know, it strikes me. Of course, I worked at Danaher, before for a number of years, and we served a lot of heavy industrial and a lot of slow moving industries, you know, we, we would kind of politely refer to them as these glacial pace movers. Right. But we loved in a lot of ways, you know, I was taught that these are very, very attractive, because the long term, the long term durability of cash flows, is super strong customer retention, you know, if you have the right products and services and brands can be very, very high. Inertia for switching is is high as well. So customers don’t switch as often, which gives you a ton of pricing power. And, and essentially, that all results in a broader, deeper, more valuable moat. Right. And I feel like the public markets, like none of us want really slow time to exit, right? And venture, of course, we want speed. But the public markets historically and today are oriented to reward, you know, short term returns, right, everything is quarterly, it is not a long term look. And because of that, I think the way that moats are valued, versus just you know, speed of revenue is totally out of balance, you can have a really strong, deep, long term moat, and really robust and durable cash flows. I just feel like over time, you know, the depth and breadth and strength of these customer moats is going to show, you know, higher LTVs, of course, and the companies that have those broader moats are going to be rewarded for them more in the future.

Ty Findley 23:26
I don’t disagree with any of that. And I think the way you frame it around how do you value the moat, even if it’s at a somewhat immature revenue level? Couldn’t couldn’t agree more that we could probably have a whole nother discussion on that I really like how you frame that in spot on,

Nick Moran 23:41
you know, Ty, do you think that product led growth can work in these sectors.

Ty Findley 23:45
I’m a big fan of what OpenView in the rest of the folks that are helping define the product led growth movement. And we were co invested with them at Project 44 When I was previously at Pritzker group. So I do think it has a role to play but I probably couldn’t give you a strong opinion in terms of how it could help break the cycle of the slow go to market realities of industrial probably need to give that some more thought, but I am a fan of what they’re doing for sure.

Nick Moran 24:13
Cool. You know, I want to talk about you have it in your your style. You and I have have talked offline about this a few times. But you know, how do you think or can you share with the audience how your style as an investor differs most from others.

Ty Findley 24:30
I wouldn’t really call it a style because I don’t think I have much style but the decision or my wife would say that as she looks at my attire from the stay at home, but you know, the decision making process for a venture fund is something I take very seriously and I think it’s also another under discussed topic and you know, there’s a whole lot of qualifiers here right? If you know if you’re fun construction models to make lots and lots of seed investments quickly, I get the velocity that you have to deploy but but where we sit the idea that you can make an investment decision and two to three weeks worth of diligence and catching on to the tail end of a process. It just won’t ever be something that’s a fit for iron spring. And we’ll probably lose out on some great deals because of that, but but that’s the that’s the tact we’ll take. And so, you know, maybe defining my style, I guess a little bit a lot of folks in venture would say primary characteristic traits for investing oftentimes revolve around curiosity, foresight, networking, and, and those are all hugely valuable. Don’t get me wrong. But for me, I really think discipline, decision making is top of list in someone that made a big impact on me. And it was only last year at Duke wrote a recent book called Thinking in bets. And really, I thought it was not attuned to her background playing World Series of Poker or venture capital, but it does touch on those themes, but it’s still very salient. The main point here is investors shouldn’t be focused just on specific outcomes alone, but rather on the underlying decision making processes that you took to try and maximize the odds of that decision having a positive outcome. And I know that’s a mouthful, but we all know venture is a risky asset class and not every investment is going to have a positive outcome. But I do have a strong feeling that having a solid decision making process as a foundation to me and my partner’s how we make investments together. It definitely helps me sleep a lot better at night, having had other investments where it was a sure thing with the best investors and the most capital, and then they go to zero, right? That’s just venture. And so one of the other investors I point out here that made an impact on me, Ray Dalio, he’s well known for his outlook on having a very disciplined and systemized investment process so that it’s scalable, repeatable, and ultimately has guardrails to make sure you’re not just chasing because of FOMO. And so I think both of those have made a big impact on me. And I’m somewhat as you know, call it prior engineer, process driven person, a full appreciation venture does have to have flexibility, don’t get me wrong, and you got to move quickly. But I do, I do believe in process. And so maybe oftentimes, the counter back to all of this is you need to be flexible and venture as I just mentioned, which does have a lot of merit. But I would say, you know, I’ve invested with a lot of folks and been very fortunate to have a lot of different partners I’ve worked with, sometimes those comments are just deflection from those who don’t have a systemized way of making decisions. And it’s a little more shoot from the hip. And I think you can really get yourself into trouble and venture and you know, we’re still brand new fund really trying to figure this out. So it’s all opinions worth what you pay for it. But I’d rather take my chance and my style with a very disciplined, systematic approach to how we actually make the investment decision process. Less so focused on the outcome, call it in isolation.

