Ben Sun of Primary Venture Partners joins Nick to discuss Distribution vs. Product, Founders vs. Markets, and Winning Deals in a Hyper-Competitive Seed Market. In this episode, we cover:
- Can you tell us a bit about your founder journey?
- What are your thoughts on the major differences and challenges now versus when you started a Community Connect?
- Is there a bias at Primary toward consumer investments?
- What region focus does Primary have?
- Is Miami a viable tech center or is this hype?
- What is the thesis at Primary?
- What areas does the Primary team focus on (strategic, sweat equity, talent recruitment)?
- How collaborative is that formative ideas stage between Primary and the entrepreneurs? I imagine, some of them come and they’re ready to raise, and if it’s a great fit, you invest, but in other circumstances, ideas may not be fully fleshed out. How much of a role do you play?
- We’ve had many folks on the program that say, it’s all about the market. The team is important, but there’s sort of a base level of competence. Then many others say it’s just all about the team and the best teams will find their way to the best markets. Where do you stand on that, and how does that square with kind of the way that you look at talent?
- Ben, you wrote this tweet, quote, there is no longer such a thing as proprietary deal flow in VC. It’s now more about winning a deal versus picking a deal. You know, I’m curious, what has changed? Is it supply side of capital at seed? Is it other factors? What prompted the tweet?
- So put you on the spot, what is the win rate at Primary? And why do y’all win, going head to head against other firms?
- What do you know you need to get better at?
- What is the best way for listeners to connect with you and follow along with Primary?
The host of The Full Ratchet is Nick Moran, General Partner of New Stack Ventures, a venture capital firm committed to investing in the exceptions.
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Transcribed with AI:
Ben Sun joins us today from New York City. He is co founder and general partner of Primary Venture Partners. Primary invests in visionary founders building category defining businesses by going beyond capital. Companies they’ve invested in include Coupang, Chief, Slice, Jet.com and Noom. Prior to Primary, Ben was a co founder of LaunchTime, an incubator and investor, and co founder of Community Connect one of the first social networking companies. Ben, welcome to the program.
Thanks, Nick. Thanks for having me.
You know, I think a good place to start might be your founder journey. Can you tell us you know a bit about that experience?
Yeah, you know, I was born and raised in New York, and went to school in Michigan for undergrad and then, after college, didn’t know what I was going to do in life. So my brother was seven years older, was working in investment banking. And he said, if you have interest in business, wants to do an analyst program. And so I applied, got into an analyst program at Merrill Lynch. It was 1995. And so when I was going through training, Netscape went public. And I think I remember asking one of my analyst classmates, what’s a web browser, so definitely was not, you know, into tech or technical at the time, and you just saw the opportunity of what was happening just with kind of the rise of commercial internet and internet IPO. So I joined the tech group. And we started kind of pitching internet IPOs, at the beginning of the .com, boom. And, you know, I was doing that for two years as an analyst and just kind of caught the bug. And so I left the analyst program and decided to become a founder. And so in 1997, I started actually working on really an early social networking site, out of my one bedroom apartment in Midtown, in in 1997, which was, you know, years before Facebook, and even My Space. So, the term the term social networking hadn’t been even coined yet. I tell people in you know, in 1997, I think there were only two or three digital cameras on the market. And so I tell folks, you know, imagine launching a social networking site where you had to ask your members to mail in their photos, so you can scan them in for them. So it was not easy. But we launched an actually Asian American social networking site called Asian Avenue in the summer of 97. And I started getting all this traffic. And I had spent, you know, I think $5,000 of the money I had saved up from my analyst bonuses to buy a server. And I think by the time we had like, 40 people online simultaneously, the server crashed. So you know, it’s before cloud computing. And so basically, I was like, Okay, I gotta buy more servers. And so I raised money from friends and family, like small checks from a whole bunch of people. But it was the kind of money that you’re like mom and your brother give you because they love you. They’re like when you’re going to go get a real job again. Totally, until it donation and so I raised 300 grand just to buy some servers. And I said, Okay, well, I’m starting to at least manage a traffic I was getting, but it was still growing really quickly. And I was like, Okay, I gotta raise more money. And so there was no New York tech ecosystem, basically. So there were no angels or VCs here at the time. And so I said, Okay, like, let me go out west and try to raise money in the valley. And I went out, and, you know, tried to get my way into some meetings, barely got any meetings, and I got some, it was I was basically laughed out of the room. So it was like a New York guy coming to the valley, they were trying to raise money back then that was weird, to the term social networking hadn’t even coined yet. So just trying to understand what we’re doing was, you know, really kind of foreign. And then three, in our plan that said, we were going to launch an African American site next, and people looked at the plan and there were like, black people and the internet. People think that’s weird now, but I tell folks on the cover of Businessweek magazine that year, one of the cover articles the headline, like the cover article headline was, will women be online? So they were questioning women were going to be on the internet, the thought of black people and computers. They’re like, Hey, dude, you left your moon boots back on your spaceship. So…
It feels like a generation ago, but it wasn’t. I mean, it wasn’t really that long ago.
