Jonathan Hung of Unicorn Venture Partners joins Nick to discuss Why Sales Cycle Determines Success, the Challenges of International Deal Diligence, and Fractional Hiring in a Post COVID World. In this episode we cover:
- Jonathan’s background and path to VC
- The launch of Unicorn Venture Partners
- The thesis at Unicorn Venture Partners
- Deal volume Unicorn Venture Partners is doing each year
- Jonathan’s role as Senior Venture Partner and head of due diligence at Expert Dojo
- Thesis and workings of Expert Dojo
- What due diligence entails when targeting companies all across the world and at super early stages
- How to deal with teams that have different cultural backgrounds when trying to get the psychology of the team and figure out if it’s a team that has the ambition and the capability to win and win big
- Jonathan’s role as an LP in over 22 VC funds and the common success factors across those funds?
- Things that funds do that lend themselves well to success and or failure
- How Jonathan’s decision process is different on the fund side versus the startup side
- Generally underappreciated metrics that are critical to assess before making an angel or pre-seed investment
- How to help founders recruit talent and any tips or advice for startups out there to help their portfolio increase their talent without just hiring recruiters
- Best approach to networking
- When is it best not to take VC money and just build a great business model?
- Buyer or seller on NFTs?
- Jonathan’s quick take on SPACs versus Direct Listings versus Traditional IPO.
- If Jonathan thinks valuations are at an all-time high?
- Out of the top 10 most valuable companies, five years from now, Jonathan’s three that are currently in the top 10 and won’t be in the top 10.
- What do you know, you need to get better at?
- What’s the best way for listeners to connect with Jonathan and follow along with his investment efforts.
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:
Jonathan Hung joins us today from LA, he is Managing Partner at Unicorn Venture Partners. There his investments include Coinbase Skinte and Solugen. Prior to Unicorn Venture Partners, he was President of United Overseas Textile Corporation and worked at Morgan Stanley, UBS and Cummins. Jonathan, welcome to the show.
Thank you, Nick.
Yeah, talk us through your background and your path to venture capital.
I took over my family’s business in contract manufacturing back in 2012. You know, basically, I’m like Foxconn, but we’re clothing. And it was a great business, you know, doing men’s clothing, any selling to Costco to Amazon, or Burlington Coat Factory. At the same time before then, like taking advantage of this, I was a financial advisor. And I was really into, you know, looking at public equities or investing. And I knew I was interested in hearing something about silicon beach. And I said, Let me get involved. So I came back home, I was working in Shanghai for Cummins. And I came back home new house and take over the family business balls the same time, I wanted to create my own identity and get into venture capital. And I made my first investment back in 2012. And since then, it’s been a it’s been quite a ride, to say the least.
So when was the launch of Unicorn Venture Partners?
Unicorn started 2018. And the good thing about Unicorn is that we don’t have outside LPs. It’s just three friends coming together our own family offices and investing. So I don’t have to do you know, like LP meetings or worry about like, you know, hey, are we breaking the rules? Like, what do we agree to lvlp? A little bit easier. That’s our own money, our own decision, and we work much faster.
Well, I have to ask about the origin story of the name. I just…
I don’t get the connection here to venture capital.
Know what it was like, you know, we’re not from LA, we’re not from Silicon Valley. And so it was just the idea of like, we were thinking about all these different kind of names and like, you know, what we want a dot.com and for somehow we’re like, you know, hey, Unicorn, like, I’ve had people like, you know, mess with me. Like, why don’t you call it deca-corn? You know, because it’s like, you know, why? Why are we doing it? You know, it’s, uh, you know, what’s so funny nowadays? It’s like, Yeah, why is it only a billion, right? A billion means nothing. Everyone can get a billion dollar valuation nowadays, but we were thinking, Hey, we can get the .com we can, you know, we want to go hunt for unicorns and our thesis is we look at technology and consumer, you know, there’s two big verticals.
Okay. Okay. Do you go by UVP for short? Or?
Okay, okay. And then what is the thesis at UVP?
So for us, we focus on pre seed, seed and series a – mostly seed. And we look at check sizes anywhere from initial to 250 to $250,000. And we follow along with 250. and above, we really love the technology sector, you know, whether that’s enterprise SaaS, you know, FinTech, real estate tech, at the same time, we’re consumer investor as well, like, we’ve made investments such as Skinte, or it’s a beverage company or consumer tech, you know, and because my background is in retail and running a contrary manufacturing business, like I understand supply chain, I have a you know, an engineering degree from MIT went to Wharton as well. So it’s it’s it’s a great team because we all are operators to we’re not just like investors, we’ve actually like gone and did the work and found a companies before previously as well.
