Sach Chitnis of Jump Capital joins Nick to discuss Discovering the Next Sectors of Opportunity, The Impact Platform, & The Exit Discussion. In this episode, we cover:
- Walk us through your background and path to VC
- What’s the thesis at Jump Capital?
- Talk about developing a thesis on a specific market opportunity — can you give us the broad strokes on your process of how you dissect emerging markets and identify where existing offerings are lacking?
- How do you determine who will be the winner? Is it common that, of the existing set of players, none will emerge as the winner and you need to wait for a fresh approach?
- Having a portfolio support platform is unusual for your size — how are you able to make it work at your fund size and what all does it entail?
- In what areas do you find a Series A funded company needs the most help?
- How do you advise a founder that’s in a hot space, doesn’t need capital but has inbound interest and large investment offers, maybe at inflated valuations, from tier 1 coastal investors?
- Let’s talk about exits a bit… you’ve been around for 8 years, I noticed the good news of both 4C and Personal Capital’s recent large exit, where are you finding most of the exit discussions begin… do they start w/ the founder considering it, do you discuss it as an option, or do meetings/partnerships start coming from strategics that get the process rolling?
- How do you advise founders on negotiation and getting the right offer, not just any offer?
- What is “swing time” and how do you systematically build that into your schedule?
Transcribed with AI:
Sach Chitnis joins us today from Chicago. He’s the co founder and general partner at Jump Capital. A Series A/B and growth investment firm in data driven technology companies within FinTech, b2b SaaS, IT data infrastructure, and media. Prior to Jump Capital, he was an operating partner at Tarsis managing growth and turnaround portfolio companies. Sach, welcome to the show.
Nick, thanks for having me,
Of course, talk us through your path, you know, to venture and investing.
Yeah, it’s a it is a nomadic path, it’s, to some extent a path of attrition figuring out throughout my career, what I didn’t want to do. I started out as a pre med like, all good, you know, Indian children. And my book was my parents came from India 40 plus years ago, 50 years ago, and started pre med biology and realized after I worked there, as an intern that I didn’t want to do that went into chemical engineering as an undergrad, try to be on the bench doing chemical engineering. And slowly over time, working at GE, working in marketing, working in sales, and a variety of product roles, learned that I just love transactions, love dissecting models and industries, and overtime was able to find opportunities, not only as an operator, but as an ability and an opportunity to invest in, you know, tech companies. And, you know, certainly when you look back at 2012, when we started jump capital, it was a time that we thought that there was a absolute chasm or dearth of capital for series A and B and still exists, in my opinion, to some extent, certainly much more plentiful a lot more, you know, a lot, a lot more funds in the market these days. And certainly more interest from the coastal VCs, but, you know, trying to come in and fill that void and come in with an operating lens was kind of our, you know, pieces.
When did you guys launch?
What year? 2012 2012?
Yeah, so markets changed quite a bit since then, you know, what is? What is the thesis of jump? And how do you differentiate, you know, against sort of an increasing number of capital providers?
Yeah, I mean, you said it right. I remember vividly being on a panel in Chicago with guy Turner, you know, we love the Hyde Park venture guys, and sitting on that panel with five or six other VCs. And somebody asked a question saying, How do I pitch to a VC and he looked around the panel is that you got 80% of the capital here on this panel. And you, you probably could count on one to two hands, all the active capital back in 2012, from a fund institutional fund perspective at that stage. Now, you know, I could probably count, you know, on one hand, how many were formed in the last, you know, 12 months. So, it’s, it’s definitely much more plentiful, I would say there’s a lot more fun to activity at the seed and a stage. So for us, you know, being a fund that focuses on one to five revenue companies, writing those four to $10 million checks. It is a clip later, larger check that does give us some distinction in the middle of the country. We do about half of our investments between the coasts, and the other half, of course, by math, on the on the coasts in New York and Boston that’s up. And, you know, from a differentiation, you know, really, we, we’ve always been around this data fueled economy kind of orientation, how do we invest behind these companies that are taking advantage, or enabling data in this, you know, clinical environment. That’s, that’s a pretty simplistic approach. You know, we’re x operators amongst the team, we’ve started run over a dozen companies. And that definitely gives us a different lens. And I think you see that on the coasts, more so in the middle of the country. But frankly, you know, our real focus is that we are thesis LED. So we dive deep into markets, create a perspective, and then go hunt, whether that is a specific view on compliance around the crypto space, or around sports betting, or in, you know, getting really narrow in the retail space and identifying areas that we think are interesting, and how do you discover new brands. And so because we develop that deep thesis and perspective, we’re able to, frankly, have intellectual debates and battles with entrepreneurs. And, you know, our hope is that based on the depth that we have the relationships we start to build in the marketplace with customers and acquires entrepreneurs see that as a distinct value add versus just being money at the table.