It really wasn’t, there really wasn’t. But that’s, you know, what we were dealing with. I mean, it was it was so new. And it was almost a perception that was just like white male nerds that were on the internet. And even the thought of like, will this be for the masses was still like, misunderstood or not completely bought in yet. So anyway, came back, couldn’t raise any money. We bootstrapped the company for two years and living like poor college kids. And then I basically got lucky. I was introduced to this guy, Bob Goldhammer. He used to be the vice chairman of a pretty big investment bank called Kidder Peabody. Bob had retired, but he was investing in helping some startup companies, not in really tech in things like biotech and other areas. And Bob met up with me at my apartment and sat down with me for four hours. And by the end of it, he goes, I’ll invest, I’ll get my friends who invest. And so Bob and his, his friends put $5 million in the business. Wow. Yeah, it was a big deal. Going from that to the apartment, we’re gonna have a one bedroom apartment to raising, you know, real round. And then we then launched in 1999, our African American site called Black Planet, and I had a million dollars set aside for a marketing budget. But after we launched by the second or third week, you know, I remember being like, okay, don’t touch that million dollars, because we need it for more servers. And so we started getting all this traffic. And that was like, you know, it was all word of mouth. So I would get calls from my friends. And they’d be like, Hey, I heard your ads on Hot 97, the hip hop station in New York City. And I’m like, I’m not running ads on Hot 97. It’s called cuz all the DJs joined Black Planet. And they were giving like shout outs of Black Planet members on the hour
That’s the best.
Free marketing or like another friend called me and they’d be like, how much you pay Kanye, you know, Kanye West, a rap about blackplanet. I’m like, I don’t know Kanye. And Kanye’s breakout, a breakout album College Dropout, he had a song where he raps about picking up women in college on Black Planet with to lead quality, so and so Black Planet became, you know, top 25. And traffic, they became like number one, or number two, and stickiness depending on the month of assessor, eBay. And so suddenly, like we kind of prove there were black people on the internet. And so and so it was now the peak of the .com, boom, we raised $20 million of venture money from Comcast Sandler Capital, Inside Ventures. And then, and then I think two or three weeks later, after we raised the .com, crash started happening. And I was like, okay, after a couple months into it, I was like, we’re not going to be raised, be able to raise another round again, in the foreseeable future. And so fortunately, we had a lot of traffic, and it was an ad supported business with not enough of a ad market to sustain ourselves to be profitable. And so I said, well, what’s profitable and consumer internet in the year 2000. And you can imagine that where many companies are profitable, and consumer net in year 2000. So, but one company that was profitable was Match.com. Match.com, at launch, and I think 94 and 95, and got profit pretty quickly. And I was like, Well, I have people on the site like Kanye that’s trying to figure out who’s single and like, randomly flirting with people trying to try to try to figure out who’s single and stuff. And I’m like, I bet if we let people create a dating profile, we can charge a subscription, right? So we can take this free social networking site and converted and monetize through subscription. And we’d have no customer acquisition cost, because we had all this all these millions of people on the site using the site anyway, making friends and flirting and…
Love it. And social was top of funnel for, for the dating site.
Totally was. And so we launched our dating area in 2001. And it saved the business. And so so the business became profitable. So we, you know, we we were doing about $20 million in revenues. And we’re doing about $6 million of EBITDA. So properly, and this is still like, pre mobile, you know, probably half our users on dial up. So really hard to monetize back then. But we were one of the few companies that’s combust. Right? So you can imagine like my the VCs that backed us, it was like the Asian, black and we also launch a Latino site, the Asian-Black-Latino community site is the one that worked out. So anyway, so I ran the company as CEO for 12 years, we had about 130 employees in New York City. And then we sold the company in early 2008. And so we sold it, you know, it was good exit my my seed investors made 30 times our money, we got acquired by a large African American that actually the largest African American media company called Radio One. Black Planet ended up being 80% of our business. So they really bought us blackplanet. And then I wasn’t locked up. And so I stayed around help with the transition for about eight months, and then the financial crisis hit, and I said, probably a good time to take a break. So it was a 12 year run, I was tired. The financial crisis. I was like, You know what, I’m gonna take a year off, travel the world try to figure out what I want to do next. And so I spent a year traveling world kind of came back and said, You know, my heart’s in early stage startups. But you know, I look back on my journey. I was like, I love the early parts of the journey. I just wanted to try a different path where I was going to help other founders get their companies off the ground, instead of me being CEO founder myself, and that’s how led me to started kind of investing in and also incubating businesses. And this is this started about 2010.
