McKeever “Mac” Conwell II of RareBreed Ventures joins Nick to discuss Raising a Fund via General Solicitation & Twitter, How Rolling Funds Can Disadvantage LPs, and Facing the Reality of Diversity in VC. In this episode, we cover:
- Walk us through your background and path to VC
- What’s the thesis at RareBreed Ventures?
- Why did you start RareBreed Ventures?
- Tell me about the fundraise… when did you first kickoff and then start getting momentum?
- Have you gotten better at raising over time? What have you improved most?
- What resonates w/ LPs, what do you get pushback on?
- What’s been the biggest surprise in the process so far?
- Optimistic, pessimistic or neutral on diversity in VC over the next decade?
- Twitter — blowing up, what’s working so well?
- Rolling fund vs. not… why?
- Thoughts on thesis and portfolio construction…
- What’s the ideal fund size for your stage and strategy?
- Founders… biggest mistake you see early stage founders make
- Gives us a snapshot of Rarebreed in 3 years… how about 7 years?
Transcribed with AI:
McKeever “Mac” Conwell joins us today from Baltimore, Maryland. He’s the founder and managing partner of RareBreed Ventures, a pre seed venture fund investing in exceptional founders outside of large tech ecosystems. Prior to rare breed, he was fund manager at TED Coe and a two time founder, Mac, the man, the myth, the legend. Welcome to the show.
Thank you, Nick, I appreciate it. This is kind of surreal, right. Like, as I got into this investing world, I listened to this podcast all the time, like to now be on is kind of crazy. So like, I’m a little, I’m a little starstruck right now. But I’m excited to be here. Thank you.
Appreciate that. I appreciate it. So tell us more about the background and sort of your path to founding companies, you know, becoming an investor and ultimately launching this firm.
Yeah, so I’ll try to keep it short. But I’m a software engineer by trade. I went to school for computer science, ended up being a government contractor for seven years after that, while the government contractor, within my core group of friends, there is a young man by the name of Patrick Jackson. He’s now the CTO of a company called disconnect their VPN, a firm in the valley. He was the first person that I ever met who wanted to be the black Mark Zuckerberg, like he was obsessed with building things and making money. He was the first person I ever saw make an iPhone app. I think he made his first app and like, Oh, 607, like, like, super early days of this stuff. And, you know, he was a big influence on pushing me and several of my other friends to start businesses. Now. We didn’t understand anything about the industry. Like I know what started was, I didn’t know what a VC was. I didn’t actually know what networking was, like, if you ask him what networking was back then I thought you were talking about running wires. Like, just to be honest, right? Yeah, sure. Um, but you know, in 2010, me and two of my best friends decided to start a company, it was called no bag, gift, calm. It was a crowdfunding platform for gifts. Unfortunately, it was during a time where that kind of idea was really popular. But we were lucky enough to go through two accelerators, one in Baltimore and one in San Francisco. And we went to one in San Francisco that was kind of like life changing. So when we went through the new accelerator, which was the first accelerator for underrepresented founders, we got exposed to the whole slew of Silicon Valley, right, like I’ve met Marlin Nichols, and Charles Hudson and Richard Kirby, else got to meet people like Ben Horowitz, Eric Reese, michika, pour, like, all these amazing folks got to like come into my orbit, and I got to add them to my network, which became really valuable, as I, you know, went through the process. But anyway, as we ran that company, we realized what we were doing was was oversaturated, nobody was funding it. So we needed to differentiate. And we figured out a way for people to gift each other iPhone apps like paid iPhone apps. And what we realized was, nobody had ever seen that email and have never seen a text message that had a link that you could click on. And that would just download to their phone. It was kind of a new thing back then. And so we pivoted to a company just did that where you can programmatically purchase anything from Google Play or iTunes and distribute them in the form of links.
