Dayna Grayson & Rachel Holt of Construct Capital join Nick to discuss Competing with Amazon, Combatting 60% Talent Attrition, and Driving Transformation of Foundational Industries. In this episode we cover:
- Can you each give us the two-minute background and path to VC?
- What is the thesis at Construct?
- How do you guys define series A?
- Is there a geographic scope in which you’ll invest?
- Why have you chosen to focus on these sectors and categories?
- How have you seen the current environment issues affect sales cycles and velocity over the past year?
- How do you deal with inertia, slow sales cycles, and tech aversion amongst these buyer and user groups?
- Is there any concern that the skills gap will broaden over time?
- Will capital intensity, timing of financing rounds, timing to exit, size/scale of exits, valuation multiples, etc. look different for a legacy industry portfolio vs. a standard SV SaaS portfolio?
- Investment philosophy has shifted from being much more decision-maker focus and top-down startups versus more user bottom-up focus solutions. Is that something that’s part of your lens or is it case by case, depending on the startup?
- There seems to be a lot more VCs/Investors focused in these spaces, so why the need for Construct in this market where so much capital is flowing?
- What was it like pitching this narrative in the thesis?
- You raised your inaugural fund during the pandemic — what did you learn from that experience?
- There are two different philosophies on firm building. One approach is more of an independent/individual sport, the other a team sport. Which do you employ?
- If one of you wants to do the deal and the other thinks it’s not a good way to deploy capital, what happens in that circumstance?
- How do you think about scaling your efforts and getting more leverage out of your time?
- What’s the post-investment relationship with the founders look like at Construct?
- What do you know, you need to get better at?
- What’s the best way for listeners to connect with each of you and follow along with Construct?
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:
Dayna Grayson and Rachel Holt join us today from Washington DC. They are co-founders and general partners of Construct Capital. Construct announced their debut $140 million fund in February of this year. prior to Construct Capital, Dayna was most recently a partner at NEA. And Rachel held a variety of leadership roles over nine years at Uber. Dayna and Rachel, welcome to the show.
Thanks for having us.
Yeah, I gave you you know, a very quick intro, I’m sure that the path to getting to Construct was much longer than that. But maybe we’ll start with Rachel, Rachel, can you give us kind of the the two minute background and path to VC?
Yeah, absolutely. So as you mentioned, Nick spent nearly nine years at Uber, by first of all, was starting the Uber business in Washington, DC, way back in 2011, when there were only a couple of Uber cities that were alive at all, and then spent most of my time building and running the US and Canada business. for Uber on the ride side, so got to see just tremendous growth through that period. And enjoy Uber, you know, between their series A and Series B. So really got to cut to see the full path of Uber from really the early days, the early startup days through IPO, and then spent the last couple years of my time at Uber work on building and running the new mobilities businesses. So all the E bikes e scooters, ran those businesses globally, as well as an incubator where we would invest in ideas internally, as well as externally where we had excitement around a thesis and how it could help Uber. And so in many ways, my evolution was one from the early days where I was the person operating to running a set of operators, who are running the US and Canada business to you know, even thinking about investing from the Uber perspective, what are the next set? What are the next generations of businesses that Uber needs to think about building? And so this feels like one more step on that journey. And it’s been great to, to be full time on in venture of last year and a half.
Rachel, I’m curious, does Uber still have a good shot of becoming the super app that we all hoped it would? Or do you think they’ve kind of doubled down on the core at this point?
I think they are still incredibly well positioned to be a platform, I think they are if anyone is going to do it, Uber, Uber is going to do it. But certainly continuing to think about how are they going to invest? Maybe it’s not as much internally, maybe it’s a lot more through partnerships. You know, that was a lot of the groundwork that my teams worked on, in addition to running, you know, the the jump businesses, we also did work on the line deal, the initial line deal, which enabled us to both have the platform play as well as the first party play. I think it’s they’ve done more, you know, the third party route, which has pros and cons, I think from a from a company perspective, but I don’t think I still think that they are in a great position to win the Super app, you know, race.