Yeah, I want to talk about Primary. But before we do so, you know, I’d be curious to get your take on what it’s like to start a company now versus when you did, you know, we’ve had a number of folks on the program that say, so much easier now. And you can see that with, you know, speed to scale and the number of startups being founded, and you don’t have to purchase servers, right, you can just get easy access to cloud, but then there’s others that have come on, like Jeff Clavier, was on and he said, it’s much more expensive to create a startup now than it was 10-15 years ago, because of talent. You know, what are your thoughts on? I guess, the major differences and challenges now versus when you started a Community Connect?
Yeah, it’s interesting. I mean, people have come to me just because of Community Connect, and said, You know, they’re working on like, a niche, social networking site or niche, you know, whatever. They’re like, Oh, I wanted to learn from your experience of doing that. And I was like, you have to understand it was so different than in terms of the market, and the competitive landscape. You know, when we launched Black Planet, I tell people, why a big reason why the African American Beauty community embraced it was that there was no good social networking site at the time for white people. Right? So when Black Planet launch, like, people were getting, like, tattoos at a Black Planet logo. Because they were like, wow, like, we have something that no one else, especially like, what, you know, non black people have, especially white folks have, versus like, in almost everything else, like African American community, community almost felt like they got the short and the stick of whatever it may be, like, oh, the cable channel, whatever, like, it wasn’t something that felt like wow, someone’s really kind of invested in brought some people that, you know, would make white people envious. So it’s funny, like, I think back then, if you can build a great products, usually found your way through distribution, and would get customers. And so I felt like back then you think if you thought about product, 90% of the time in distribution, 10% of the time, you would probably win. And that’s how my mindset was like, just product obsession, product obsession, product obsession, I think now, and this is not always the case. But I’d say now, when people come to me, and with a business idea, and they’re thinking like 90% product and 10% distribution, I’m like, you’re most likely going to fail, because consumers just have so many options out there. And if you’re not spending at least 50% of your energy thinking about distribution, I think you’re going to struggle. And so that’s, I think, a key difference, you know, you can kind of argue about, you know, cost the people but I think, trust me, I you know, we rack and stack servers, and the cost of bandwidth and storage. I mean, it was astronomically higher than it is now. So, yeah, some of those arguments on people, but I think on underlying technology and cost structure. It’s definitely much better than it was then. But I’d say that biggest change, and the challenge is that there’s so many companies, so many startups, so many options and to stand to stand out, you have to not only build great product, but you have to also master distribution.
Is there a bias at Primary toward consumer investments?
No, no, I mean, you know, the journey for me and on on from going where it was the Primary was that, you know, I, after I sold Community Connect nice decided to, initially personally invest in incubate businesses, and I just created a kind of an entity called LaunchTime and said, I’m gonna put my, do some work here, and luckily had some success there. So you know, I met a guy playing a game of pickup basketball at Stuyvesant High School in New York City. And this guy was chatting with me, Hey, what do you do for a living? We kind of got to know each other. He was an entrepreneur, he had actually ran a small magazine business, he had sold it. And he was trying to figure out what he want to do next. And he was thinking about, obviously, tech instead of a print magazine business. And so you know, we would meet for like a year or so batting ideas around, didn’t land anything. He end up going to business school. And in his first semester of business school, you know, I was fortunate to help him with an idea that he was thinking about doing, which was this company Coupang.
And so help them think through the idea of bond and moved to Korea started at I invested is fortunate to have been asked me to join the board, and just helping started helping him with the business. And, and that business started as more of a local daily deal site similar to a Groupon in Korea. And if you now fast forward to where the businesses now it’s basically 100% out of the local daily deal business, and it is part Amazon part InstaCart part DoorDash. You know, it’s a $70 billion market cap business. And there was no income. Yeah, right. Yeah, it’s been an unbelievable. And the. And so you know, when I met Bom, in the beginning in when I invested, there were none of those plans to go into the pain of those businesses. And we’re 100% of the business that we were in Originally, the one common thread, that journey is, you know, Bom’s, the founder and CEO, and has driven that business to where it is now. And realizing that probably the biggest determinant of a company is definitely the founder. And so getting back to the question of like, you know, what do we focus on consumer b2b, we’re open to all sectors, you know, I think we realized my partner and I, my partners, and I realized that what we really want to bet on our people, we want to bet bet on great founders, you know, hopefully playing in very interesting markets. And if they, if you bet on those great founders, there’s a good chance that they’ll make something pretty special. And so that’s how we that’s where our lens and that’s why when we set a Primary said, Hey, we’re going to focus on New York City and be sector agnostic, the business model agnostic, but the one thing we’re not agnostic about is, you know, our search for great founders. And we think seed investing is much more about being talent scouts, then business scouts. And so we said look, by, by being born or raised here, having my whole career here, my network runs deepest here, have an advantage as a talent scout, probably makes sense of being New York focus. And that’s what we really kind of anchored on.
So are you leaning into this scalable sourcing strategy of playing pickup basketball games?
As I’ve aged, my pickup basketball game has gotten a lot worse and more injury prone. So in the key man clause or agreement and our LP agreement, we might need to stop playing soon.