Awesome. And then what’s the pace you know, what sort of deal volume are you doing each year?
You know, it just depends because for Unicorn like you know, we’re pretty much like to almost done with fund one we’re looking at just like putting into our, you know, our our follow up rounds, because within Unicorn we sit under the umbrella of something called Trousdale Ventures, Trousdale, my other partners like family office where it’s a little bit bigger of a check size, you know, we’re looking anywhere from 50,000 to even upwards of you know, 20 to 50 million in and around and so we are also fund to fund investors. We are looking to lead rounds co invest it’s anywhere from the pre IPO pre seed round all the way to the pre IPO round, whereas like Unicorn were for solely focused before the series a you know, in series A and then we don’t really
Got it. Okay, okay, so a couple entities. I’m gonna add another one. You’re also Senior Venture Partner and head of due diligence at Expert Dojo.
which is one of the more active accelerators right International. We’ve, I think I’ve attended a couple of demo days and my team certainly make sure to attend them all. Tell us a bit about Expert Dojo.
Yeah, I love the founder Brian Mac Mahon I him and him and our close friends we’re actually going to Vegas tomorrow that’s our first trip
It’s not all personal
Go win some money
Going to have some fun together but also doing some business you know, potentially starting a not a fund for that, you know, because it’s gotten to a place where now it’s it’s unsure why See and 500 or TechStars where you know, we’re gonna see the companies not just raise their seed investment rounds, but their series A and they’re growing tremendously. I see myself always as an angel investor. You know, I just don’t even if I raise a real fun with true LP money. I just love being that first check in getting dirty, Dreally being with the founders from the start. And so with Expert Dojo I get the ability to see that we invest in companies around the world. You know, I’ve been on calls for Indian companies or or in our for Egypt or for You know, Sweden, India, like and Africa. So it’s been quite an exciting thing to be not just here in LA, but around the world.
So interesting combination, right, Expert Dojo is investing super early. And then also with an international lens, right, you mentioned a range of different continents and countries invested in, like, talk me through, you know, what does due diligence entail when you’re targeting companies all across the world? And at super early stages?
Yeah, I always tell people, you know, when you’re not like investing a Series B, because like what Series B or higher, that’s when like, you have product market fit, you’re, you know, doing millions in sales, it’s more art than science, I love you want to everyone’s going to ask for pattern recognition you want to but for me, it’s always about the team. Like the first and foremost is who is the person that I’m investing in? He or she, I have to trust completely. Like, I always think like, you know, we’re gonna have that in case of emergency relationship, where it’s like, you’re not gonna call me when everything is going wrong, you’re gonna not only tell me only things are going great is that we have a really close relationship where I can help you make the right introductions, find the right process, figure out what the revenue stream is, that’s what’s exciting to me. Because I’m not just looking at your revenue, I’m not gonna look at your customer growth. It’s not even just the idea. It’s really who you are, and why it makes sense, because it’s not fun. This process, I mean, you’re gonna see people on, you know, IPO going on the stock market, and like, all their valuations are high, but it took a lot of work and effort to get there. And that’s when people really don’t realize like, that’s the journey that’s so interesting to me. We’re just like, Oh, we have to take it down round. Or Oh, you know, we’re like, two weeks, we’re not gonna make payroll, like now what? Every huge business has gone through that. So that’s what’s that’s what’s exciting. For me going early is like who the team is. And from there, we’re gonna see how we can figure out what your revenue model is how we’re going to figure out your sale cycle. Are you a b2b company, a b2c company? How is it makes sense how we’re going to find the right marketing people how we’re going to find the right CTO for you. That’s what’s really important early stage, you have to take a chance.
So a challenge for us, we’ve done I think, 35 first checks, now ish, add new stack, and it’s all been in Canada, in the States. Now, we’ve looked at some opportunities in Europe, in India, and Bangladesh, Pakistan, some Latin American countries. But one of the challenges I’ve always had on the team side, is that there are cultural differences. And I grew up here, you know, in America, and I feel like when I’m meeting with an American founder, to some degree, I can get signal on psychology, you know, I, or at least that’s what I’m attempting to do. When speaking with founders that have different cultural backgrounds. I have trouble getting the same signal, like understanding, maybe in this country, people are much more have much more hustle in this country, they have much less hustle. And it’s hard to understand, you know, what is baseline, for example, you know, how do you think about that when you’re trying to get psychology of the team and really figure out if it’s a team that has the ambition and the capability to win and win big?