I want to talk more about the thesis and how you guys you know, approach it and and develop your theses at jump. But before that, I’ll put you on the spot. So three to four years ago, I started a sort of informal quarterly breakfast in Chicago for emerging funds, you know, founding partners of emerging funds, like 50 million ish and less right. Take your guess how many different funds are represented at that breakfast today?
Read it four years ago today or today, now. I’d have to say there’s at least 15. I can think of 15 to 20.
There’s Yeah. 30 difference.
Now, there’s a lot of nuanced strategies, right? There’s a lot of people doing different stuff, studio models, whatever. Even, you know, some crypto focused funds. Yep. But a lot more than I expected, right? Because Originally, I spun it up with a guy named Jeff Mainers who spun out from from Pritzker. He runs a firm called network ventures. And the two of us got together and we’re thinking of like, seven, eight names. And then we, you know, slowly but surely, it just kept growing.
Yeah, and you know, what, I think we sit in a somewhat unique position, because we do have geographic, agnostic kind of investing. Now, certainly, if I had my way I have, you know, two kids of school age, a 12, and a 15 year old, I’d love to do all my deals in Chicago. But I do think that geographic bias will create, you know, kind of perverse incentives were returned, a different return profile. So we do spend a lot of time in these geographies, Atlanta, Toronto, Detroit, etc. And especially in the middle of the country, there’s a lot of pockets of innovation and interesting development. Chicago is just at a different level one, because you have such concentration of industry knowledge, so coming from industry, and coming out with innovation, so they come in with industry perspective, not just an idea and finding that where that widget fits. And then to frankly, we have had good successes, you know, I mean, obviously, everybody can point to grub hub, Groupon fieldglass, you know, just this year, we’ve had a handful of, you know, billion dollar type exits in Chicago. So you’re seeing that talent, we circulate at a faster clip than other markets, certainly not at the same level as Boston or New York or SF, but certainly in a different way it has. And so the fact that the funds are falling, the idea is, you know, the for fun formation, as long as the ideas not shocking, yes,
there’s a trend line there, right. Anytime I get pushback from institutional LPs on middle of the country investing, you know, you can you can look at the trend lines for the coast to right, the size and scale of the exits in the volume of the exits used to be lower. And now they’re quite large.
With COVID, I would tell you, if there is one benefit, and there’s a lot of negatives, and a lot of medical and you know, personal issues that come with COVID. But if you look at it from a venture perspective, and the middle of the country, COVID has been an absolute accelerant for my view. Everybody’s doing everything remotely. Now, whether you’re down the street, you know, in in Soho, or whether you’re in, in the West loop of Chicago is 61. Now, and so I’m seeing a lot more coastal firms spend time on companies, that, frankly, they probably wouldn’t have been on the radar. But with the caveat that I think the metrics are becoming more heightened, because now you’re measuring teams on zooms, and the metrics support it, they can jump in, versus before there’s a lot more touchy feely kind of soft, you know, engagement elements that kind of made decisions. 100% 100% Yeah,
I had forgotten that you were a GE guy, but I was just trade notes with their their CEO yesterday, actually. He used to run a company I used to work for called Danaher, and, yeah, I’ll have to get your take on on the trajectory trajectory of GE going forward at some point. But let’s talk more about jump. You guys develop specific market theses. You know, can you give us the broad strokes on your process of how you sort of dissect an emerging market, sort of identify where existing offerings are lacking?