I got I got a text from one of our Venture Partners yesterday, and he was in two to full leg cast. And I said, skiing and Jackson has to stop doing this anymore. too old.
Yeah. Yeah, that’s a price of the day.
But it is New York City focus. Yes. That primarily is
Yeah, it is in New York City focus. So when so the journey was, I was personally investing in incubating some businesses and Coupang where I met Bom in New York, but business office, they went out to Korea, you know, along the way, I was still investing and you know, incubating some businesses here in New York. And so gods who invest in companies like Noom and Yipit and number of other ones, and had realized that the caliber of talent in New York City had gotten dramatically better. And even then journey with Coupang, I was getting people that were in the New York tech scene, helping me with with the business. So I knew Marc Lore when he was running, diapers.com, and I had a business and he competed at a partnership with diapers.com and so Marc. And I got to know each other. And when Amazon acquired diapers.com, I knew Marc was locked up. But I also knew some of Marc’s like best lieutenants. So, you know, I grabbed three of Marc’s best lieutenants and kind of signed up as advisors. And they helped us with kind of charting our path on on some initiatives that we’re doing a Coupang, especially kind of in our baby category, and had realized that in working with these people, that that the caliber of talent in New York City tech had gotten dramatically better. And I tell people, the biggest catalysts of that was in New York City tech was a financial crisis. When I left investment banking in 1997, I remember telling my friends, yeah, I’m gonna leave Merrill to do a tech startup. And my friends were like, What? You got to leave investment banking at tech startup. That’s a terrible idea. Like, yeah, they’re like, their dream is to work at Goldman or some PE shop or a hedge fund or whatever. And that’s how the mentality was. And when I was running my startup, it was so hard to recruit, there wasn’t a great pool of talent. People wanted to work in banking, or be corporate lawyers or consultants. And then suddenly, the financial crisis hit. And, you know, the whole mindset change, right? Like before the financial crisis, if you ask somebody, like, hey, Where do you work? They’d be like, puff up their chest and say, I work at Goldman Sachs. And then during the financial crisis, like Where do you work? And they’d be like, I work at Goldman Sachs. It’s like, you almost took out our entire economy. So it just became less noble work. Less lucrative, you know, less inspiring, you know, you hear stories out people make money off of flash trading, right? Like, is there any real value that gets produced? No, they’re like, you know, cheating the system, the cheating the mom and pops. I mean, like, is that really what you want your life and legacy to be about? Right? And people realizing that people are smart, and hopefully with good intention. So people started leaving, or people stopped wanting to work there. So post the financial crisis if you look at the wave of entrepreneurs, they hit the New York City tech scene. Marc Lore used to work at Bankers Trust in sales and trading. And he left you know, Bankers Trust Eventually buy packs of diapers from Costco. And he was shipping at his garage in Montclair, New Jersey, when he started diapers.com Dave Gilboa left Allen and Co. As an investment banker start Warby Parker, Alexa Von Tobel was at Morgan Stanley and she went to start LearnBest. Jason Finger was a corporate lawyer, pulling out menus from his desk late at night working as corporate law job and being like, Why can I order food online and started Seamless. So you suddenly saw these people that left these traditional kind of New York industries that were this kind of black hole of our talent, and then suddenly they started emerging and started doing startups and then the people that work for them. Were also super talented. So you know, this one guy Nate Faust. He was the head of ops for diapers calm, I met Nate as one of those advisors I was talking about, and Nate, Princeton undergrad, works in consulting, goes to HBS Harvard Business School graduates HBS in 2008, not a good time to graduate, right. And instead of like getting a job at McKinsey, or a hedge fund, he interviews with Marc when Marc, Marc Lore, when Mark’s office was above a lamp shop in Montclair, New Jersey, it’s so your natives graduate from HBS and interviews and Marc doesn’t know anything about e commerce and in Marc throws him in a ops role. And then eventually, Nate basically runs ops for diapers.com, and then, you know, I got to go and get get to know Nate and he helped us with a bunch of stuff. And then he then co founded jet.com with Marc. So that was basically the bat was like guys like Marc and Nate that were part of this new tech ecosystem and talent pool, just over time, they were going to build big outcomes. And so at that time post financial crisis, if you think about it early on, you know, tumblr was the big exit in New York City, I think that was 2013 or 14, right? For a billion dollars, New York’s big biggest exit to Yahoo. And people were questioning, will there be another big exit? in New York City?