Yeah, I mean, for the International accelerator for Expert Dojo, it’s totally different than when I do things. For Unicorn or Trousdale. It’s really listen, we don’t need you to know that we’re a growth accelerator, we tell that you first and foremost, like we’re bringing trainers, we’re gonna help you get the right coaches to help you see what market you should go after, or how you should celebrate grow, like, you know, how you should burn money faster, you know, in your particular industry. So it’s really not necessarily like, hey, at the same time, we’re learning about your culture. Where are you learning about like, sometimes when I look at a company like Oulu, for example, they’re probably going to be the cameo of India totally different. Like, you know, cameo here in the US, the celebrities and stars are totally different than they are in India. I mean, we they have like the number one cricket player, like people in the US do not care about cricket. But, you know, Hey, how are we going to market that? How are they going to somehow combine the ideas of masterclass,
But they still care about celebrity.
Yeah. And it’s their version of celebrity. And so that’s what’s exciting. And listen, there’s are there are growth hacks, right? I mean, like how you get to like 5000, daily active users, how you go about the 10,000, there are ways of doing pulling the right levers here and there, whatever country you’re in, is at the same time, like we are using, listen, there’s less iPhones in India, right? So it’s more about Android. And this is the this is the platform that you have to go to make sure that you’re getting in front of people
that make sense. I’m glad you brought up Cameo. It’s a great Chicago company. A lot of my friends are friends. There’s a good one there. You know, Jonathan, you’re an LP in over 22 venture funds. What are some of the common success factors across those funds?
Honestly, it’s communication. I think that’s the most important thing because like, you know, everybody is your friend when they ask you for money, right? But then what happens after you’ve written the check, like, you know, if all I get is a capital call, I like hey, here’s the annual newsletter, like I’m probably not going to, you know, follow up. Next fun because like, that’s not what I’m buying. You know, I’m not buying, like, you know, just to meet make money. Like, you know, I could do that myself. It’s about having Really great relationships and helping each other along the way, because I don’t care what how big of a fun you are, whether you’re SoftBank or Andreessen, nobody writes the only check, you’re gonna have to have a huge team around you. And like, you know, I tell people, like, I have my masters and I have my like, you know, work experience, doesn’t matter. I did all that to, like, I was like a zombie, finding the right juicy brains to work with. I mean, that’s what’s key to me, it’s like, I know, I’m not good enough, you know, I’m good at what I’m good at. But then people are so much better at SEO, or, you know, marketing or putting, like, you know, better supply chain vehicles than me. And that’s what you need to have when you have a team. So when I invest in funds, it’s not about like, Oh, do what they tell me return. Like, my favorite thing is the financial visor, I’ve always learned at this stage, like, past performance is not indicative of future results, right? Like, right, like, I have funds or like, you know, someone came up to me, he’s like, Oh, my God, I have like, 100x return, I’m like, Well, what company is that? It’s like, Oh, it’s honey in LA, like, Well, I’m not in fun one. So it doesn’t really help me, you know, like, because, you know, the founder really well, I might have a company that we need to get on honey, you know, and make that relationship and then we could grow an even better company, you know, or a synergistic company. That’s the key, and relationships, like, you know, I sit on boards with a bunch of different people. And that’s what’s exciting. Like learning, I’m always constantly learning. I mean, that’s the thing in this game, like the moment you don’t want to learn anymore, you’re not going to be well do well, in venture.
Communication is key. I was speaking with an LP of ours yesterday, he was vice chair of JPMorgan for a number of years. But he said something fun funny to me. So we send out a quarterly. And then in between, we send out deal memos on the investments we do, and we do, you know, a deal every six weeks or so. And he said, He’s like, I’m so impressed with the communication, you guys communicate. And I was shocked. I’m like, really? Like, I feel like we’re just doing table stakes. But but a parent, you know, he’s invested in many funds, maybe not 22, like yourself, but there’s a lot of people that just don’t communicate, it’s just kind of shocking.
You know, your fiduciary, his professional business gone?