Awesome. And Dayna, can you walk us through your background and your path to Construct?
Sure. So early in my career, I was had a short stint of operating side. This was post college and pre Business School, joined a company that it was called Blackbaud is called Blackbaud still standalone public company today. This was pre their IPO when they were still growing, the company went public. And then I left and went to go to business school and business school, I was exposed to venture capital. I knew a bit about it because Blackbaud had been backed by venture capitalists actually more growth equity firms and venture capitalists but had some perspective from that. And ended up joining a fund in the Boston area right out of business school, kind of opportunistically not knowing a ton about it. They kind of sold me on the idea of you have an engineering major, you’ve worked on the operational side, you should try venture and sort of like Sure, why not. And it was a great experience, learn from some great venture capitalists. In 2012. I met the folks at NEA and they recruited me to join the firm as a partner. And that’s where I was for the seven years prior to starting Construct with Rachel. I should mention Rachel, I got to know each other. I moved to the DC area to join NEA and we got to know each other shortly thereafter. One of my first observations when I moved to the DC area was that Uber was not as prevalent as it was in Boston, because you know, Rachel had just launched it here. So I was glad she had landed here because I was already used to using Uber and quickly got to use Uber here in this in this region too. So we got to know each other over the years. Increasingly, I was focusing more and more on industrial type software investing at NEA, mostly opportunistically at first I got into that space by backing a company called Onshape. That was in Boston. They are a CAD product that’s completely hosted in the cloud PTC bought them and 2019. But from Onshape, I started focusing more and more on this area. And, you know, Rachel actually came over and was a scout with me at NEA. And so we made a few investments together. And we realized, well, we both had a perspective on whether it was mobility and transportation, or the manufacturing of those bikes and scooters, the network and the logistics of power at all. And between the two of us, I was more I found myself more and more going to her for questions about how would this work if if this type of product were released, and, and she had similar feedback on how this type of company work if we invested in it from the scout side? And finally, we looked each other and said, why don’t we just jump off and do this, there’s a hole in the market for people that really understand this space. And we can go more into how we constructed no pun intended the firm. With operational and investing underpinnings, we think that’s super important. And here we are.
Well, good. Well, I’m excited to go deep on some of those topics. Maybe a good place to start is the thesis at Construct? Can you give us an overview of what you’re investing in?
Sure. Well, you heard the background of how we got started. And that’s largely what we’re investing in, we’re investing in to kind of bring it up the level something we call foundational industries, it’s a it’s a term we use more frequently these days, it kind of refers to really what is half of the GDP, that covers everything from industrial, but also manufacturing, logistics, supply chain and mobility and transportation, as well as a number of business services, FinTech education, that power those sectors. And we don’t think there’s a lot of firms that are really specializing in that, especially with the expertise and hopefully experience that we bring to it. So we’re investing at the series A or seed level very early, we think the next vintage of really strong returns will probably come from these spaces, the next set of unicorns, debit, deca corns over the next 510 years, we think it’s akin to sort of investing in SaaS, circa 2012, to 2014. These are the types of companies and really high quality founders that we’re seeing, turning their attention to these spaces. So a lot of it is you know, what I was doing in the past at NEA and what Rachel was doing at Uber and it, you know, a real jumping off point for us to do it here together.
Good. And how do you guys define series A? And also, is there a geographic sort of scope that you’ll invest within?
Yeah, so we are nationally focused, our current portfolio spans a number of investments that happened in California and primarily in the Bay Area, a number of New York, Boston’s are up and down the East Coast. So definitely national focus. And then for us, you know, about two thirds of our funds will be seed investments. And then about a third will be those series A and, you know, what is the seed and what is a series A is obviously a very fluid definition, where we play is really one of the total round is, say 15 million, you know, that’s kind of where we start to max out from a size perspective data,
and you’ll be leading the majority of your deals, I assume.
Okay. And I think, Dayna, you answered this before, but I was gonna ask why focus on the sector, it sounds like, you feel like now is the opportune time to access kind of an area that’s been under addressed?