There was the timeframe on this MAC,
this is in. So we went through the accelerate in 2012. We made the pivot in early 2013. So then, in mid 2014, we actually ended up selling the IP of that company off to a division of a fortune 100 company, right? Wow. Well, that was, that was a cool ride. That was fun, learned everything the hard way. But then after that had the bug so I started another company. This time, it was e commerce platform, trying to support people who were like selling off the Instagram, cuz at the time, the only way you could sell Instagram is through email or text messages and things like that. But people were still making 1000s of dollars sending like email invoices, right. And so we created a platform to empower those folks. And I put a new team together, raise some money got into an accelerator in Philadelphia dream adventures. And then ultimately, that company failed. Because while we were going to dream it two months in my lead developer disappeared, like we were all living and the one bedroom loft in West Philadelphia. Well, we came back one day he was gone. What that and to see him again for two years. How the heck does that and he just he just decided wasn’t for him. Right. Wow. So the lesson for people in team construction. Like, like, you know, we tell people, you know, being a solo founder is a disadvantage, but having co founders that aren’t the right ones can be just as bad. Right? So Where’d my left rowing? Probably Yeah. So I learned my lesson there. I came back to Baltimore. It took some time off basically took like six months and just like wanted to disappear from the world. Because everybody talks about failing fast. They will tell you how much it hurts to fail to fail startup, that hurts. I had to take some time to get myself together, ended up getting a job in a marketing firm did that for a year. And then the wild this set of events happened so I’m working at this marketing firm, not doing what I know that I would be doing not really happy. I was just the CEO of two startups that had done like deals with like Disney and Viacom here I am. You know Running a technical team of junior front end developers for e commerce marketing firm like it’s not where I got my life is going. And then the week falando casteel, got killed in his car by police officer was the same week my organization started soliciting the National Rifle Association for in contract. The National Rifle Association has a history of not supporting black gun owners. So I quit, quit on a Friday, I had no clue I was gonna do it myself, right? Like, all I knew was that I had engineering, I had a software engineering background. And I had a startup background where I learned some business development skills and sales skills. So I had a skill set where I could get a job somewhere, I just wasn’t gonna work there anymore. So I quit on a Friday. And the very next Monday, I got this email saying that the investment orphan state of Maryland, the Maryland Technology Development Corporation was hiring. And so I called up a mentor of mine who I knew that worked there, and asked him Did he think I had a shot, he told me, they would try some new things and actually give it a try. So I did. And so after four months of interviewing, I ended up getting a job at working for the investment arm of the state of Maryland, better known as tedco, on their seed investment team. The funny thing here, though, is when they hired me, they told me, I didn’t have the experience for the job, because I don’t have the finance background. I also don’t have a college degree. But I know startups really well. And they had a really strong brand locally, in the Baltimore tech community. So they basically created a junior position to bring me on staff. So that’s like my introduction of venture
was so good was that a blessing or a curse?
It was a blessing, because they basically say, you know, you don’t have all the finance background. So we’re going to give you a job where you don’t need to look at all the finance stuff, but you get the time to learn all of it. That’s great, right? So the gay the basic gave me a position that allowed me to ease into things, which I appreciate it was it was a blessing. And they also put me in the position where I managed the online portal for the organization. But you know, for most VC firms that tell you like the online portals, like a bunch of deal flow that using not that great, but because we were a state organization, every investment, we may have to come through our portal. Oh, so even if we source the deal, it had to come through the portal. Well, I was the person who reviewed everything in the portal, and I got to decide who move forward to due diligence and who didn’t. And so I got to see everything in like, in a very short condensed amount of time, I got to see a lot of different companies. And I got to see the different sourcing makes versus just, you know, direct applications
and multi stage or these tech and non tech, I mean, what was coming through,
it all had to be tech of some kind, but like we’re talking about super broad from, like tech transfer coming out of universities to, you know, deep tech to, I’m building an app for, you know, pet owners to define the nearest Pet Hospital, right? Like, you got this crazy various. So I got exposed to a lot and to truly see what it’s like to be a generalist. But one of the other key things that happened was when they hired me, tedco was trying to figure out how to invest in more blackleg companies at the time. And to their credit, they looked at the numbers, and they felt like they weren’t doing good enough. And what they did was they did well, you know, we tell all the entrepreneurs to do, they did customer discovery. They went out and talked to the local community of black entrepreneurs and ask them, why don’t you apply for funding attacco. And they said, take hold and look like us doesn’t market to us. And a lot of us lack access to friends and family capital to even compete for seed funds. So Taiko was really thoughtful about answering those first two questions, but that friends and family piece they were trying to figure out and so, you know, I’m less than six months on the job. But I took it upon myself to put together a proposal to create a pre seed plan where I said, we we see we do 100 to $200 investments, let’s do a pre seed fund invest in these entrepreneurs $40,000 each to help propel them to our seed fund. And I was able to get a black owned bank of Baltimore Harbor Bank of Maryland to put up half the money for the first year.
Wow. Well done.
That was cool. And also funny because when I gave my bosses my proposal, I had that in the end that the Harvard the Harvard bank was gonna put in half the money. And they were confused. They were like, is this aspirational? Have you talked to us like now they’ve already agreed to and they like, Mack, you can’t do deals on the behalf of the State. Like that’s not that’s not okay. I was like, my apologies, but they’re willing to invest 200,000 to make these investments. Can we do it? So they ultimately let me they ultimately say yes, and so um, we created a pre seed fund specifically for blacklist startups that first year as a pilot. We made nine investments The next year, we increase the designation to women and minority groups, we call it the front of the fund the builder fine. We made another nine investments and then in 2019, my team and I went before the governor and legislators and got them to add a million dollars to the annual budget here in the state of Maryland to make it a long term fund is the first and only state backed crisi fund for women and minorities in the country. Amazing.