Nick Moran 27:49
Well, outcomes are important, but the sample sizes are small, right. And a lot of people have gotten lucky, and they over index on the outcome and, and not on the way that they made the decision. And if the decision was the right decision at the time. And there’s so much just revisionist history in our industry, that

Ty Findley 28:08
you’re waiting five to 10 years to see if it’s even working. And oftentimes it’s a paper game. Right.

Nick Moran 28:15
Right. Right. Yeah, it’s helped us certainly as a firm to kind of codify our investment decision, you know, write up these deal memos, and we can go back. And with a lot of, you know, the successful port codes, of course, and maybe those that are less so we can look at the decision making framework we used and why we chose to move forward with the US. And it’s been helpful.

Ty Findley 28:36
For sure. I do wish more discussion was on this topic, because I know I’m asking a lot of emerging managers, how they’re thinking about it, how they make partnership decisions, and a lot of topics that are behind the scenes that are that are really important, right. Todd,

Nick Moran 28:49
tell us about your four part framework of the day in the life of the VC fund manager.

Ty Findley 28:57
Happy to share jumping out as an emerging manager, I would definitely qualify as the hardest thing I’ve ever had to do professionally. And so goes the story of making sure you’ve got some great partners, because it’s a team effort here for sure. But but really, you know, as I jumped in, starting a new fund, there’s just so many different things you can pull from your time and you know, this, Nick, you’ve you’ve gone down this path, well beyond the old outlook I had at my other shops of getting to know founders trying to add value. You know, do smart homework to see if you can be a part of their round and then support them after you’ve put money in. There’s just so much more going on. And so, you know, I needed to try to find a way again to maybe bring some process and structure to how I put my time. And so I think of the role as a fund manager really in this four part framework and bear with me here it’s three parts are in a funnel type setup, and then there’s a flywheel around that funnel in the first one. top of funnel is sourcing the networking, right? lifeblood of this job is meeting great founders having a strong network of CO investors, corporate relationships, etc. So that that one’s pretty self explanatory. And you know, it takes a high level of EQ and you kind of find out if you’re good at it or not pretty quickly, but you move down the pipe to second part really, this gets back into the discipline decision making, I do believe running diligence correctly is is a skill set in its own right. And there’s no one right answer, don’t get me wrong. But it’s kind of like the, you know, Mark Zuckerberg analogy, every time we look at a deal, you know, what he puts on the same shirt every day? So didn’t have to think about the decision making. He’s he’s making but why wouldn’t you have a standardized process of what you need to collect from founders and make sure that you are able to benchmark versus other things you’ve seen so that that skill set and toolset, running diligence can’t take forever, but it’s something that we put a lot of effort into. And then third part, you move to the bottom of the funnel, once you’ve done the homework, and now it’s time to actually see if you can win the deal and negotiate a win win for both the founder and yourself amongst a whole lot of other things that you need to be doing, you know, legal docs, etc. So I think that’s a whole nother skill set that it just takes time in the seat and multiple reps before you really get a feel for it. And then around this three part funnel. The last part of this is portfolio and fund support in Portfolio support is critical, right? How do you show up once you’ve you’ve convinced a founder with all the things you say and your marketing materials that you’re going to try to support them with? But how really are you going to show up after the investments made? And so that one is is a Wellpath, this or it’s a well treaded path of conversation, the one that really is a new emerging manager was surprising. But at the same time, you kind of got to know what you’re getting into is the fund support? Right? And that’s everything from what is your fundraising playbook? How are you going to think about investor relations going into the next fund, let alone your current LPs, back office fund administration, picking health care plans for your employees, putting on your IT hat so that no one’s clicking on phishing emails, right? It’s, it’s unbelievable, all the things that you have to manage. It’s truly a startup in every regard. And it’s super exciting in one one sense, and it’s also super challenging in another. So anyway, back to the point of the framework, it’s just really how we try to bring in new associates and interns and really gauge you know, hey, amongst the lifecycle things you’re going to be doing here on a day to day basis, which changes every single day. This is how we try to frame it in a little bit. It’s