I think that’s right. I mean, there’s two things that drive it. One, we’re big believers in sort of doing what you know, not sort of waking up and declaring, oh, we’re going to turn our attention to this space, but it’s definitely born from what we’ve been doing over the past, you know, seven, nine years. So that’s the first thing. And secondly, we do see in the why now is like, we see a number of really great entrepreneurs coming out of whether it’s Uber or other startups, you know, in in the in the it the traditional IT world, and turning their attention to these spaces. One of the first companies with that company called Kopia, the founder came out of Uber and said, there is this sort of missing GitHub Atlassian line service in the industrial world for code collaboration, remote deployment DevOps. And it really takes that perspective of having seen it. And the regular, you know, I keep using this word it, you know, it’s sort of outdated and in the tech world, but just to differentiate it from the industrial world that we’ll call it that it’s missing in the industrial world. And yet it takes a purpose built solution in these spaces. That’s symptomatic and emblematic of a number of companies and entrepreneurs path into the space and we like that bridge, most everything we’re investing in founders that have grown up in the regular tech sector, and have some experience to kind of turn to the operational I’m tech by the industrial tech world and, and just try to disrupt it.
Gotcha. So it’s most often at Tech operator that grew up in tech that’s then entering a sort of legacy domain, so to speak.
That’s what we’re most excited about, for sure.
Very good. Well, you know, it’s an interesting time for the sector, I think we’ve seen, at least I’ve seen, you know, supply chains are under serious strain. A number of our companies that deal with hardware and chips, you know, are having some challenges with that, we have an investment in a supply chain company that is getting a lot of tailwinds because of it, you know, we’re seeing bottlenecks and shipping ports, we’re seeing a lot of large manufacturers that are single sourced, going through a lot of frustration and trying to dual source and, and reduce some of the exposure they have on that side. And clearly, there’s a lot of need for tech solutions now more than ever. On the other hand, you know, during times of crisis, I’ve worked in big industry, and during times of crisis, you know, businesses are often in damage control. And they may not have time or mindshare to pilot to new solutions, or pilot some new solutions. So, have you seen, you know, the current environment? Is this having a big issue? Or is this having a big effect on sales cycles and velocity over the past year, you know, how have you seen these kind of contrasting forces, bear out, you know, with some of the companies that you’re supporting?
Well, we see a huge opportunity right now in startups that are focused on the supply chain and logistics side. But you know, there was a three year pull forward in e commerce that literally happened overnight, during COVID. That certainly contributed there were supply chain challenges that were in place before. But when you have that kind of overnight increase, it’s definitely going to put in there, it’s going to create strain. What we’re also seeing though, is just there are so much more technology that can be applied to these old world challenges. We’re now finally seeing companies that are focused on data and visibility across the supply chain are investors in a company called Tradeswell, which is doing just that. And then we’re also seeing these new logistics networks, you know, be that there are opportunities for new logistics networks, just like what Uber did to transportation, you know, at the beginning of 20, starting at the beginning of 2010. Were investors in a company called Veho, which is creating a brand new, much more accountable, much more reliable, last mile, and it’s not really last mile, it’s really last year, 25 mile package delivery option. And we’re just seeing incredible demand. They’re seeing incredible demand and incredible growth as a result of some of these challenges. And as all these companies are waking up and saying, how are we going to compete with Amazon? How are we going to create the customer experience that all of our consumers have come to expect? those impacts You see, all the way upstream? And so, you know, we see those impacts on health companies manufacturer, we see it on the supply chain and logistics piece, and we see it on the transportation piece. And so some of those areas that we focus on all of them are really a continuum have been impacted, you know, create this great, big opportunity for these companies.
What about in the absence of, you know, some some event or exoticness factor that’s pushing things in a certain direction? A criticism of these industries often has been very long sales cycles, massive inertia buyers that are resistant to tech, you know, how do you how do you deal with that when you don’t have sort of a catalyst?