Yeah, to maybe we’ll start with the sectors we spend our time and you know, we do feel like being deep in a space requires you to be somewhat sector specific. So we are very deep in FinTech, which includes cyber includes crypto includes capital markets, insure tech and like it ITM data infrastructure, cybersecurity, data infrastructure, kind of the b2b unsexy pipes of the industry. Three, anything around this emerging, you know, digitization of commerce, you know, the future of commerce, if you will, that includes media marketing, and everything around retail tech. And then the cash, of course, is b2b SaaS. And so when you look at those sectors, obviously gives you a lot of runway to kind of dive deep. So doing a thesis on FinTech is not sufficient, you know, there’s, you know, so many tributaries in that in that one specific segment. And so you, when we go into it, we really try to dive deep, not at a macro level, but to dive into that next level deeper. So as an example, in FinTech, we’re not diving into just specifically compliance, we’re looking at AML KYC. For crypto investments as an example, or when we’re looking at something like sports betting it’s not around the broad space of sports betting around commerce. It’s around the data enablement the the integration levels of how do you intertwine Entertainment with sports betting. So when we come up with an area, it’s usually from one of three areas. One, we usually are in a space. And it’s a tangental area that we find through our continued spend spending of time on the board, attending conferences, just reading up, frankly, if you’re in retail tech, you have to dive deep and keep contemporary to is, frankly, when you’re in that ecosystem, there are investors that get that are known for that sector. And then conversely, you’ll share a lot of ideas and perspective. And then third, you know, this is, frankly, where we spend a lot of our time is that we see these macro trends, we come up with ideas amongst the team, we have a Slack channel, specifically dedicated to ideation. And when we get those ideas, we review on a regular basis, ones that percolate for us, as ones that we want to dive deep into, we usually grab a intern from booth or Kellogg here in Chicago, and had them somebody from that specific sector from detail from FinTech or financial services or the like. And we dive deep with them to come up with a perspective, identify whether it’s worthy of investment now, whether it’s to nurture down the road, or to frankly, you know, seal the well and not look at that space, which is just as important as finding something. And then we start hunting for opportunities in that space. And so it’s a very well called systematic approach. You know, 70% of our deals for the last three years have come from that 30% of them have come from just, you know, network relationships, our friends, and our Mosley in Atlanta tribe back in New York, you know, Hyde Park ventures, as I mentioned, you know, them sharing ideas and investments in their portfolio. But 70% of our time, and attention is really going out there and looking at specific areas like 401k, how that’s being disrupted, or needs to be disrupted, so small businesses can have it and then going finding that company.
Interesting, interesting. Is this something that happens, sort of on a rolling basis, this the strat planning and the deep dive into subsets of markets and opportunities, or is it? Do you go through like an exercise once a year where you say, you know, we’re gonna establish, you know, the areas of most interest over the next, you know, time period and, and kind of recycle
it? It really is, it really is such a fast moving market, I’d love to say, you could do a year end strap planning, like, you know, we did back in my GE. That’s not the case, it is very rolling, you know, we have a Slack channel, because these ideas come from reading that wall street journal article, seeing a conversation on CNBC, that is, you know, propagating an idea like we had about four years ago around student loans, it was an area that we thought, boy, student loans is a not only growing issue for people coming out of college here the the mounting debt, but it’s a cascading effect of life events. How do you, you know, save up money for a down payment for your first home? How do you pay for that wedding? How do you save for a 529 for education, when you haven’t paid off your education, and, and so forth, you see the cascading effects of that one issue. And in our view, like, as an example, our view is, it’s going to increasingly become a burden for employers to keep their talent happy, and possibly to participate, you know, whether it’s to, you know, to do a match, or to use that as a benefit. But for us, when we identify those ideas, you know, on a continual basis, we review it, you know, every other month, and then we prioritize, frankly, we’re heavily driven by the intern schedules or the semester schedules of booth and Kellogg, and many of the schools we pull from UT, Harvard, Penn and others. But yeah, it’s it’s a very continual process, we usually have about 12 that are, we’ll call hunting license where we’re out there looking for and any given point of time, candidly, the COVID, we’ve had a lot more call thinking time. And we’re probably up to 15 or 17. Right now. So
how do you find a winner in a space? Right, let’s let’s just assume the timing is right, you found an opportunity, market opportunity? You think now is the time you look at the available set of participants in startups or early stage tech companies in that space. How do you pick the winner is the first part of the question. And the second part is, how do you know when it’s just time to wait? Right, because sometimes, the right players aren’t maybe the right fit for you or approaching the problem the way that you think is sufficient?