Nick Moran 32:26
it’s funny talking to prospective fund managers or people that are going to launch their own firms. You know, I always give the feedback, like, we all love the investing side of the business. But if you want to spend a lot of time on the investing side, you got to be careful watching your own firm, because there’s, there’s way more to it, you know, than just doing deals and just meeting entrepreneurs all the time. Yeah.

Ty Findley 32:53
And you made a brilliant move to pull in your brother and get some support on that side for all the other things that have to make sure that the wheels go round. And I can only imagine, super helpful to the efforts there.

Nick Moran 33:04
Yeah, we’d be dead in the water without them. You know, what are the Do you have any must haves? Like when you’re looking at a at a deal? It sounds like you got a good system a good framework for thinking about it. Like, are there? Are there any unique must haves that you have to see on a deal in order to move forward?

Ty Findley 33:22
You know, not not, not anything down the SAS napkin rabbit hole, you know, what are we now at one and a half, almost 2 million ARR month on month growth? We won’t look at it that way. Right? We are investing, you know, after seed rounds. So there definitely needs to be some meat on the bone for us to do our financial diligence. But I would say the main must have and this sounds simple enough, but for us is just unbelievably deep founder market fit. And that’s a term that’s thrown around a lot. But I I really believe in these industrial markets. If you haven’t been in the seat of that operating role that you’re trying to ultimately fix or sell into, before jumping in to build a software solution to enable it. There’s just so many nuances amongst all the go to market realities. We’ve already talked about a really challenging that gets it’s just really hard for me to get excited about it. And so our most recent investment company called Mercado labs, its international supply chain visibility software. The founder Rob Garrison has spent three decades as an importer himself in different roles for UPS, FedEx, Michaels, Kmart, so shipper and logistics side in the idea that someone would be able to leave a lab or just hot out undergraduate again, no offense, understand the nuances of international trade such as customs duties, tariffs, currency manipulation, language translation, how the supplier bases work in foreign countries. It’s just really hard to scale without that insight and you know, that’s at least from underride ain’t a deal. We don’t want to underwrite to risk around the founder not understanding the market. And we’d rather take our risk in other places. So, founder market fit is just really important to us. And we’ve got a small portfolio as we just launched, but you’ll see deep founder market fit with each of our portfolio companies today. So

Nick Moran 35:18
Ty, rumor has it, you’re starting a podcast. You and I may have talked about this. Lots of new podcasts these days, you know, why will yours stand out? And what’s the objective? Well,