I think that’s a great question. We will not make any investments that we don’t see a really strong why now within these sectors, I mean, the first thing to recognize that each one of these sectors are multi trillion dollar market. So I think they often get grouped together is like, Oh, yeah, manufacturing supply chain logistics with other part of, you know, the IT world, each one of those, like dwarf, a number of software sectors. But you do need a why now, so what things we look for are distributed budgets in the organizations they’re selling into. So can the end user make the buying decision to initially try something that’s super important. We also look for sort of modular, you know, or cloud based technology that can be adopted quickly. Traditionally, we’ve seen companies die on the mind, sort of in the pilot, pilot phase, I call that pilot purgatory. I think that’s become a accepted term now that both companies and investors like try to avoid and I think that also, you know, on the customer side, they realize they’re not going to be able to work new technology, if they don’t change their adoption cycles, too. But it all comes back to what is the dire need, why does something need to change now? We’ve looked at a number of sectors that have been around for hundreds of years. Literally, like the industrial world has been around for hundreds of years, why does it need to change? Now, you have to answer that every time.
You know, I don’t have any data in front of me. But, you know, I’ve seen some anecdotal evidence, and I’ve seen some data that suggests that there’s gonna be a massive gap in talent in some of these areas, you know, in the future. A lot of young people want to be creative, or they want to go into tech. And, you know, I don’t want to work in a in a factory, right? How does that impact your thesis in the way that you invest?
That’s a huge part of my thesis right now. In fact, we kind of have these overarching points of view that we develop, Rachel took you through one on the logistic side, we’ve got another one on sort of decentralizing production, changing the factory blueprint, and matching that environment with what the skills and the desire is, are, the workers in the modern age is part of it. I think, in COVID, you know, manufacturing jobs, hit an abrupt halt at first and went down by like, half a million jobs, 500 cane, you know, jobs went away overnight. Well, they’re all back, there’s actually they’re back, and more are available, I think it’s more like six or 700,000, open right now, and literally cannot find workers that can fill them in the need in the time period that are needed. I think that’s one, everybody wants to work in the Tesla Giga factory. And a lot of these manufacturing environments don’t look like the Tesla Giga factory. They’re not connected. They’re not exciting them hard. They’re strenuous. And so the turnover is really high. I think that attrition rates in these sectors are like 60% a year, you’re replacing your whole labor force every two years. So that’s really important. I think it’s, it’s important for employers to really recognize how do we make those jobs more enjoyable, and we have a couple of investments that we’re gonna be announcing soon in that area actually,
good, good. You know, something that I’ve learned a guess in, in the last six, seven years as an investor is different types of investment strategies have different profiles over time, whether it’s return profiles, dilution profiles, at New Stack, probably 10 to 15% of our investments are in hardware enabled services, the progression of those businesses, even the successes have a much different profile, maybe more dilution effects, but may may be broader and deeper moats. You know, my question to you is structurally, you know, how do you think your portfolio performs maybe differently than a standard SaaS venture portfolio? And you know, when it comes to capital intensity, or timing of financing rounds, we had a mutual friend Ty Finley on the podcast, and he talked about how there may be longer times and longer development cycles in some of the areas he plays in. He’s in a lot of heavy industry areas. But there’s a lot of factors in venture right valuation, mold, multiples size and scale of exit timing, dilution, you know, how does it look different for a legacy portfolio versus standard SaaS?
We don’t actually think it’s going to look particularly different. I mean, I think many people in 2011, told me I was crazy to join Uber, because transportation is heavy, catbacks and slow moving and highly regulated. And, of course, Uber as a solution is none of those things. And I think it’s expensive, it was expensive, but not for the reason of capex. But I do think what we like to see, and I think, you know, Dayna spoke about it earlier, what we really like to see is companies that can adapt be adopted in a much more traditional SaaS like way, distributor, either distributed by less of that long just popped down sale cycle. And I think it’s important just to note here, you know, we are investing primarily in software businesses, right? Some may have a hardware component or a connected component, but these are at their core, what differentiates these companies is their software ability. And so I think, you know, that’s a little bit different. While we say, you know, when we talk about some of these spaces, in your head, it goes these huge infrastructure projects, those aren’t the companies we’re investing in. We love the disruptive software solutions that are transforming the spaces we talk about from, from our construct perspective, that there’s connecting, automating and transforming these sectors. And in some cases, some of the sectors or elements in sectors that still are getting connected, some are getting automated, and then others are getting transformed. And so different sectors are different spots on that continuum, but the software solutions that it takes to transform those, I don’t think look that different than the ones that you’ll see in the other elements of the software. And software in disguise.