So that was that was Mac fun one you even help source the LPS
much. That’s that’s pretty much how that worked. And that was a fun ride. And I learned a lot I got a lot of insight the preseed I was always I was already getting a lot of like to see for what was coming through Taiko over that time, I got to the point where I decided I was going to start on my own phone. So last September, I left Tyco to start Rare Breed ventures, we’re raising a $10 million pre seed fund looking to make out well pre seed and seed investments. Anybody who’s interested in being an LP, you can go to every dollar VC, we are still taking LPs, a minimum check is 10k. Currently, we’re raising the five will succeed designation so I can publicly solicit. So anybody who’s listening is an accredited investor and wants to invest in reverie ventures go to Rare Breed VC and click the button become an LP?
What do you think final close will happen?
I don’t know. So, you know, we’re in the process of raising 10 million, we have until September of 2022. To make it happen. If you ask me aspirationally, like the end of 2021, we’ll have final calls. Have it all done. But um, you know, it all depends on the momentum, you know, you know, this having raised funds, it’s start it’s tough getting started. And as momentum builds, you know, some of the larger checks start to come in towards the end. And you know, the end is usually faster than the beginning. So fingers crossed.
Now, can you raise for more than 99 LPs?
I can. So because we’re raising 10 million or below, we’re allowed to have for 249 LPs, if you’re doing anything, you can 99 of LPs to have to raise an unlimited amount, but at 10 million or below, you can have up to 249. So we’re probably gonna get really close to that 249 number.
Well, hey, man, you got to get it done one way or another? And you and I were talking a bit, you know, before we started recording, but the SEC has actually changed the definition of accredited investor. I know we’ve got a lot of GPS in the audience here. As of I believe, is it March of this year? If you’re the GP of a funds, you can invest in other GPS, is that right?
Yes, I believe is as of March this year, I forget the specific date but is basically you don’t have to be a GP, you have to be a purse, a knowledgeable person within an investment organization to be considered an accredited investor. So you could potentially be an associate or principal at a fund and be able to be deemed as accredited, which will allow you to then make investments into funds are directly in the startups yourself as an angel on the one thing you need babatel GPS to be careful of is that you need to check your LPA to make sure it’s okay for you to make make investments and other funds, right. So, you know, your LPA kind of dictates what you can and can’t do as a GP. So, before you start making fund to fund investments, are they making direct investments yourself? Make sure the decile Kane your LPA you know, most LPs is okay, you know, most LPs aren’t going to care. But you know, just always want to cover you. But you never know.
I’m waiting. I’ve heard that before too. So if you’re out there, you’re interested in getting in touch with Mac you know, check out the blog post or just shoot me an email most most folks know how to get in touch with me. So tell us you know, check sighs stage what are we looking at for rare breed fun one? Yeah. So
we invest primarily outside of the major tech hubs outside of Silicon Valley in New York and Massachusetts, we’ll still make investments in those areas, opportunistically word preseed to see so we say our sweet spot anything sub 10 million post money valuation will go higher for the right companies, but sub 10 million is where we like to be our target cheque size is 250,000. So slightly larger than what you typically see a preceded by standard procedure and happy to talk through why that’s the strategy. And because of that, that means we’re going to have a slightly more concentrated portfolio, most presea funds, you’re gonna see dawn somewhere in the neighborhood 40 to 60 deals, we’re going to be on the lower end of like 28 to 3432, probably somewhere in there are industry agnostic. We don’t do Life Sciences, because I don’t have a PhD. I’m not smart enough to evaluate therapeutics, just not my thing, but willing to invest in just about anything else. But we care about two things, right. So we care about if you’re a software a tech enabled company, we’d like to see a clearly repeatable, unique customer acquisition strategy. You don’t have to have a lot of customers, but you need to know how you get your customers. And then we also like physical products, typically consumer markets that have lacked innovation for 10 or more years, these kind of legacy markets, because those two founders tend to be out of the box thinkers now box problem solvers and tend to think really critically around customer acquisition experience and retention. Like those are the three pillars we focus on. So that’s the fun, that’s what we’re building.
And why the more concentrated approach the 250 k checks.
And so this is interesting, because when I worked for when I started the preseason for the state of Maryland, there was there was some things there was a couple things I learned one of them was the 40 or 50,000. We were getting found the super early was enough to get the moving, but wasn’t enough to get the moving fast enough to get over the next hop which would be the raise the next round and let’s say 12 months, and that’s enough to get them moving and get going and start the validating but we saw most of the companies take a lot longer than we hoped they would to raise additional capital, while the few companies that took the 40 or 50k and leveraged it. To raise more somewhere between 250 and 500,000, all of those companies ended up raising additional round 12 months or less. So that was a key learning number one, key learning number two is that a lot of companies are doing multiple note rounds. So we’re seeing companies do two and three, and sometimes four, safer convertible note rounds, for the first price rounds, typically north, typically evaluation north of 20 million. And in some cases, you know, much higher than that, you know, the top performing company, we had our previous portfolio, the state of Maryland, their first price round will probably be north of $50 million. So if you think about doing pre C, let’s say you can do 200 to 250,000 or less Khalid, a 2 million to $4 million cap, okay, we’re talking about somewhere in the neighborhood of 10 to 5%, that doesn’t convert into equity until a price round of 20 million plus, right now, you know, we’re talking about for a $10 million fine, real economics and their first price round. So if you get a company get to A, B, or C, you might already be at a place to return your fund. Now, you’re taking less bets true, but then that just means you have to have high conviction, we consider ourselves to be you know, VCs of high conviction. So when we make a bet in a company we truly believe every company we invest in has the potential to be a unicorn. Now we know that’s probably not going to happen. But, uh, if you ask me, I’m gonna tell you that it’s going to happen, because, you know, I think I’m the grace.