Absolutely. And I think about when I used to be a financial advisor, I would think, like, why is this guy who I don’t like their personality have clients? Like, how is it possible? That’s like, you know, what, some people like that aHole Some people like how they talk how they sell. And it’s just like, you build that rapport. And once you have that rapport, you’re going to build trust. And once you have trust, you’re gonna have people follow you, and give you the opportunity to, you know, invest or find things that make sense. Like, you know, some people don’t shouldn’t just look at a number, because I used to as a financial advisor, I used to hear great things. My former boss, he said, when someone looks at their savings, it’s not just money to them. It’s like, sending someone to college buying their dream boat, like their ability to retire. That’s what matters to them. You have to find what my father always said, someone’s weakness. And I don’t mean like, oh, you’re allergic to bees or something. It’s just like, you know, like, it’s about music, hate my children, if you if I don’t have children, but some people like, hey, are their grandchildren like, that’s their weakness, that their soft spot. And that’s how you’re going to figure out what makes sense and how they want to get involved with the companies. Because it’s not just about making money. It’s about what your interests are.
Good. Any other common threads on the fund side? Right. We talked about startups at first, but you know, aside from bad communication, or maybe making some bad investments, you know, are there other things you’ve seen funds do that lend themselves well to success and or failure?
I mean, honestly, it’s also working on brand. I mean, unfortunately, in this world, like we talked about celebrities or whatever, you, you know, you could make a tremendous amount of return for your LPs. But you know, that’s just part of it. Because LP management is one side, the other side is like, well, building brand awareness for you as an investor, where you’re gonna find the right, you know, CEO or co founder who wants your money, who thinks like, wow, that person is great at helping me build a direct consumer business. Like they’re great at e commerce, like, that’s the fun I want to be in. Because, you know, when you’re initially early, like, yeah, you’ll take money from everyone. But then when you get to become more, or you know, what your product is who your customer is, you want to find the right people to get you to the next step. Like you see it all the time. Whether you’re Lightspeed or you’re, you know, NEA or Andreessen, they’re all fighting for the same deals, and someone wins out because that one partner made sense for them.
Yeah. 100%. We were talking to Ben Ben Sun from from Primary very recently, and he said on the last like, he can’t remember the last deal where they offered where there wasn’t a competitive term sheet. I mean, it’s just especially in the the hotbeds, right in San Francisco, New York City. LA, of course, has become, you know, a good Tech Center as well. But there’s just so much competition supply side of capital has increased in lots of competitive term sheets. If you don’t have that brand or that edge or, you know, that reason for the founder to select you then. going to be tough, tough road.
So Jonathan talked to us, you know about how your decision process is different on the fund side versus the startup side.
You know, it’s, I would say it’s like, getting my money. You know, it’s like everyone says like, you know, OPM, right other people’s money, like, you know, like when I used to trade like, I’d even like, Where’s the stock? I don’t even look at it like, okay, you want to buy Apple? Let’s do it. But, you know, when when you’re looking at a fund versus like doing due diligence for, uh, you know, as an investor, it’s a little different in the sense that like, you know, it’s all about, okay, well, this is my cash flow, like, I’m running my business. And how do I make sense? Like, when when will I need to have capital call? When will I have the right, you know, am I getting the right exposure? Am I doing asset allocation correctly? If I’m investing in like, 20 funds, I do the exact same thing. What What am I doing? You know, I need to diversify. Like, some of the most recent ones I’ve done are like, Hey, this is one that does pure consumer, that this is like, what what’s great about them is like, you know, they have a unit of their team, where it’s like, they help build and sell, like consumer brands to the retailers. That’s great. That’s fine, because I’m investing in companies who need that expertise. And I need them to help with my companies at the same time, like space. I mean, I don’t know enough. Um, yes. You know, just buy some SpaceX shares, right, and put it in Elon Musk, like, that is a strategy. But there’s so many other space companies out there were like, I put in into a fun, I’ll Type One Ventures because like, I want to get exposure, I want to learn, I want to go to their demo days and learn as much as we’re I just don’t have the expertise. So those things matter. But when it comes to like, for a fun, like non fun, like, like, I just know what I like, when it comes to an entrepreneur. And I know like, this is what I’m good at, like, I’m not gonna invest in a healthcare company, or biotech, because I just don’t, I didn’t get trained like that I didn’t have the expertise. So I just know, like, this is what my metrics are, like, if you want me to put give you a check. And you’re a social media platform, like you better have 5000 daily active users growing, you know, like, five 5% month, a week over week, you know, if you’re telling me you just got 12,000 users, like, that’s not enough, like, Come back to me, because I tell people, I don’t pass. I’m just saying, I mean, I passed, but I don’t say no, I just need you to make sure that this metric is in place before I come back and re engage.