Ty Findley 35:29
I probably have no idea what I’m getting into. But some of your encouragement here, I am going to launch one in the reason I am amongst what you said, there are a lot of great ones out there and I listened to a lot myself, I do think there needs to be a very curated voice balancing between the boots on the ground industrial operating realities that we’ve talked about earlier. And the venture capital ecosystems, capitalization strategy and outlook for startups advancing this digital industrial agenda. There are some amazing digital industrial founder and investor stories out there that need to be told. So others can learn from how they built up capital, or how they built their companies and capitalize them. So those businesses were healthy along the way. And one example for me is a guy named Rick blada. Rick is not a call it venture household name. But he’s basically been one of the industrial IoT is if you’ll use that buzzword pioneers over the last three decades, defining machine to machine communication. He was director of technology at Wonderware that went public. Then he co founded light hammer, which sold the SAP and then He most recently co founded ThingWorx, which sold the PTC in 2013. And is now I think the platform widely considered one of the top industrial IoT products out there. How is it that that serial digital industrial founder story is not out there for more people to share the lessons learned as as he approached these markets. So I believe those lessons learned would have really helped out a lot of the current industrial IoT founders and companies that are out there that have maybe raised venture over their skis the last few years, but now are either out of business or struggling to raise because there’s too much capital too soon burning too quickly, in what are again, really challenging environment. So the objective is pretty simple. I just want to form a community of discussion around the topic of venture capital and digital industrial applications, so that we can accelerate everyone’s learning curve a little bit more. Ty,

Nick Moran 37:21
what resources have you found particularly valuable that you’d recommend the listeners?

Ty Findley 37:26
I think we all have a blog, blog book overload with all the great content that’s out there. So I’ll go super tactical for all the emerging managers listening out there and recommend subscribing to the Kauffman fellows journal that the Kauffman fellows Research Center and column West team is pulling out. I just joined into the the newest fellows class earlier this year alongside your recent guest, Jacqueline Hester over founder group, and some other great folks and and I really started to learn about all of this free data driven content, they are putting out specific to topics from emerging managers like fundraising from LPS during COVID best practices for building concise pitch decks and data rooms, tips and common pitfalls to avoid regarding investor relations, new fund level and personal liquidity tools for GPS that’s always a consideration, etc, all of these things that, at least from my own opinion, no emerging manager studied in college or just knows how to do until you actually jump in the arena to do it. So put a plug in here for the Kauffman fellows journal and, and for folks to subscribe to the newsletter. I don’t think you’d regret it. You’re

Nick Moran 38:30
going through the Kauffman Fellows program right now. Is that right?

Ty Findley 38:34
That’s right. Yeah. Little little different vibes, since we’re doing everything virtually right now. But as Jacqueline mentioned, they kind of extended it for a couple of modules where we can get back into person when that when that’s all going forward. But big, big fan of the program for sure. Okay,

Nick Moran 38:48
good. Ty, what do you know, you need to get better at

Ty Findley 38:53
maybe as we as we hit on a little earlier, with the outlook that T two d three revenue, ramps and Blitzscaling really aren’t conducive to these legacy industries, as well as the exit markers, I think to date supporting that outlook. In my opinion, I really struggle with helping companies and I’m continuing to work on how do you balance taking a practical customer driven approach to drive near term product value, versus setting out on a burn ahead of your skis big vision platform before product mentality that that is more conducive to the venture powerwall role, honestly. So after investing and seeing enough deals in this ecosystem, pattern recognition can really lead you to be a little bit more cynical than you want to be on scaling, then then oftentimes, you want to be in venture capital. So I think my challenge I’m constantly trying to work on my communication so that when I talk with founders and try to share some of these lessons learned, I’m not just emphasizing the challenges, but also if we do it right and capitalize the business correctly, how big an opportunity exists to make an impact within these markets, so has to be a balance right? Good.

Nick Moran 40:00
And then finally, what’s the best way for listeners to connect with you and follow the firm?

Ty Findley 40:04
We’re pretty easy to find, check out our website at Orange spring.com. My email is Ty at Orange brain.com. And we would love to hear from you.

Nick Moran 40:13
Awesome. Well, Ty it’s always a pleasure, getting a chance to catch up and trade trade stories on industrials and investing in them. Looking forward to the next one. And thanks so much for the time today.

Ty Findley 40:24
Well, thank you for having me. There’s so many great investors that have been on the podcast and I’m really happy to have snuck on here. So thanks.

Nick Moran 40:31
Very good. Thanks. 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 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 confidently thanks for joining us