I hear you? Yeah, I’m in Chicago. And for many years, everyone just talked about Groupon. And it’s like, we’ve moved on from that, you know,
like, totally, and, and you they don’t see the momentum that happens is like when the talent starts coming into the market, you know, success is going to breed success, and you’re going to see it happen. And that’s what happened to the valley. Right? So it’s going to translate the same here. And that’s basically what we saw. And so when we saw that first wave of entrepreneurs hit, we said, Wow, in New York’s gonna hit this inflection point now. And over time, it’s gonna get bigger and bigger and bigger. And that’s why for Primary, we said, well, like, let’s go fish, right in our own backyard where our networks are deep. Let’s have that super focus on New York. Because if we can be talent scouts, we can build relationships with the people that work at a Datadog or a Peloton or Jet.com. And when they go off to start companies, you know, we know them, we trust them, we’ve collaborated with them. And hopefully, we can help them build special businesses. And that’s why the strategy has been this New York focus is that we think about it in terms of Let’s go play in a market and try to win a market where we can build the best relationships and back the best talent.
Ben, I’d love to get your take on all this buzz around Miami. Right? I think the foundation of a lot of great tech ecosystems is this talent pipeline. You’ve talked about being a talent scout yourself? Is this a viable tech center? Or is this hype?
Go? I think all markets are, I would say all markets, I think, is it a very livable city. livable me, like Do people really want to live there. And I think, you know, when people question New York, I was like, like, even you know, during the pandemic, or the financial crisis, or 911, it was always about, like, New York’s demise. And I’m like, New York’s an amazing city to live in. It really is. And ultimately, if people want to live there, you know, make friends here, you know, build a community here have family here. I mean, it’s, you know, having those roots in that basis is the most, I think, important starting point, then if talent comes and you can kind of put fuel to the fire to it, I think you can build a great tech market in any place that’s incredibly livable, and where people really want aspire to be in and so I think Miami could it does fit the bill, I think, definitely potentially, I think there’s a lot of really great things about Miami, and it’s going to fit the lifestyle and what people would like to experience and, you know, I think I’m, I’m definitely rooting for it, but at the same time, you know, I think New York is the just at the very beginning, and we’re gonna see that market continue to, you know, it’s it’s been exploding and it’s going to continue to, to take its course.
So, so give us the you know, the one minute overview of the thesis set at Primary, you know, stage sector. Clearly It’s New York City, but can you give us a sense for you know, the thesis and the investment focus
Yeah. Yeah, for sure. So, so we’re invest. So we started the firm in 2015, it was a $60 million fund, where we first started off with, now we’re, we’re on our third funds $155 million fund, it’s focused on seed. So it can be pre seed, seed, these bigger seed rounds, mango seed, whatever you want to call it. But usually I would say like $5 million round is at the top end. And it can be as small as that whatever 500k or a million dollar kind of pre seed round, we invest in New York City, we are sector agnostic, we invest in consumer and b2b right now a portfolio is probably 60% b2b 40% consumer, but it’s not kind of weighed with any intention, we just want to be back great founders and opportunities. And so beyond that, you know, our real kind of differentiation is, we’re not a high volume seed shop, we don’t cut a lot of checks around, we do roughly about eight to 10 deals a year. So we’re pretty, pretty selective. But at the same time, what we bring to the table is a pretty large team. So we have over 20 people, half the team is on what we call the investment team. And the other half is what we call our portfolio impact team, where we have at the senior level operating partners, so these are C C suite level execs that were startup operators. And so you know, Cassie Young was chief revenue or chief customer officer at CME Group, which was, which is now a $200 million plus more tech SAS business. Rebecca Price was chief people officer at businesses like Capsule and Enigma, Sailthru. So those are the type of caliber people that we have at the operating partner level. And then below them, they have teams of people around things like talent, recruiting, you know, market development, should use finance, etc. And so this team is really responsible for helping our companies after we invest, so we really dedicated real operators to help and where they can work on site, did dive deep, and hopefully have a really meaningful impact. And they’re trying to have a meaningful impact of getting helping our companies get from seed to series A. And so one thing I want to make sure it’s clear that we’re not here to run the companies for are the founders, why we do this, and that we were trying to provide as much value as possible, because we realized that we can be calm, if we are really helpful, that will earn us with us the right to work with great founders. And that’s what we’re really trying to do. We’re trying to work with great founders, and by just doing more work and getting our hands dirty, and hopefully having a real impact will win that right. And so
that is that mostly strategic work. Is it sweat? is it helping with talent recruitment? You know, what, what areas to the does the team Really?