Yeah, I took a pitch from a startup just this week that had built this social media presence and 100,000 monthly actives. I said, Okay, that’s interesting, like, all on the platform? Oh, no, no, that’s our Facebook group. We haven’t, we haven’t finished the platform yet. And I said, Well, you know, get the platform down and direct those folks into it so that we can see, you know, the true attachment. Good. So you mentioned metrics. And I know that you’re a producer of content, you’ve kind of built built to brand yourself. Talk to us about you know, some of the underappreciated metrics early, you talked about DAUs when it comes to social. Can you give us some other metrics, not obvious ones, you know, not just ARR and are in net revenue retention. But, you know, what are some of the non obvious underappreciated metrics that are kind of critical for you, when you’re assessing, let’s say, a pre seed investment?
because I think it’s like, Listen, if you’re a direct consumer business, like, here it is, this is my beverage, this is my product, you’re ready to sell right away. But when it comes to b2b, like, it could take a long time, you might have to pilot for two, two months, you know, and then when do they actually become pay pilots? You know, I think that’s just so important. It’s like, when you’re this early in the company, you have only so much money to burn to do marketing, to keep your team before you know, like, the lights, you have to shut out, you know, I mean, that’s the key. For me, it’s like, well, you know, some some great b2b companies, you know, they have a great product, they spend a lot of time on their product. But then if they can’t close or have a shorter sales cycle, it’s going to be tough, it is going to be tough for them to have enough money to have that runway. I’ve talked to some, you know, Mike portfolio companies I’ve done really well. And like they said, like, hey, at that time, if I didn’t like raise 3 million, instead of I only raised two, we would have shut down, because I couldn’t have paid my employees. Because it because it took a while to get the sales cycle in place. Or I could bring in actively paid users. So I think that’s a huge thing, when like, I look at a company like, okay, you know, your revenue model, you know, your business, but it takes time to build that up, and have somebody actually pay you, especially if it’s a b2b SaaS Enterprise company. I mean, it’s not just so easy, like, Alright, I have a widget and I’m here to sell this right away into an e commerce store or a traditional brick and mortar.
Well, it’s also I mean, that’s a great point, because it’s also indicative of finding the quickest path to fast value, right? Like we had Dharmesh Thacker recently from Battery on the program. And he talked about how, you know, they publish a lot of material on like, time to ROI, but it’s really time to Aha, like, the quicker we can get that user to like, be like, Oh, I gotta use this now, because it’s making my life better. And then you can use that land and expand the, you know, provide more value and expand, you know, the range of offerings and stuff over time, which quickens the sale cycles dramatically. Whereas if it’s just an ROI game and a decision maker has to get involved. You know, it could be a long drawn out process in sort of a democracy decision, you know, by the business.
Yeah. It’s not like everyone’s like profitable. No one’s really profitable. You know, from the beginning, like, You’re, you’re basically showing these metrics for the next semester, whether I follow on or not, or the next investors like, oh, okay, well, well, the numbers are there. I moved to Uber this day is not profitable. You know, they make money in revenue, but they haven’t had like a positive quarter. So the thing is, is that like, I’m seeing future growth, I’m seeing a while it’s gonna get to a point where the curve is gonna hockey stick. And that makes sense. That’s like, Okay, well, let’s put more money in, because we’re gonna add fuel to the fire because now we know the, the, the entrepreneurs have figured it out.
Yeah, I just came across this great metric the other day from us Aster, Jason Lemkin called LRV lead velocity rate. And we’re gonna start tracking this and looking at this with our B2B SaaS companies, but it’s, it’s the speed with which you add qualified leads to your funnel. And that’s increasing over time, and you’ve got a process by which you can convert a percentage of those. It’s, it’s a great leading indicator of ARR growth. Okay.
Oh, I was gonna say, well, what’s also important, like, when you’re looking at your team lead metrics, like you, I think the biggest two hires are, if you’re a tech team, obviously, who your CTO is, and also who your salesperson is. I mean, that’s the key. I mean, if cells are the lifeline to a company, if you’re a company that, you know, you’re still trying to build out, like your deep tech, or, you know, your frontier tech, yeah, it’s gonna take time for you to build the product cost. So you better have the right CTO, you can’t have somebody like offshoring all the time, maybe in the beginning, pre seed, but like, if you’re coming from a seed investment, like, you better have like that person with you. Already not part time, but with you with you,
yeah. What about when founders are going out for new talent, right, they gotta hire like a head of product, or some really good 80s I thought I had this great network when I came into venture capital. And very quickly, like my best ones got snapped up, right? Like, my, my best enterprise sales leader, she gets hired. It’s like, it’s great, you know, the the founder, super happy, but it’s like, oh, I don’t have a deep bench of these folks. You know, how do you help founders recruit talent? And do you have any tips or advice for investors out there to kind of ways that you can help your portfolio increase their talent without just hiring recruiters?