Yeah, I mean, your to your latter point. Everybody talks about FOMO and venture, you know, passing on deals whether it’s the Robin Hood’s the plaids, and like of the world, being early is just as bad if not worse than FOMO right. being too early in the market, burning through cash and a company being ahead of its time is not an accolade because you usually don’t get an exit in usually does not have a good outcome for the entrepreneur nor the investors. So it’s a very big issue, we try to spend a lot of time thinking about the adoption curve where it sits in the cycle. But it all starts with the customer. So if you go back to how our process works, we do dissect the markets. And you know, I’d love to make you think that we are some math geniuses working in some windowless room, you know, trying to figure out and dissect the market and know what the future is gonna hold. We spend a lot of time talking to strategics, to customers to know when we’re in the retail space, we’ll talk to somebody that’s at Ralph Lauren at Nordstrom is at Ulta, and so forth, to get their perspective of what are their problem sets? How do they think about this specific problem, and then, you know, help refine our perspective. And not only enables us to give voice to the customer, which I think is incredibly important. But frankly, when we do invest, or are thinking investing of investing in a company, we make that introduction, and so the entrepreneur loves it, because obviously, they want the commercial data, which, frankly, for every venture fund that is not doing that, that is the single silver bullet that saves and helps companies, right, it’s to get them revenue. But secondarily, they get product feedback really early, you know, when we’re investing in one $2 million revenue companies, sure, they may have product market fit, but it’s still, you know, squishy, right? It’s it’s not a firm product, the roadmap is still being developed and modifying and so that helps, too, we spend a lot of time talking to strategics. So when we’re looking at an area, say, in retail, just to exacerbate that point, we’ll try to talk to the people at Shopify at Pinterest, and those types of companies that we think would be future requires, for the most part, I’d say Most strategics are really thinking that far in advance, right? So we’re not asking them, what do you want to buy today? But what do you think about this specific sector, say discovery of brand, live streaming, whatever area that you’re thinking about, within retail or any sector, and they usually have an opinion, or they can also say they don’t have an opinion, which also is a good indicator of how far out it is, and that, you know, maturity cycle. And then lastly, you know, frankly, we talk to everybody, we try to reach out and get to know, share our ideas and perspectives with entrepreneurs, which there’s a reciprocity there, right. It’s a reciprocity. And we’re trying to give our perspective what we’re seeing the market, make introductions to, you know, the ecosystem, if they’re not familiar with people, help them with interest to customers, even if we don’t invest. And, frankly, that’s a, that’s not a strategic approach. As much as just their mindset, we tried to be very helpful capital. And I think, even when we’re not there, investor, we do find ourselves to be good friends and people in the industry, because it is a small world, as you know,
interesting. Sach I want to talk about your your portfolio support flat platform a bit. You know, it’s it’s sort of unusual for your size, you know, how are you able to make it work at your size? And what exactly does it entail?
So the, the impact platform that we have is essentially a support function that when I detail you’d say, well, I’ve heard this on the coasts, there are several, you know, funds that we all know, you know, whether it’s our friends at open view, Sapphire ventures, Andreessen, they’re all doing it at scale, for a sub multi billion dollar fund, you know, our last Fund, which was our sixth fund, closed last, last December, October timeframe was 200 million to give kind of perspective, those are six funds. So certainly, you know, have a, you know, a healthy portfolio to support. And from the onset from day one, Mike and my perspective, when we started, the firm, said, you know, the key here is not to invest, investing and putting money to work. That’s the easy part, making sure you put in the right companies, that’s definitely difficult, and making sure they’re able to scale effectively. And, you know, to use a cliche phrase, I want them to not learn on my dime, right? I want them to be able to accelerate their learning. And it’s what San Francisco based companies really good at, frankly, they’re taking people that have pattern recognition, because they were at LinkedIn, they were at Twitter there, we’re at Robin Hood, and saying, Let me redo this, again, don’t have that in the middle of the country, yet at a prolific scale, right? You have it in your pockets. You have some amazing entrepreneurs like Chris gladwyn, and the like, that are able to take what they’ve learned and kind of apply it again. And so our view is we needed to provide more support to especially the middle of the country entrepreneurs, but really coast to coast. It really is kind of four fold. One is strategic finance. So for us strategic finance, is how do you ensure that you’re thinking about metrics operating, and it’s not just a controller or managing cash in the back room and ensuring that venture debt This is everything that intertwines making sure you operate leveraging numbers and analytics. So we have a team of people that help them With that kind of approach and try to systematize that to his go to market. And so we try to help teams, which we think many times are deficient in this when we enter, understand what are the different areas that they need to hone in on to develop those inside sales models, to really effectively have a qualified lead handoff to marketing and all the intricacies of, you know, the go to market strategy. And, frankly, the adoption curve and adopt adapting your messaging quarterly. Three, we have a corporate development person, but you know, platform that is essentially to help our portfolio companies connect with strategics. So, if one of our portfolio companies wants to connect with Google, Jason and our team, Jason Felder is able to make that connection, because he’s nurturing those relationships for the thesis areas, but also to make those introductions when the timing was right. And philosophically, we believe b2b leads to corporate, so we’re not coming up to the doorstep saying, hey, you need to buy this company. That’s not our job. Our job is we want a product relationship, we want a commercial relationship. And we want hopefully, our companies to be so invaluable that those strategics want to buy. And then last, but certainly not least, is talent, right? And for us talent is how do we accelerate you garnering the best in class talent, frankly, wasn’t a big issue back in 2012, when we started, it was a issue. Certainly finding the C level talent was an issue, as anybody that’s recruiting right now will tell you, the Amazons, the Googles, and the like the world with his work from home environment, incredibly aggressive, anywhere in the country. I’ve seen it in cross our portfolio, whether you’re in St. Louis, to Chicago to Boston, and so hiring good talent, whether it’s product sales, or even engineering, of course, in data science, you’re finding it highly competitive. So we have a platform dedicated to helping our portfolio companies, you know, again, do it faster, and get better, better outcomes, you know, not over dying, so to speak on it.