Yeah, it’s, it’s all of the above. So like, you know, Rebecca Price has a team of folks on the talent recruiting side. And so why do talent recruiting? Well, you know, if you think about a company’s journey from seed to series, a, and you ask yourself, why do a lot of companies fail? One of the big reasons and having been through the journey is definitely the talent you get in the very beginning. Because you think of that, it’s like, you raise a seed round, you’re gonna go from five people to 12, right? You go for five people to 12, you’re not hiring a chief people officer, you’re not probably not even hiring and head of recruiting, right, because you’re only going from five to 12. But yet, every single hire is probably a single point of failure, and is probably really, really critical, right? So you raise enough round with enough money to say, Okay, I got, I got two years of runway with 18 months, before I hadn’t had to go raise my series A to give myself like six months, you know, of a cushion. In 18 months, if you think about like, well, let’s say you have to build an iOS app, by the time you like, hire an iOS engineer, you realize that they’re bad or good. You maybe had to fire that iOS engineer, and then replace that person, you’re like, you’re out of runway. And so these are the common things that happen to startups all the time. Yet, when you look at what they have to do on a recruiting standpoint, you’re like, well, they, a lot of them don’t have recruiting backgrounds, a lot of them don’t have any type of recruiting resource. They’re only on the left or on devices, they have a company with no brand, right? Like, it is really hard, especially in a competitive market. When there’s a war for great talent, we’re talking great talent, as you know, is a game changer for any company. So we can give you that leg up on getting great talent, we should be doing that. And the reason why we’re able to do that is one, we have talent operators who have done it before that’s done it for startups at the startups they work for. So one, they bring the skill set, but then two, we actually have leverage of our time with our entire portfolio is in New York City, and they’re trying to hire talent in New York City, then every person that we meet as a potential candidate, if it’s not a fit for company, one in a portfolio could be a fit for company 234-567-8910, whatever. So we have 60 companies, our portfolio, so it’s a real leverage of our time. It’s like you’re creating a two sided marketplace and recruiting if you don’t have a lot of in supply. You know, you’re less efficient. We have supply. And so we do things like that when we think about well, if we have an edge and can have leverage of our time and our resources, we should be doing that. And if you have a big impact in your company. So that’s an example of something in our portfolio impact team does. So they literally are often working inside of companies, you know, this is pre pandemic, but now they’re starting to do that now, as the things open up. And you know, sitting down with the teams, understanding the culture, the needs of people living through it, and then helping them run their processes as well as source. And it’s been super impactful. And a big reason why the companies that we we put term sheets in front of, you know, choose us.
So Ben, pre investment, you told the story about your interactions with Bom and Coupang. And, you know, it was it was a continuum over time and a lot of discussions and strategy, I’d be curious to get your take on, you know, how collaborative is sort of, you know, that formative ideas stage between Primary and the entrepreneurs, I imagine, you know, some of them come, they’re ready to raise, and if it’s a great fit, you invest, but in other circumstances, ideas may not be fully fleshed out, you know, how much of a role do you play? In some circumstances, you know, working on the idea with the founder, and you know, collaborate and kind of, you know, find the right market and the right opportunity.
Yeah, it’s really not given you probably you being in the business, you know, that a lot of firms have, you know, a CRM, they look at their funnel, they track, like, what deals are happening, and what’s happening in that funnel. I tell people, like our CRM, our top of the funnel, is really people, right? So we don’t even like, if we identify, like, Great founder talent, that’s even just thinking about starting a company, we log them into our system. And, and we’re always thinking about, like, who on the team is tracking them, working with them, seeing where they can be helpful to helping think through ideas, etc, connecting with other people on the team that they think they can, hopefully be helpful there. And we think that’s a really important part of our kind of journey as investors because we realize that, especially at seed stage investors, this is a 10 year, maybe more journey as partners, with those founders and that working relationship, that collaboration should be a huge determinant of whether or not we should be doing the deal. So we really want to get there as early as possible, working with that partner, thinking through the ideas and grappling with it. I mean, that’s the kind of stuff that you kind of then form an opinion on, hey, do I really believe in this founder? Right? Because it’s not about them listening to our ideas. It’s like, how do they process it? How do they rationalize it? How they think through it? How do they go out and do it? Like, it’s seeing how they approach it, that gives us confidence, like, okay, they’re gonna figure it out. And that’s how that lens that, you know, when people ask us, like, how do you evaluate founders? It’s almost like a pretty easy like, question a to ask, which is, would you bet against that person? Right? There’s certain people you meet, and you spend time with you’re like, you know what, that Nick, I wouldn’t bet against that dude. Like, he’s gonna figure it out. Right? Like, I remember meeting one investor that worked with, to work that, you know, dfj, before change his name, and I had met Steve Jurvetson, when I was raising money in my first startup, and they never invested. But, you know, I met Steve and he heard about Stephen a long time, he was like, he was on the, you know, the cover boy of like, the whole VC scene. When I was first doing my company. And I was like, you know, I don’t really read a lot about Steve or, you know, see a lot of articles I used to see about him and this woman that worked for him. It’s like, Yeah, he kind of just wants to work with guys that he’s like, had really strong relationships and believes in him believe that he believes in like, Elon Musk.
Only we are all so fortunate.
But you know, like, I bet you Steve, like met Elon, early on, he was like, I wouldn’t bet against this guy. So whatever Elon does, I wouldn’t bet against that. God’s like, yeah, you want to build a rocket ship? Yeah, I wouldn’t bet against. So they’re just certain people that you meet and get to know, over time, you’re like, Okay, I feel like this person is really special, I wouldn’t bet against them. And so that’s how we approach it. And so I think that process of collaboration partnership is an incredible way of like any investor to get that assessment, but most major challenge in this market is that deals are happening so fast, because it’s so competitive. And I think a lot of investors are like, Hey, I have to use speed as an advantage. Right? And so them doing lighter guilted diligence and just going and saying, okay, I want to do this I’m really willing to move really fast. I think that could be dangerous for industry, you know, that collaboration, that partnership then could fail and break and you know, and it could be bad for both sides. So there was a one other thing that’s that’s a recent thing that definitely me and the rest of the partnership has been definitely thinking about and concerned about.