Is that what you underwrite each investment to a unicorn potential. So 100x ish. Plus,
have to, that is, that is the world we live in. That is the game we play. Right? If you want to know why Chris Sacca is who he is, that’s because he took 6 million internally like 300 plus. Right? Yeah, that’s the goal. I’m trying to hit Chris hockin numbers like, that’s, that’s where I want to be. That’s what I’m trying to do. Like, that’s the job. Right? Like, like, don’t get me wrong, right. Like, if I GP say, we’re here for founders to support founders, and that’s part of the job, right? But you don’t invest in a founder, you invest in a company, like if the founder leaves that company, and the company still going, like, you’re still tied to that company, right? Your job is to return capital to your LPs. That’s the job. Now, if you just want to be all about founders, how founders I mean, you go become an executive coach or a life coach, that’s a great way to do it, you can be, you can be totally missing the line, as a VC, my job is to return capital. So that’s what I’m here to do. And I’m here to return as much capital as humanly possible,
return many, many multiples, many multiples is, you know, I hope you will in myself. So how long does it take for you to get to conviction, you’re a high conviction investor, like when you put your money where your mouth is, and get behind a founder, like you’re in, you believe it can be 100x? Plus, does that mean that you have a long engagement with these founders? Or, you know, can you make decisions immediately and kind of check in a day? What does that usually look like?
It’s case by case. But generally speaking, I’m going to know a founder for about three months before we make an investment. Right? If it’s a founder that’s in the middle of a fundraising, and it’s got to move quickly, well, we can get there faster, right, you know, some of these rounds come together really, really quick. But generally speaking, because we do so early, like I’m going to meet a founder, before they start an official fundraise, or a founder is going to tell me their fundraise. And I know they’re not going to actually finish raising for another, you know, 12 to 18 months. So you know, yeah, we can take the time to get to know you. And that’s the advantage of doing pre seed versus doing like series A and Series B, right? Like, I don’t have to move nearly as fast as sometimes you just, it’s not can’t be gut or emotional, right? Like, you can’t get caught up in like, a really good storytelling founder, right? Like a gut reaction is not the way to do this job. Right. But if you meet a founder, that nobody else is talking to trying to figure out how to, you know, meet VCs and get into this, and they tell you like, yeah, you know, I’m working on this product. You know, I think it’s pretty cool. You know, we got 30,000 users in the first two and a half months, those kind of things make you stop and make ears perk up. Right? And that’s, and you know, especially when you’re talking about underrepresented founders, you can meet founders doing really amazing things that nobody else is paying attention to. Like, that’s where the hidden gems are, that’s where that’s where the big upsides are. Right? So some of those you can get to faster because you you can tell like you can, you can tell when a founder is doing the right things, but you still typically need to you can’t say yes on the first day right? You’re not gonna get married after the first day you gotta at least go home Think about it. Make sure you know all the numbers make sense? Make sure the narc is what they say it is you know, got to get the sanity checks. But you know for the right companies, you get there pretty quick.
Are you doing all this yourself? Are you got help?
I’m the honest solo GP. I’m the only full time person on my team. But I do have help. Like, let’s not get this twisted. I have a team behind me who are all doing this work for free. I love you all. So I have a venture partner by the name of Jonathan crawl. Jonathan’s amazing he’s, he’s an investor at Sparrow ventures series, a firm in the valley. He also used to work in Andreessen Horowitz. He is my right hand guy, Amani fitbits, who is an investor, a rare breed. He’s an MBA student at Georgetown, just got a job in main streets and domain. She’s one of those hot companies, everybody’s talking about the day, helping them with partnerships. He is a young man who is hungry for venture. He loves venture and you know, I’m lucky to have him, he’s probably the one person I know who sleeps less than me and works more than me. I don’t advise anybody to take on that kind of lifestyle, not healthy. I don’t plan to be doing it like this forever. But I don’t know how he does it. And then he may he may assign. He’s getting his master’s engineering from Oregon State. He was a member of HBCU a VC fellows. It was also an intern at Intel capital for two years, he is the most well connected like Jen’s here. I know. Like, I’ll be talking about stuff, you think, Oh, yeah, that person is really cool. You know, I talked to him last week. How do you? How do you know these people like, What is going on? And I am lucky to have them as my team to support me through this. And also, you know, I’m lucky that two of the members of my team are Jen’s ears, right? We’re invested in a company on Monday dating is a Gen Z dating app. I have never seen it, and I would have never gotten it right. Like it’s basically an app where in order to make a connection, you have to draw a picture, right? You basically make connections based off of creativity, right? It’s a very different way of going about things. But like, no, it’s not, I would have never saw that. Right. It’s not in my purview. I don’t use dating apps anyway, period. Right. Um, but you know, having Jen’s ears on my team will get to see things like that, you know, definitely adds value in them. One of the reasons why we were able to see a company like that,
that’s amazing. So do today, does your team help with meeting with the founders and meeting with startups?