Makes a lot of sense. You know, a few weeks ago, we had Dharmesh Thacker from Battery on and he talked about how his you know, over decades, his investment philosophy has actually shifted from being much more decision maker focus and top down startups versus to more user bottom up, you know, focus solutions is, is that something that’s part of your lens? Or are you know, is it case by case? It depends on the startup.
I think that is a well adopted and subscribe to philosophy now in the SaaS world. And and now that we’ve seen it work in the regular tech world, the software world it world, there’s no reason why it should be applied here as well. So absolutely another company Kopia, which I mentioned, we’re really excited about that by the number of users that are flocking to it during their beta program. It’s spreading virally. It’s it has immediate usage, it shrinks that time to value is really I think what you’re describing, and that increases, you know, when it does get to the top, you know, the budgets that will flow for something like this, because ultimately you do have to have to have to monetize these. But we want to see that immediate value read and at the end user level, it can happen. It has happened in software world, there’s no reason why it can’t happen over hearing in these sectors too.
Good. So two part question here, I’ve seen the rise of a number of firms that are focused, maybe not on the same group of sectors, but similar sectors, you know, maybe some old world industries, maybe maybe some legacy industries, maybe manufacturing, maybe industrial. So one question is, why Construct, you know, why do we need another VC firm, focused in this area? And then, you know, what was it like pitching this narrative in this thesis? I think you closed your eyes, I don’t know when you close your, your phone, but you announced in February, so I assume the majority of the raise was done during the pandemic, so that I’d love to hear about that experience a bit.
Sure, we can we can take you through raising during the pandemic, you know, but I’ll answer your first part of the question, which is, you know, why Construct we don’t think there are a lot of, you know, not not even firms, but individual investors that really relate to these spaces and have not only seen it in software, but then also have the experience in the sectors we’re focused on to kind of marry the two, we think more turning their attention here. So it’s great for follow on capital, we’ve worked with a number of really great syndicate partners in our in our investments, and we hope that pool will just grow. But I, you know, we do think it is the beginnings of the next strong vintage, so hopefully more will turn their attention here. But for entrepreneurs we hear frequently when we talk to them, like Construct is the firm that should align with with our company. But you know, we hear a pitch back to us just based on how we’ve designed our focus. And, and we love hearing that, frankly, but raising during the pandemic, I let Rachel take that one.
Well, definitely. I mean, we, we started, we started out about four weeks before the pandemic, on our fundraising journey. So, you know, it was a crazy month of traveling to meet LPs. And then that all stopped with a with a immediate halt, you know, the second week of March. And so, you know, I think for us, first of all, it, it gave us an opportunity to really step back and say, Okay, now is it’s just, there’s so much happening in these sectors, so many more entrepreneurs, I think through the early part of the pandemic, we’re saying, Wait, there’s there stuff going on in these spaces, everyone was hearing every day about manufacturing, about supply chain challenges about what was going to be the future of our cities. And so what we were seeing through the beginning was just great entrepreneurs, were starting to turn their, their attention here. And so, you know, come May, May and June, I think when everyone got re acclimated to what, you know, stay at home life was going to be like, you know, we found that actually, there was a tremendous amount of, of interest from LPs around what we were doing, largely because we were really excited about the entrepreneurs that were turning their attention to these spaces. And so certainly, you know, there are investors who we’ve met, never met in person, which is strange, you know, LPs that we’ve never met in person. But, you know, we have been able, I think, to really, you know, these sectors are really, really hot right now. And I think, again, the pandemic kind of only drew more attention to why those are going to be, you know, those are going to be great sectors. And so, you know, we were able to we took our hard cap up and you know, we have been really happy and were thrilled with the LPS we have and sort of where where the where the fundraise ended, but we did often say kind of by June that we might be a first time fund but that we had already lived through a bear market, a bull market, race, race riots, who, you know, by six months later an insurrection in our city, right. So it was a wild year of fundraising, but I think one where, you know, we’re really thrilled with with where Construct kind of came out and and we are so honored to have these LPs you know backing our first fund