So the talent scout in the talent talent cultivation side of it, you know, people you’re not betting against I’m curious how that squares with like market size and market opportunity, right, we’ve had a number of folks on the on the program that say, you know, it’s all about the market, you know, the team is important. But, you know, there’s there’s sort of a base level of competence. And then many others say it’s just all about the team and the best teams will find their way to the best markets. You know, where do you stand on that? And how does that square with kind of the way that you look at at talent?
Yeah, I mean, I would definitely I tell founders I work with, they are, it really makes a big difference, if you choose the right market. And the right market can be a lot of things. It could be size, it could be, you know, what are the tail winds associated with the market, it could be small now, but growing really quickly, and you’re catching the tail winds on that. And that makes such a difference. You know, instead of like choosing a smaller market or a market with a lot of headwinds. And so as a founder, it’s like, I tell people, like my startup, just given the timing, we made it work. But it was a lot of really tough execution. And it was like squeezing water out of a rock, it’s really hard. And then you work on a business like Coupang. And it was like squeezing water out of a big wet sponge. So you’re just like, and it’s not to say that the Bom hasn’t done unbelievable execution he has, but he’s done it in a great market. And with a great model, right and right, timing, all of it. And so, it was such such a huge advantage. And so when, when I when I tell that to folks that especially entrepreneurs who played in tough markets, they get it right away. They’re like, Oh, yeah, I totally get it. And so your question of how much that means, I think we definitely would say, you know, probably the founder and entrepreneurs, it’s like, 80, to 90%. But that 10 or 20% of the market, it doesn’t have to be like all of it lined up. But we need to feel like, okay, there’s enough of a market or the right tail winds that we think you have a better chance of success. Now, as we’re thinking through the business models, and so forth. If you find out that, like you don’t believe in the business model, or the the approach that they’re going with, but you believe in the founder, so much, we’ve had those situations. And ultimately, I think we’ve come to conclude that like, we shouldn’t do the deal. Because if you invest in from day one, you’re just trying to tell that founder not to do that approach, or is this, it’s just gonna be a bad partnership, and probably not healthy. And so during that, like, you know, as you collaborate, and you’re trying to understand who should invest in, you’re pushing, and you’re realizing like, wow, like the direction where I think it really needs to go. They’re just not at all aligned with. And I think it’s a major mistake, even though we really like and respect the founder, we just say let’s just step away from now, it’s not the best for both sides, but stay close to that person. Because if they pivot, like, we may want to jump all over it at that point. So that’s often like how we approach it.
Yeah, there’s this this question we ask ourselves in IC committee, before we make an investment, could you put this business and founder in front of a tier one series a VC tomorrow, and the only thing that’s missing is traction. And I found, you know, in my career, if if you back businesses that you got some concerns about it becomes this painful exercise to pitch them to potential partners of the future when, you know, you’ve got your own reservations about the business potential.
Yeah, that’s right. Yeah. So Nick, I mean, definitely, when it comes to thinking about the market and the business model approach, I think the thing that you flagged there, and this year is a is financing risk. Right? So if we’re having a struggle with the market and the business model, we know other investors will, it’s like, well, when you go raise that, and when you talk about traction, you better you have to have like crazy good amount of traction. And you know that that’s just some so rd versus like some people that love this market and the love of the business while you’re approaching you need to have a little bit of traction, you’re gonna get, you know, a dozen term sheets, right. So, you know, financing risk is a real factor in this game is, as you guys know, by even answering that question, asking that question, so totally great.
Ben, you wrote this tweet, quote, there is no longer such a thing as proprietary deal flow in VC. It’s now more about winning a deal versus picking a deal. You know, I’m curious, what has changed? Is it supply side of capital at seed? Is it you know, other factors? What prompted the tweet?