Is there any direct relationship between jump trading and Jump Capital? Or are you know, you trying to source businesses that are creative and strategic for that entity?
The short answer is no. On the latter question, I mean, we’d be foolish not to jump trading is an incredible business. You know, when I met, Paul, Mike and I were raising capital for a fund. And Bill and Paul, were thinking about something very similar in art, you know, intersection kind of happened at the right time. But gym capital is distinctly separate from Jump trading. The owners of of Jump trading are our two of our LPs, our last fund has 92 investors, high net worth individuals. So we are separate. And in a, you know, a true fund. That said, you know, when you’re investing in capital markets, you’d be foolish not to do things in collaboration with, you know, one of the leading proprietary trading firms. And so we do certainly spend a lot of time when we’re in that sector working together. But certainly they don’t have any opinions on retail tech, they don’t have any opinions on, you know, enterprise education, or many of the other segments that we spend time on. But yeah, it’s just it’s definitely a nice tool to pull out when you’re talking to a, you know, capital markets compliance company, when you’re, you know, able to introduce them to the president of one of the leading trading firms,
right? Seems like every time I speak with one of the leaders at the prop shops in Chicago, they’re asking me, you know, how many opportunities do you see that touch trading? And, and, I mean, we’re early seed investors, and usually that percentage, and that number is very, very small. So yeah, yeah. It’s it’s not the bulk of what we do certainly at New stack. You know, what, you talked about these four branches that you guys help help out with? What do you think is the for let’s say, a series a funding company? Right? What is the the area they need the most help? Or what’s the top priority?
Were they the most efficient? Well, of course, because we invested they must be amazing on all these fronts, right? No help requests the flippin answer, no help required, just go and execute it. And we’ll see you at the IPO? No, you know, when we, when we walk in, I would say, a core tenant for jump is to make sure we walk in figuring out that as much diligence on, you know, what’s the gotcha not to invest as much as what do we do to kind of, you know, resolve these deficiencies. I would say in most instances, its people and leadership. When we come in, there’s, you know, usually three legs of the stool from my perspective, there’s that commercial mind and brilliance. There’s usually that operating, kind of keeping the trains running on time, you know, kind of mindset and leader, and then there’s that technical or industry, you know, expertise. And when we walk in, they definitely don’t have three legs of that stool. In many instances, they have one leg that is doing three legs of the stool, and so A core tenant for us in the core effort is assembling the leadership team. And whether it’s bench reps in Chicago, we help them assemble that team working with, you know, Matt conkel. At logic a, we try to help him bolster, you know, what was already an incredible team that he started to put together. And so that’s a core piece, because our view is that you have to deconstruct what we thought was amazing, and make it scalable. And, you know, as we all know, it’s the people that make these businesses amazing. So. So for us, that’s the that’s an area that we spend a lot of time on, is to try to help them get those core leaders that can help them recruit good talent on the team. And then respectively, you know, if you hire the right people, you don’t run into as many issues in the honeymoon period, certainly.