Absolutely. So the way we have it set up is anybody from the team can meet with a company if they like it, they’ll bring that company to a bigger team meeting where all of us with the company together? And then we’ll kind of start to evaluate the company or whether that we want to do deeper due diligence and then get to a yes or no. So you know, it’s a team effort. And you know, I appreciate those, you know, they all got full time jobs and do other stuff, like they make time to help and support. So I’m lucky. It’s amazing,
man. Where do you see this firm evolving in the next three to five years? You know, what is rare breed look like in the future.
So three to five years is me raising a fund to play? Where do I see the firm going? People ask me that from time to time. My answer is usually NDA. NDA is the goal. And actually, if I’m being very honest, myself, Greenspring associates is really a goal. I want to do direct investments to fund the fund investments. And I use both of those firms specifically, because many people might not know that. But both of those folks, well, most of everybody knows that Greenspring associates is based in Maryland, a lot of people don’t know that NEA is originally a Maryland based firm. No, the founders Ada are from Maryland, some of them are from Baltimore. And luckily enough, the family office to one of the founders of NEA Basel capital, Frank, Basel, is an LP in the fund. I am so lucky to have them as LPs. And that is the goal to build a large multi stage venture firm based here in Baltimore. That’s the goal. I’m going I’m going for big. Now granted, within that, I’m only ever going to do like pre seed to series A like that’s where I live, I’ll have other partners to do other stages. You know, for me, I’m a I’m a specialize in what I do what I do well, but that’s the goal. That’s why my bill
is 10 million the ideal size funds for you or is it just kind of the target for this first fund, you know, if you could raise if you had access, unlimited access to capital would be the right size
100 million 100 million purely doing pre seed the series A because at the end of the day, my thesis is really based around larger checks earlier. So I really want to get to the point where I can do half a million to even million dollar checks appreciate. Let me take 20 25% of the company $4 million of receipt, you can still get real economic return, have fun, because what we know is the multiples of preceding See, you get your highest multiples of preceding seat. So when I think about filing about portfolio construction, I think about in terms of multiples, I want to put in the largest check reasonably as early as possible. So I could get the highest multiple on that money. Not put a million dollar check in at presea. I get you know 20 to 50x return if not higher because appreciate you get the 100 to 500x returns, I’m still hitting where I need to be. No for me the reason why I raised 2 million because it’s the first time black GP I felt If you gave me 18 months, I could figure out how to raise 10 million i was i was arrogant enough to believe that that’s all that was.
And whether you fund one for us was six, and why was it six? Because that’s what I could you know, the next one will be a lot bigger. But you know, you kind of have to walk before you run here. So, you know, talking about the raise a little bit here, Mac, you know what, I mean, you’re blowing up on Twitter, like you got a great following, you’re in the media a lot, like I see you everywhere, like, in your giving back to a lot of people, right, you give a lot of the knowledge that you’ve gotten, you know, what’s worked so well for you and sort of building up your personal brand, and then getting this raise, really, you know, getting some velocity around around the race.
It’s all been tweeted, man, the majority of my race has come through Twitter. And basically, in June of last year, when I decided I was going to raise this fund, I had a little more than 2500 followers. Today, I had more than 27,000. And really what happened was, when I started trying to raise, I realized my network of LPs was limited. I was able to scrounge up like 300 to 400k and soft commits from my personal network. And I’m stuck, like there’s nothing else. But I just for whatever reason, I decided to start tweeting more consistently. And a lot of my tweets are just me giving information to founders about venture and about running companies, just because like, there’s so many things I didn’t know, when I got started. I just want to make sure I can put things out there to help founders, right. I’m trying, I want to help people. But the only reason I figured out there were people will help me. And as I was doing that, I recognize that a lot of other like other VC started following me. And so I started, you know, I started making a point that if you were a VC followed me, I send you a DM and ask you for a meeting. And obviously 80% of the time people would put time on my calendar. And so from June of last year, from June to September of last year, I had over 1100 meetings. And those 1100 meetings kind of kick started the fundraiser, I was able to soft circle, a little more than $2 million from potential LPs. And so I just doubled down that strategy. It’s not the smartest strategy in the world. It’s not very sophisticated, but was the one that worked for me. And also, the other thing that happened was around the time he decided to start raising the fund. Angel list is rolling funds were getting really popular people were talking about they were talking his idea about raising the five or six see where you could publicly disclose it since i was growing a trader a Twitter presence. I was like, Oh, yeah, if I will succeed what I got to be able to do I got to be able to tweet and get people to put money into the fund. And that’s been incredibly helpful for us.