will congrats on that a lot, a lot easier said than done to raise the funds, especially during a time like that. But yeah, I mean, this this area is hot. It’s it’s kind of funny how hot it’s gotten. I remember back in in 2018 our very first investment from fun one was a company called Fairmarkit that was doing procurement SaaS, basically for for managing tailspin and large enterprise. And I remember it LPs response to me when I sent out the deal memo was Wow, you guys really like boring, don’t you? I said, Well, if it makes money, of course we do. And fortunately, they’ve gone on from pre seed on to a and b and have some really good partners now. But, you know, I’d love to talk about firm building, right? So you raise this fund, you’ve expanded the team, I think it’s four of you, you can correct me if I’m wrong. But you know, there’s a couple different philosophies on firm building, you know, one approaches, a lot of independent folks, you know, running around with decision making authority, and it’s kind of an individual sport collection of a lot of individual talents. The other is more of kind of a team philosophy. You know, how do you guys operate at Construct?
Well, um, I’ve been in venture for 15 years. So I have a lot of theories on what works, what doesn’t work. And I’ve been able to sort of pick apart different philosophies and put them all together. And then for Rachel’s part, it’s really great to partner together with her because she brings the operational perspective not from, you know, not only the operational perspective of you viewing our entrepreneurs and how they’re working, but really the operational perspective of firm building. And there are some philosophies that ventures of individual sport, you see solo GPS out there, and then you see larger firms that really are now automation of solo GPS, we take the other perspective that, yes, when when, when a investment is made, it needs a deal champion and needs a project manager, if you will. But that’s really no different than what happens in the operational world to think that inside an Uber, Google or Facebook or wherever that you don’t have champions of different initiatives is really doing a disservice to the to what works on the operating side to so we bring it we bring our full team, you know, by now it’s four of us. But especially Rachel and I, every investment we make one person may have learned in another person may take the board seat, but the founders generally know that we’re both accessible to them. And we both have their back and we want to really imbue that culture going forward. That’s a big part of what we do. So that means I don’t know if you have anything to add to that. But that’s
no, I think, just fundamentally, it’s also what operators want, right? It’s how they operate. I mean, you would not have made it very long in most startups that any of us would want to work in. If If one person was sitting, taking credit for, you know, an initiative and we actually found it quite odd sometimes through the fundraise process where LPs would be like, but whose deal is it? Right? And, and we would, we would stop them right there and say, it’s just that’s just not how we operate. And, you know, we want to make sure that, you know, we love actually the fact that we have complimentary backgrounds, we think that is an asset and entrepreneurs think that’s an asset to and if they don’t, they can’t access those two complimentary backgrounds, then sort of what what’s the point, right, and so, you know, we’re big believers, and in one plus one makes three. And I think if you were to talk to our entrepreneurs, they would probably tell you the same thing.
So I’ll put you on the spot here. So let’s say, Rachel, you source a deal. You’re super passionate, you love the team, you love the opportunity, Dayna, you know, see some issues, some challenges that maybe you know, doesn’t see a venture scale return or, or has some concerns about it, and one of you wants to do the deal, the other thinks it’s, it’s not a good way to deploy capital, you know, what happens in that circumstance?