How do you advise a founder that’s, let’s say they’re in a hot space, they don’t need capital. But they’ve got the inbound interest, right, large investment offers, maybe inflated valuations, the tier one coastal investors are coming in, you know, what sort of feedback advice do you give to them,
we’re fortunate to have a handful of those in our portfolio. So in our portfolio of about 50, investments we have active currently, and we’ve exited a handful, probably five or so this year, for the remainder of this year, but I would say that of which probably a good 10 plus percent of them don’t need capital, but I’ve been approached by larger funds, trying to preempt and give them checks that, you know, frankly, are either not necessary, because you’re going to be or are profitable, or have runway for two to three years. And so I think it’s context that really drives the the answer, right? Because you can’t there’s no uniform answer, I think one is you have to determine what your product roadmap and your pathway is, you know, we tend to invest in capital efficient businesses. So these are not businesses, burning a ton of money and require to raise capital usually. But in some instances, that’s driven by necessity, right? You only have so much of your balance sheet. So if you have the capital, what could you do that is different. If it’s just to give you you know, your two years of runway and now gives you six years of runway, there’s no reason to take that capital to dilution. Two, I would say that it really depends on the market opportunity, right? You usually by that point, somebody else sees something that hopefully you see also, which is that there’s a bigger opportunity that exists. As we say, in our office, you know, moving the goalposts, you believe that the outcome was here. But now the markets bigger because you can get into tangental markets, you can open up a new, you know, geography or product line. And those are the things that usually get you excited to accelerate faster. And then three for me is competitive tension, right, in many of the markets said, these opportunities were in highly competitive, right? well funded here, well heeled competitors, and then you have to have a conversation about, do you need the capital just to be competitive? Because in some of these markets, especially things that are around consumer, around getting the time and attention through marketing, it’s very difficult to kind of break through that if you don’t have the the war chest. So yeah, it’s contextually driven. We’ve seen frankly, all all angles of this where we, as a board, as part of that board have turned down those type of opportunities. And we’ve also accepted and said, you know, you know, eagerly accepted those types of opportunities to take on capital substantially earlier, but I would say that, my personal opinion COVID has accelerated people’s view on pre emptive rounds. We’ve seen it yep, uniformly in our portfolio. We’re doing it, frankly. And so it’s going to be a question that most entrepreneurs are going to have to tackle. It may not be $100 million rounds, and maybe, you know, $10 million rounds from jump. But it’s definitely something to think about. What would you do different? And is this an accelerant based on the environment and ecosystem around you?
Is there a sweet spot stage for you guys?
Yeah, I would say, majority of our investments right now are series A, maybe you want to call it a plus, geography has a lot of context to the letter. It’s really one to 5 billion in revenue. The last two investments we’ve done, both were near 1 million, and they were seed rounds. So it’s hard to put a pin on a letter. For us, it’s really the commercial validation, because we’re not zero to one people are not really good at helping people figure out the early stages of product market fit. Yep. And those gritty entrepreneur, you know, co founders and like to get it off the ground. What we’re good at and what we’re helpful at is helping assemble the team at scaling the business and making those commercial introductions and strategic introduction. So that’s where we spend most of our time. The thesis led approach that we’ve talked about, I think really guides us frankly to earlier stage and many others. When we look at a market, if we’re really passionate about it back to your earlier question about whether or not being early is a, you know, an issue, one of the things we really spend our time thinking about is when we miss the opportunity if we don’t invest in a seed round. And so in many instances, we’re writing $1 million tracks in seed rounds, if it’s thesis lead, and an area that we really are passionate or feel like we can be incredibly helpful for.
I love the clarity on thesis that jump. One thing I’ve noticed that’s different about you guys than than other firms is, you know, if we send you a portfolio company that’s at the right stage, you guys have clarity on why it’s a bit or why it’s not, according to your thesis. And that’s always, that’s just not something that a lot of funds give you. Especially, you know, a lot of generalists out there.
Yeah, I mean, just to be clear, I think every fund is pieces. And we are in all regards, but usually you find the company and you build a perspective on it. And what you’ve what we found is some of the sharpest, and best investors, both on the coast but also in some of the investments were in their FinTech investors, their crypto investors, their retail investors, they’re deep in consumer marketing or consumer, direct to consumer. And it’s just so much pattern recognition and knowledge of the ecosystem, that it’s hard to not be thesis led these days. And if you want, you know, the real truth, thesis lead was something we were kind of doing for, you know, the first couple years, but it accelerated about four years ago, when we started losing deals to namebrand VCs like NDA and the like, we just will never compete in the near term on brand. And probably valuation for that matter, we don’t have the word chest that they do. Right. And so our view is we just need to be a little bit smarter. Get in earlier, ideally. But more importantly, we want the had the entrepreneur one us on the cap table as a partner in crime. And the only way to do that is to be you know, helpful to be candid, right.
So swing to sort of the other side of the spectrum from early stage to the exit, right? You guys have had a number of those lately, you know, saw the good news about foresee and personal capital. You know, congrats on some of the successes sounds like you’ve got more to come. But you know, you’ve been at this for around eight years. You talked before about how you have this focus on BD and, you know, you get portfolio companies with with big potential customers that can lead to a lot of good serendipitous stuff down the road. Talk to us about, you know, where the exit discussions begin, we hear all this, this talk about some companies are bought, some are sold. You know, you’ve got founders that at some point may be ready. You know, where do those discussions first begin? And how do they progress from there?