Yeah, imagine I mean, General solicitation, that’s like a huge change, right? People never used to be able to talk about the raise. And now I can only imagine that, putting that out there that creates at least awareness, and then some connections, right to potential funders and LPs.
It definitely creates awareness. I mean, I’ve gotten LPs who have committed to our fund because of a blog post I wrote, or because of the tweet they saw, or because of a tweet tweet from somebody else that they respected and saw. So he decided to put money in the fund. Like, it’s incredible. The ways people have found out about rare breed and decided to put money behind what we’re building. Now, granted, all of them are expecting me to return them a bunch of money too. So like, this is an investment. Don’t get me wrong, they’re they’re looking for the money back. But it’s been incredible the general solicitation and the power behind it, but I’ll say this, right? General solicitation is in the savall. Just because you can talk about your phone publicly doesn’t mean you’re going to raise the capital.
Just because you can promote doesn’t mean you’ll get customers.
Exactly, you got to want to build that kind of public persona to build up a presence that makes it worth it. Because just saying like, Hey, I gotta find put like, you need more than just that. Right? So I also warn people, like don’t just think that doing a rolling phone or general solicitation is going to be a softball.
Now when you do general solicitation, doesn’t that mean that LPs have to open their financial records and all that is has that been an issue at all?
So basically, when you do general solicitation, when the fire will succeed, every LP must be an accredited investor. And you have to within some, you have to put some level of effort to determine whether or not they are for us, we put all our LPs through a KYC AML process to help certify that which is something we would want to do anyway. So in the working out for us, but I will say this additional cost doing that, right, because we don’t do general solicitation, you could have some number of unaccredited investors I believe the numbers 35 to hold me um, and you don’t need to be so stringent on making sure everybody’s accredited, but for us we do and so you know, we just pay that additional cost and for us, it’s worth it.
Got it. Got it. You talked about the rolling funds product and you and I had a conversation about it many months ago. I think you also wrote like a pretty good article on carta about it. You know what, what was your decision ultimately there? Did you go rolling fund or not? And why did you make the choice?
We ended up not going rolling fund it Because I wasn’t, I didn’t like the way they do LP payouts, right? So an LP so somebody must be an LP, I had to make an investment in the quarter in which you as GP made an investment in a company for them to get returns from that company. Right. So that means if you have LP submit for are subscribed to four quarters, but your best investment comes in let’s say QC quarter six, well those LPs from the first four quarters don’t get access to those returns. I didn’t like that, because I knew a lot of my earliest LPs were going to be small checks. And they were going to be from people that were mentors and advisors and people who’ve seen my journey over the years. And I wanted them to get access to all the companies that we invested in over our investment period. So I decided not to do a rolling fund. But what I did do was I took a step back and I looked at rolling funds and all the advantages I was looking for from a rolling fund to public solicit use technology to fill out docs, you know, that all that kind of stuff that was all front facing and technological things, all the things I did like about rally friends were structural. So I said, Okay, I’ll create a traditional fund under 560. So I can probably talk about it. We built we use Carter’s are back in. Carter had a part has a partnership with a company called Anduin transactions, which takes your subscription docs and turns them into a guided web experience. So you can literally go the rare breed VC right now click a button, become an LP and get access to our Doc’s without ever talking to me.
Wow, that’s pretty, that’s pretty clean man.
Then the last piece, though, is how to get access to capital right away. Because we’re the only fund you get access to that that first description right away. So what we did was we came up with a different type of capital call structure, where we basically ask our LPs to pick one of three options either do 100% of their capital upfront 50% over each year, over two years, or 33% each year over three years. So and with the with whatever the minimum is had. And so each year, you have to do the minimum each year. So since our minimum is 10k, if you do multiple years, there’s going to be 10k per year, right. And as our minimum girls will be the same. So that means as LPs commit to the fund, and commit to that we actually close on LPs on their three week rolling basis. So every three weeks, we take a batch of LPs and close on with carta. And so we’ve been able to get money into the fund and start deploying capital to amazing founders.
Do you feel like you’re getting better at raising over time you’ve done so many of these meetings, 1100 calls with you know, various people from Twitter and stuff, and you’ve closed some real capital already. But you know, are you getting better? Or Yeah, are you closing more over time? Do you think?
I think I’m getting better. But because like, it’s just like having started, right? Like, the more you pitch, the more you get to see what things people poke at what things resonate, which things don’t. But I think also part of fundraisings momentum, right? Like when you’re just starting off as an idea is like, okay, we’ll come back. Well, now that we’ve made investments, it looks different, right? People are more interested. And now we’re starting to talk to more institutions who write larger checks, right? So support is getting better. And part of is just the momentum of the fundraising process. But a fundraising fun,
there’s no fun in fundraise.