Yeah, it’s funny. I mean, it’s, uh, you know, I think about venture, you know, 20 plus years ago, which is this cottage industry, and bills that were getting done. There was only like, one term sheet on the table if you do a lot again, if you’re in venture now, and I’m sure you probably see it, Nick. If the company doesn’t have more than one term sheet that may be the unicorn these days. So that’s the reality of the market. And I don’t think that’s a bad thing, like ventures had, you know, great returns, especially really good funds. And markets are efficient, and supply a capitalism to come in to, to establish some equilibrium here. And there’s going to be increased competition, which is, I think, really healthy and what should be happening? With that being said, yes, there’s going to be multiple term sheets on the table now. And so when I think about that, it’s no longer like, hey, picking the company, and issuing a term sheet is really what’s special, because at the end of the day, the company is gonna have multiple term sheets, most likely. Now, it’s about like, what’s your advantage about winning? And so I’m an LP and some other funds? And that’s the big question I always ask is like, what’s your edge? Right? It’s not about like, oh, what are you gonna go pick? And what are you into? I’m like, No, like, I assume you’re, you know, table stakes, you’re going to have to pick something that’s good. Like, why are they going to choose you? And if they don’t have a good answer, then you know, I’m not interested. And I think that’s the reality of where the world is now. And I think that’s a good thing. I think it’s all been really healthy that as more firms are issuing term sheets and being competitive and having to try to figure out how to differentiate themselves, that they are forced to then figure out how to raise the bar for themselves and for the industry, of how they can really set themselves apart and provide value to the founders and the entrepreneurs. So I think this increased competition of going away from just like going from just picking but now you have to win the right to work with entrepreneurs. And that deal is a good thing for our business, and hopefully for venture capitalist startups all together.
So put you on the spot, you know, what is what’s the win rate at at Primary? And why it Why do y’all win, going head to head against other firms.
So we track this, it’s one of our KPIs, our win rate target. So it’s when we issue at a term sheet, we win 90% of the time. So it’s a it’s a big goal. Like we like big area, nations goals. We’re right about there. We’re like mid to high 80%. So we’re trying to figure out how to get better and make sure we hit that goal. So we’re actively working on that. And so why did we win? And I’m pretty much I can’t I don’t remember the last deal that we’ve done that didn’t have multiple term sheets on the table. So that gives you a sense. So we’re definitely This is not jaded to it, we’re picking deals and no one’s around the table. And so how are we winning it? We’re winning with our team, and especially what we’re doing not only an investment team, especially in the portfolio impacting so when we issued a term sheet, we’re not just like, hey, emailing a term sheet, and just me getting on a call with somebody and walking through it, we usually issued a term sheet, say, hey, let’s get on the call. We before used to be us going to their office, which we’re going to start doing again. And then we bring like the whole team, right? So we roll in with like, 22 of us. And then we not only handle the term sheet, we go through our deck, and we customize our deck to talk about why we think we’re going to be the best partner for you. And in our deck, it’s things like, hey, Nick, we know, you know, from our early meetings with you, and understanding your plan, your budget, you have these seven critical hires, you have to make, let our talent recruiting team tell you what’s in our pipeline. And we’re the people that we can connect you tomorrow to help you with this. Right. And we go through profiles and what that pipeline looks like. We have our market development team say, Nick, we know that you don’t have any brand you just sent raises money, but you need some beta customers for your for your software. Well, we have this market development team that’s going to go and do outreach to these enterprises. This is how we’re going to get in, these are the people that we know. And because we’re we’re calling on them with a VC calling card, they take our call, and you’re all the companies that we work with and how we’ve helped develop their pipeline. So when we come in, it’s not, hey, you know, we like you take our money, it’s, hey, we like you take our money. But also, this is how we’re going to really help you get your series that in really tangible ways. And that’s when our founders, or the founders that we pitch are like, Whoa, this is different. And then we say, look, here’s the list of all the founders we work with, go talk to them, backchannels, whatever you want to do, and we’d be shocked if they’re not telling you, hey, you’d be crazy and take these guys money and get their help. And so that’s where we really kind of anchor on and that’s our core differentiation,
Ben what do you know you need to get better at
I think it’s what we kind of touched upon earlier about a pass or a deal we didn’t do you know, my definite style is when I have my own conviction or I my own thoughts. You know, I think I’m just because I’m a kind of a hard driving guy. I’m, I push with my opinion pretty strongly. And when you’re trying to build a team and a culture where one of our values is a we firm, the way I really want people to be owners. And I want everyone to be a driver of the firm because I think that’s how we’re going to become great, that that it doesn’t feel like it’s me that’s doing the driving, I want everyone driving and then I have to kind of temper my, you know, thoughts and enthusiasm or opinion and make sure that people have the space and the ability to add build their own conviction and take their own risks and feel like they get my support. And so that’s one big area that I feel like as someone that’s trying to grow a venture firm and scale it and, and make sure the team is growing and, and living up to their potential as well that I needed to get better at.
And then finally, here was the best way for listeners to connect with you and follow along with Primary.
Definitely. Email firstname.lastname@example.org so I welcome anybody email me and then at the same time, follow me on Twitter, BKsun, k for Kevin’s my middle initials, so BKsun on Twitter and then also go to Primary.vc. We have a newsletter that we send out a lot of really good thoughtful content and insights and more stories. So hopefully people enjoy that as well.
Well, Ben, it was a true pleasure to have you. I’ve heard such great things over over the years from so many people and, you know, real pleasure to finally have a chance to, to speak with you and get some of the stories behind some of these great companies.
Same here, Nick, I really appreciate it. Thank you.
Transcribed by https://otter.ai