Yeah, maybe I’ll start with kind of a general perspective I have, which is, there’s two curves for every company. It’s the hope and execution curve. And when you’re selling a company, you’re hoping that somebody is paying the difference between your execution and where you hope. The second the hope meets the execution, you missed your window of opportunity. So when people say you want to be bought, not sold, that’s many times driven by when you’re sold, you’ve almost a given up, but your hope is starting to meet your execution. So I would say that one of the core perspectives we have and what we try to do, you know, as best as we can, is to get ahead of it, and start talking about exits. And, you know, entrepreneurs don’t want to hear about exits to be candid, right? Like most of them, this is your baby. This is where they feel like there’s always optimism of work and go. And so part of our job is to remind them that exits does not mean sell the company either. When you’re getting a new round, you’re you’re selling the business in a different way, but the same way. So you have to be very tollgate driven, you have to kind of look at where should you be at that point in time. And so our process, in fact, I just did this with one of our portfolio companies out on the East Coast, starts 12 to 18 months prior to thinking about an exit. And it’s talking about where are you today on the facets of scaling the business, on your category kind of ownership and your capability ownership. So meaning, like metrics and scale are going to help sell you do you own that category? Or do you have some distinction in that category? You know, ownership in a specific area of macro trend, and the capability of IP Do you have like a data science team that’s just absolutely killer. And so these facets have sub sub bullets under each one of them that really help us pinpoint here are the things that we think you need to be at and they think they need to be at to have a really amazing exit. You have one of those three, you do okay. Two of those three, you do really well. Three of those three, you can have a homerun kind of outcome. And so the goal is just not necessarily to think about exits, but to think about tollgates and kind of you know Gold’s frankly, not, you know, I want to grow 100% year over year, that’s what everybody’s talking about. It’s about like more holistically, what gets you sold or purchased. And so that’s kind of maybe just a, a backdrop, the secondary piece from our view, like the market is absolutely changed in the last year, six months, let alone, you know, since COVID. You know, we did, we were very fortunate to see to the exit to Fox, personal capital sell to empower, you know, for half a billion and a billion, respectively, for seed to sell for just under 200 million to mediation, Vista. So really amazing outcomes. But most of those instances were not, you know, we’ll call it bank booked processes. Most of them were driven by strategic relationships, that kind of accelerated and personal relationships in some instances. So I think that if I had one advice to entrepreneurs, don’t diminish the efforts of developing relationships in the ecosystem, many of them are so heads down focused on their business, which we love, that’s a very Midwest kind of thing that the DNA we love. But being able to be kind of immersed in that market and the ecosystem, eventually, you need to accelerate that. And if you don’t have a baseline relationship, understand their needs, their product, roadmap, your they understand your product roadmap, when they say we need to buy something in this space, Google doesn’t wake up and say I need to buy something in this space. They already know who’s in that space. They’re already talking to bankers already talking to their consigliere. They’re spending time with the product teams, and the product teams are telling them, here’s what I need. Let’s go find it. m&a teams are not just saying I got a book, you want to buy this. Now, that’s not how it works. And so I do think that entrepreneurs need to think about that BD, the Corp dev really does accelerate it. But frankly, it also accelerates them to try to get those toll gates, so private equity firm or whomever want to buy it also.
got it got it would, what happens when confidence is lower in some of the toll gates in those areas? I mean, is that when the sales mode process gets activated?
Yeah, I mean, there’s a good, better best and each one of those measures, right? So the end of the day, what’s good for selling to strategic may be different for a financial, I will say private equity backed companies, if you’re not at breakeven or better, it’s going to be very difficult. They’re just not honed in that way. There’s exceptions to all of these, of course, but I’m just saying more broad brush. If you’re a slower grower, not this high velocity sell, you know, sales and metric environment, you’re probably looking at, you know, infusing private equity into that process. And so then you have to think about the financial metrics of profitability and burn rate, a little bit more than growth rate. But yeah, so you honing some of these metrics based on the context of the situation are certainly relevant. And frankly, part of why you start the process 1218 months in advance of developing these relationships, you get a temperature really quickly on how they think about you how strategic you are. And then you retool, what, what is the worst you can do is run the business blindly. You know, burn rate wise and reinvestment wise, without knowing where you’re going to go. And then to run into a wall and running into the wall means you have six months of cash, and you have to start a sale process. It usually doesn’t work out well. Because, you know, you’re starting from a, you know, a tough position of weakness, if you will, right.