What do you get the most pushback on Mac,
I don’t have a long track record. And unfortunately, the investments we did for the state of Maryland, were on uncapped, no discount convertible notes, which means a company has to get to their second price round before you see any value in those investments. So when you’re talking about investing in pre see where a company probably won’t get to their second price round for like four or five years out, you know, it’s really hard to show like increase in value of those investments. So I get pushed back on track record. Some people don’t want to invest in the solo GP, in you know, those kinds of things. I also don’t have like a strong financial background, like, I don’t have a high banking background. So some of the larger institutional LPs, they’re not excited about that. And I would say most people who invest in rare breed, they invest because they want to one because they believe in me, and my ability to get differentiated deals, right? And my ability to invest in good differentiated deal flow. And so I think the majority of my LPs are that and you know, they’ve gotten to see me building publicly, they’ve seen me on Twitter, they’ve seen me write these blog posts, they see me support founders, they’ve seen me talk about the type of founders I want to back. And, you know, those things tend to resonate really well.
what’s what’s been your biggest surprise so far in building this firm from scratch?
I don’t know if it was a surprise, but I knew upfront the fundraising was going to suck and that was one of the reasons why I kind of held off the idea of raising a fund. But man is so much harder when you’re doing it like you know, it’s hard to actually do it. Why, man? Is it a thing But it’s the thing you got to learn to love. Like you got to learn to like doing this the chasing down those investors to chasing down LPs who committed, I haven’t written you the check yet like to following up and like and checking in on them and sending them those updates and like you got helmets turned into a game like you know, you got to go how much money you want to raise over the next couple of weeks and like go to it and really like dig in. And then it’s something that little Tony mentioned to me when I was just getting started about you start off as a good investor. But then you have to learn to be a good GP. And he was right. Like I’m learning to be a good GP, I feel like I’m a good investment. Like if you ask me, I’m Great Investor picks good companies, but then like managing a fund, and being a good fund manager and being a good GP. totally separate skill set, right? Like Venture Partners, principals know, they can source deals and find good companies, right. But like managing the day to day operations of the fund managing not only your relationships with entrepreneurs, but your relationship with LPs and also managing relationships with potential LPs for funds in the future, like managing all the internal finances and models and constantly updating your model as things change along the way, you know, things you learn to get good at as you go. And it’s almost like being the CEO of a company like there’s almost nothing can prepare you doing it besides just doing it.
Well, it is you are CEO of your company’s financial services. What about you know, when you’re deploying and you’re raising at the same time? Do you ever look at an investment that, you know, is a great investment? But you’re worried about like, you know, I don’t know if the LPS are going to get it?
Oh, for me? No. Okay. Because if you’re going to, if you’re going to be an LP a rare breed VC know that I’m going to invest in some things that you just might not get. And that’s okay. Like, if you don’t get it, I understand. But trust me, that I did my work, that this has the potential to be a billion dollar company, right? And so I bet all my LPs know, like, hey, I want you to support I want your advice, I want your feedback, tell me about your concerns. But at the end of the day, if you’re putting money in rare breed, that means you trust me to do this job and do it well. And know that this is a long time horizon, I guess it takes us it’s going to take longer than five or six years to see if this is going to work out it’s going to take 789 10 years to see how these companies go. So you know, years three, four, and five, may not be looking so great. The year seven, eight, might be back on a rocket ship. So no give time for the founders and companies to do what they’re going to do. And trust me if I invest in something that you’d might not understand. But it’s something you know, we are one company we’re investing in, we invested in devenir in labs, this is a young lady who’s creating a a unique product in the haircare industry, right. And she she’s creating a physical product, disrupting the industry that has had innovation in my lifetime. But it’s an industry that a lot of investors don’t know and don’t understand and know something that she had a hard time raising capital for to the point where you know, this woman literally became a surrogate mother to raise the capital, she needed to start building her prototype, right?
You’re kidding. Wow.
Yeah, like she gave birth to twins, just so she get the money and start building a prototype. And it’s not enough money to actually build the prototype. It’s like enough money to get like the design done the initial design. And it’s in a space that a lot of people may not understand or think it’s a thing. But I know it is. And she’s actually the North Star. And the reason why I knew I had to start a fun, because when I was working for the state of Maryland, I couldn’t backer, and then I was making introductions, and nobody else was backing her. I’m like, why is everybody missing out on the fact that this woman has an idea can make a ton of money? Like, what? Am I crazy? And then I realize like, No, I’m not crazy. I’m just the only person is thinking like, I don’t want to be the investor that misses out on the next banks. There’s so many people who miss out on things because they don’t understand them. I don’t ever want to be that investor.
so she’s building a tumble dryer that can dry a wig or hair extension in 15 minutes. We know he and mark one of them is one of the most original ideas I’ve ever heard. You know why cuz you ain’t never heard of a week dry.