I think it’s, you know, that’s what that’s what good decision making it incorporates, right, like, take that problem to a Jeff Bezos or to a, you know, any senior executive as a comp at a company. And they will tell you, well, this is how we work through decisions. I mean, this is this should be the same inside of venture firm, right? And I would say entrepreneurs like you want to see that in your venture firms you work for, you want to see how they make decisions on a really professional level. Because one day they’re going to be doing that inside their partnership deciding to invest in you. The next day, they’re going to be on your board and helping you make decisions, right? And so you want to understand how they do problem resolution. If they come in and say, my way or the highway, I’m going to plow forward to do this investment. They’re probably going to be that way on your board my way or the highway you need to make these changes you need to you need to take My advice. It’s just not a philosophy we ascribe to, we think, you know, part of the value of working with Construct both from an LPs perspective, but also an entrepreneurs perspective is we have decades of experience between the two of us and really heated decision making in the past my experience and in the venture world, you know, making decisions in a big firm making decisions in a small firm and decisions with big personalities and small personalities LIKE Rachel’s on the operating side. And so we think we act as if we can be on public company boards. And we bring that to the scene in a decision making environment.
I’ll tell you having been at Uber, when there was, you know, it was a 15 person, I was on the 15 person committee that was running the company, and between, in between Travis and Endara. And I think, you know, what you Well, 15 people is an extremely large decision making body and it’s frankly, why I Construct, we will not scale, beyond probably four or five partners at most, but you start to you’re in those positions, and you start to see, you know, decision making isn’t about, you know, to Dayna’s point, it’s not about cramming your decision through. And it’s not about putting a veto up on somebody else’s decision, right, it’s about going to the market getting more information, and that that leads to better decisions. And if if we were ever in such a stalemate that we couldn’t work through it, think maybe then that’s not the firm, you want to have invested in your company on that deal. If you’re, you’re the operator anyway.
It’s a good insight. I think a lot of people that maybe know Old World VC are looking at new world VC from the outside think it’s this exercise of banging the table and forcing your decision through on it. At least that has not been my experience. But it sounds like you guys, you make decisions together and you get you collect all the information necessary. And it’s more of a discussion and not just a forceful exercise, which I think is, is probably a very good thing. You know, I want to talk about how venture scales a bit, you know, it is a services industry, it’s so relationship based, how do you think about scaling your efforts and getting more leverage out of your time, you know, as a, as a team of four,
I think that is the name of the game is kind of getting leverage on your time. I, you know, I think we both subscribe to you can’t make more than three decisions a week or three decisions, you know, on any one company regularly. So you have to be able to focus. And we are the types that we we know you can’t do everything. So you have to focus on what’s most important and what can be done in a reasonable amount of time. So we’re structuring the organization where every you know, investor, first of all, is equipped and skilled and you know, trained to run a full diligence processes if you were at a large multi stage firm with beaucoups of resources, but also required to be able to invest in and make decisions almost like an angel or a solo GP or individual making an investment. So we bring that speed and also depth the research behind it. So at any one time, we’ll be doing research on our points of view, or theses will market map we have networks around those different theses that we’re investing behind. And it puts us in a position of being ready to act and be being ready to leverage a network of resources. If we do need to get more information, Rachel mines networks individually are very complimentary. And we found we can get to just about any resource we need to if we don’t have the knowledge already internally. So coming prepared is really, really important. And then we also kind of structure the organization. So we don’t take a ton of stuff in house if we don’t need to we used outsource, find admin, outsource lawyers, but we are able to kind of have an operational focus too, so that we process things quickly. That’s that’s sort of how we look at scaling. And we’ll continue to bring in house more knowledge that allows us to build out additional points of view and really operate like a well diligence, multi stage large firm and still be able to act nimbly
good. Talk about we’ve talked around this, but we haven’t really gone at it, you know, what’s the post investment relationship with the founders look like Construct?