Right. Yeah, coming from an m&a background myself, I, I know that, in some cases, if you know, the strategic buyers, and you know them well, and you know, what their priorities are, but where they have a major gap. Sometimes the businesses can be positioned to, you know, fill the perfect gap. And, you know, as long as you know, you got to know your customer, right, no matter what you’re doing, whether you’re selling the business or selling your products. So there’s a lot of different ways to skin this cat. How do you advise the founders during the negotiation process? Right, getting the right offer, not just the first offer?
Yeah, so I mean, that’s part of why we have that corporate development kind of platform. So they have a consigliere I will go out on a limb and say we strongly believe in investment bankers, right. You know, when you exit a business and you see a line item on the closing statement of the amount of money that goes to the investment banker, it gives everybody palpitations Raja, I will say that good investment bankers, both are incredible and disassociating that entrepreneur from that negotiations, because many times that entrepreneur is going to be working for that new, you know, buyer, and so to be a hard nosed negotiator, and be a future employee of that, you know, buyer is very difficult, you know, kind of bouncing too is the job of a banker, in most instances not to tell your story. That’s the entrepreneurs perspective, if your messaging stinks, now, the the the bankers not going to fix that that’s a, that’s an internal issue. But what bankers really good about is to instigate demand and instigate some tension. And that enables them to, frankly, have the ability to negotiate nothing negotiates better than having multiple people at the table. If you have one bitter coming in inbound, which you’ve had on many of our companies, we’ve been fortunate for that, it usually doesn’t end well, frankly, you get retreated. You know, they know that they’re the only person at the table in every instance that we’ve seen that happen, and you’ve had other people at the table where you could say, I just want to operate the business, or I’m planning to go IPO or whatever the, you know, retort is, usually you have a little bit more leverage. But I think, in my opinion, I don’t think that entrepreneurs should be developing that skill for that specific timeframe. I think that there’s surround yourself with good people, bankers, board, advisors, investors, hopefully. And, you know, I do think that that’s a skill that the banker should be earning their weight. And, frankly, if they can’t earn their keep by increasing enterprise value by their feet, and then some, then they’re probably not the right banker.
Best leverage for founders out there, you know, round out the profile, make sure you know, what the toll gates are, and optimize around those, and then multiple built bidders will, will be there when when the time is right. Sach, what resources have you found particularly valuable that you’d recommend to listeners? investors or founders?
Yeah, I mean, I will tell you that our team, and I would say my team will, you know, reaffirm this, our excessive readers, you know, we try to read as much as we can. And we’re not just talking about books, but it’s a trade rags reading up on industry specific, I’m notorious and on the team for being, you know, the news clipping service via slack that is, and so I think it’s important to be really attune to what you’re focused on. And, you know, again, to be able to know what’s happening in not only your market, but tangential markets, because what we found is increasingly, you know, and I’ll use the advertising space as a, as an, you know, an analogy, but people have these, you know, dissections of markets, these landscapes loom escape in that instance, done by Luma partners and investment banker, and nobody stays in their box. Right, you know, Robin Hood used them as an example, was a trading platform, and all sudden, they have high yield savings. And all of a sudden, they’re entering, you know, crypto, and they’re entering tangential areas, or, you know, insert another company, to use it. Another analogy, but so being well read, understanding kind of the, the landscape and being kind of a constant, you know, gesture of knowledge from the, the industry is incredibly important.
Sach What do you know, you need to get better at?
Yeah, time management. Yeah, I think that one of the things I struggle with really is balancing how much time we spend with entrepreneurs we don’t invest in to how much we invest with, the time we invest with entrepreneurs we’re invested in. It’s one of my biggest faults is that I’m an optimist, I can see an opportunity to go operate as an operator in a lot of these ideas. And so he keeps digging and want to learn more, and to be judicious for entrepreneurs. And for us, we need to be a little bit more, a little bit better. I need to be better at triage. earlier.
You and me both. And then finally, what’s the best way for listeners to connect with you?
Yeah, I’m pretty accessible. Unfortunately, I’m a zero inbox guy, and certainly the COVID I’m on my screen a lot. So if you you know, jump, send me a note sach as a jump cap. I’m on Twitter, I’m on LinkedIn, you know, all the usual suspects but yeah, go for it reach out anytime.
so much. Thanks for the time today. This is great. You know, it’s it’s always fun trade notes over the years and, and looking at deals and, you know, looking looking forward to find a one to work on.
Likewise, Nick, thanks for having me.