But there’s a lot of wigs and weaves out there.
A lot of ways a lot of weaves in a lot of money spent on Oh,
by extensions. Yeah.
Like this. Like this is an industry This is a thing. No, no. So you know, we’re the first Allaster her company and I’m pretty, I’m really excited for it. But you know, it’s also heartbreaking that you had to become a surrogate mother to build something that the services industry that doesn’t have anything.
Well, and you’re now in an industry that’s you know, dominated by people that don’t look like you, I mean, there are exceptions. You mentioned Richard corbijn, Charles Hudson and some motlow, Tony and some others. But I’d like to get your quick take, you know, are you optimistic or pessimistic or neutral on diversity in VC and tech over the next, you know, five to 10 years,
I’m neutral, still waiting. See, you know, there’s a lot of diversity initiatives out there some which I’ve benefited from, which is an amazing thing. But initiative initiatives are what they are right there, they’re usually short lived, you know, they’re not core to the ethos or the industry or that that one funding organization. And so what I recognize is, there’s not good data to support that investing in underrepresented founders, or underrepresented GPS leads to outsized returns. And so because of the events of what happened with George Floyd being murdered, you know, there was this huge outcry, there’s all this money pouring in. So I see we’re going to have a moment in time where we’re going to have this vintage from 2020, to probably 2022 2023, where we’re going to see more diverse GPAs, and founders raise capital than ever before. And then we’re going to look out 10 years out and see if, if they lead to how sales returns or not. And if they do, that’ll be the argument you can use for the keep happening. And if they don’t, that’s the argument they’re going to use to stop doing it. So I am acutely aware of that. And I gotta say, Excuse me, right? Wait, I know that me and in my peers who look like me, who are who are raising funds right now. Like, if we don’t return capital, there won’t be other GP that look like me doing this. And so for me, still waiting, see, I’m neutral,
scary reality. And it’s such a long cycle business, and it takes takes a long time for these things to play out. Mack, the next question is called three data points, I’m going to give you a hypothetical situation with a startup, you can ask three questions for three specific data points. So let’s say you’re approached to invest in a preceding stage consumer product star, the founder does not come from big tech. Her HQ is in Philadelphia, the sector is beauty. They launched 48 months ago in they currently have about 10k in sales per month. Again, the catch here is you can only ask three questions for three specific data points in order to make your decision. What three questions do you ask?
How has their revenue been growing month over month for the last three months? Yep. How were they able to get those customers to get to 10,000? monthly recurring revenue? And what’s their strategy to grow from 10,000? monthly recurring revenue to 100,000?
What are you looking for in terms of the the three month growth rate?
I’d like to see something north of 25% 25 30% month over month growth? Because here’s the thing, they might have been working with the company for 48 months, but that’s without context, right? A lot of times founders say, yeah, you know, I’ve been working on this for 48 months, when in actuality, they were doing planning for the first you know, 12 months, for the first you know, 12, the 24 months, then they got to their first accelerator when the first pitch competition and got some money, and built the first MVP that then didn’t work out how you had to revise or the development team they were working with fell through, had to keep iterating. And then, you know, you get to a point where you have to do a 10,000 monthly recurring revenue, but they’ve only actually been selling for four or five months. So there’s, there’s a 48 month old company or a five month old company, right? You need to know the context. Um, yeah.
Love it. Love it.
Mac, what do you know, you need to get better at
fundraising, clearly, like this has taken forever, so I’m trying to get better at fundraising. I’m all of us. I need to get better at being kind to my own personal time. Like, I know, I’m working way too much. And it’s self inflicted. Right? Um, and part of it has to do with just the fundraising process, you know, like, you like your fundraising eat what you kill, like, if you don’t fundraise, you don’t you’ll get paid, right? Like we don’t get management fees. But I need to get better at managing my personal time and also managing my calendar like, you know, having back to back meetings from eight to eight every day isn’t a healthy way to live. So I’m getting there I’m working on it. I’ll get there.
Good luck and then finally, you know, what’s the best way for listeners to connect with you and follow Rare Breed?
The best way to connect with me is to become an LP and rare breed. So go to rare breed.vc and click the button become an LP. Minimum check size is 10k. Follow me on twitter at Matt Conwell. The main Mac the VC, send me a DM Say hi. No as before meeting, happy to chat with anybody.
Well, he is Mac the VC. He’s an instant Myself and many Mac thanks so much for the time man I’m I’m really excited you know that we’ve gotten to know each other and really hope we get a chance to do some deals.
Meeting Nick and again like, thank you for letting me on like they’re gonna be so cool to see this pop up on my phone for the next episode for the episode and see my name they like oh man.
It’s our pleasure. All right, man. Appreciate the time. Take care. You too, man.
Have a good one.
Transcribed by https://otter.ai