Yeah, I think you know, first of all, I think it depends on the founder, right? We don’t have there’s not a Construct way of interacting with a given portfolio company. The first thing we do when we make an investment is we have kind of an onboarding conversation with with the founder and we solicit from them where where do you want help, right? What is the kind of help you need? How often do you want to interact with us we have entrepreneurs who both of us meet with weekly because that’s what they want. And we have entrepreneurs who, you know, want to want to meet it. Want to chat with us at board meeting. They want to pick up the phone, you know, a couple times a month in between just to bounce a challenging, you know, difficult decision off of. And so the first and foremost is, you know, what is the entrepreneur want? What do they need, you know, we are there to support them. And to support their efforts. I had a, there’s a entrepreneur that we back the co founder of a company who was on my team at Uber in the past, and he was talking about how he was telling his his parents, you know, look I’m working with, you know, I’m working for Rachel again, and I was like, No, no, the differences, you need to tell your parents now I work for you, right. And we, you know, we laugh, but this was literally, you know, that’s the philosophy that we want, we want to have and take. And I think that I think as entrepreneurs think about this decision, particularly at the seed in the series, eight, this is a really important partner for them as they build their company. And so, you know, we are big, you know, we believe that you can actually get gain a lot from, we want to be a lot more than a source of capital, right, for our partners. And, you know, we’ve seen a lot of entrepreneurs, you know, move to having a lead at the seed, rather than party rounds come together at the seed, because they’re really starting to say, that’s actually a really important partner that I can get from from the beginning. And then I think similarly, you know, when we talk to entrepreneurs, I was talking to an entrepreneur yesterday, and just giving some advice, as she was thinking through a number of Capital Partners, and I said, you know, you don’t want to be the smallest investment that a, you know, that a partner has. Right. And I think sometimes you’ll see, as we have seen more multi stage firms come down to the, the seed in the A, but particularly at the seed, you know, I think really understanding when you’re talking to a venture firm, you know, how concentrated is their portfolio? How many investments Do they have really trying to understand how much, you know, how important Am I going to be to this firm and to their success. And so for us, you know, a concentrated portfolio is part of our, our model, you know, we’ll have maybe 20 companies total in our fund. And I think with that comes the ability to actually have an entrepreneur who wants to meet with both of us weekly, we have the time and the ability to do that. But recognizing that we really want to be the partner as they get their, their company off the ground. And then of course, great relationships with, with later stage and multi stage funds, who can really come in and help kind of at that a, b and beyond.
It’s good, it’s really good, especially as I mean, we’ve seen dynamics and in the industry change, I talked with a lot of GPS in the Bay Area, and I was just speaking with one the other day, he’s one of the biggest brands in FinTech in seed. And he say to me, geez, neck, it’s it’s getting tough, we’re winning about 40% of the deals we offer, which is shocking to me, because it’s his brand that like you think is winning 90%. And we’re paying about two 3x, what we paid three years ago, and now the founders want two or three brands in the round instead of just like, you know, one brand. And so it’s getting more and more competitive. But I really like sort of that position of concentration and spending a lot of time with the founder and not just being another logo to add to the portfolio page, Rachel and Dayna, what do you know, you need to get better at
always time management, right? Yeah, there’s nothing like staring at your calendar one day and saying like, wow, I really didn’t need to take those meetings today, I really should push them out. And so I’m kind of having that day in the life perspective in the future and something I’ve been working on for a decade.
What one little tip and trick I think I learned, I actually learned when I went out on my first maternity leave from Uber, is the benefits of just starting with a blank slate of your calendar, and actually now going through and creating that forcing function every quarter or every six months to say, let me look at what I have in my calendar. Is this how I want to be spending my time over the next three months, six months, rather than Was this the you know, there’s a lot of legacy stuff that stays. And I think for us, you know, our time is the one thing that there’s really no way for us to scale. And so really making sure we’re spending it wisely is something we push each other on constantly.
so tough. If you figure it out, please, please let me know back. And then finally, what’s the best way for listeners to connect with each of you and follow along with Construct?
I particularly like anything other than email. So I like LinkedIn, LinkedIn, especially in the pandemic has become a really valuable tool for me and I’ve gone through my messages. I didn’t do that prior to, to the pandemic but for some reason it’s really come up as a strong tool for me in my head like LinkedIn.
Yeah, LinkedIn or email Rachel at constructcap.com. Particularly for entrepreneurs, not necessarily for folks selling us things. But uh, you know, definitely always, always reach out.
Well, thank you so much for joining me today, you know, best wishes with the new fund. Sounds like there’s gonna be a lot of happy, happy entrepreneurs that partner with the two of you at series A, and, you know, looking forward to catching up with you in a few years.
Thank you. Thanks for having us.
Transcribed by https://otter.ai