Yeah, it’s so funny, I’ve actually invested in this space, the future of work. And what you think of it is, I think it’s about fracture leadership, it’s like you see the fibers, the Upworks of the world, I have a company called Assemble, it’s hireassemble.com, and it’s just the idea of where like, you know, we’re in a COVID world, and not even just a COVID. Well, even when we get out of it, like, I guess you’re gonna see this tremendous, like, employees moving from company to company. And now we know we can work anywhere in the world, as long as we have the zoom connection, like we have right now. And so the idea is that, like, I might not need to hire a full time cmo or Chief Marketing Officer, I could hire somebody who’s going to do a project for like a two month process, and they’re going to help me, right, and then maybe if it works out, because your startup, hey, then you offer them shares and try to recruit them and bring them in. But it’s really like, I don’t need a full time person anymore. And you’ll see this with fortune 500 companies or enterprise companies were like, Yeah, I don’t need a full time employee, I just should put some money into someone who’s really great. Come in, like, you know, hack it a little growth hacking a little and then we’ll see like, hey, it actually is working. And then you know, you’re you’re saving money to this is not a full time employee with benefits that you need to account for. And maybe you could hire two or three guys with different expertise. And they could go after the same project for you in different angles. I think that’s where we’re heading towards right now. So, I mean, having a great network of great talent is so important. Whether you’re, you know, a b2c company or a b2b company, like I agree, like, I have one company that I just invested in, he’s has burned his 300,000 a month, you know, and he’s growing to like, 37 million Arr, from last year of 15 million. And you know, his problem is he just raised 50 million on a Series B. And his problem is, he wants to burn a million, but he can’t get the talent. Because people aren’t moving right now, he can’t hire the engineers to come in, because he has tremendous growth, tremendous, like sales to go out there. But he just he doesn’t have the talent. So maybe like, Hey, I’m gonna suggest, go look at these companies go look at this talent pool. You know, because sometimes you can find a great marketing officer who’s working full time at a company, but she or he can do a part time job, you know, on the side on the weekends, why not?
I mean, it’s a great idea. And as I think about it, like the two most senior and best sales folks I know, are actually doing fractional, they’re doing, you know, five to 10 different engagements at a time across early stage startups with a combination of comp and equity. So it’s, it’s nice, you know, Jonathan sounds like you do your fair share of networking would love your your input advice or the founders and other folks in the audience, you know, what’s your approach to to networking?
You know, it’s it’s so interesting without like, I’ve I’ve made investments since like the beginning of 2020, where I haven’t even met the person, like in real life. So it’s like, I tremendously use my LinkedIn. Like I, you know, sometimes I’ll just send a cold LinkedIn message to somebody, hey, I’m interested in your company, you know, like, their Instagram ad caught me, right? It’s following me around. And I’m like, oh, okay, well, are you looking to raise money? Or not even money? Like, is there any introductions I can make for you. It’s not just about like taking, it’s about being able to give, because for me, it’s like, maybe I won’t find something where it makes sense for me to engage right now. But then like, Hey, we built that report. We’re like, Hey, I have another company. And I’d love to see, can you like, give them some advice? How you did this? Like, how did you get into this store? or How did you get this customer? You know, what did you do? Because it’s, I wish it was like a magic box. Or it’s like, oh, everyone does this. That’s it. You know, I always tell people like the lie of academia is like, you know, you can get your GPA up to 4.0 when you go to college, but like, you know, what, you’re given a and b, you’re supposed to fall Saul C. In the real world, you don’t even know what a and d is. So how you gonna figure out what she is? You know,
you don’t get out of closed system?
Yeah, you get part of the answer.
Love it? You know, when do you think it’s best not to take VC money, right? You see so many companies, whether it be through Expert Dojo, or Unicorn, probably Trousdale, as well, the really early stage ones, you know, how do you advise those? And when is it best not to take VC money?
I think depends on kind of what kind of industry you’re going for, you know, because for me, it’s like, I’ve seen companies where, like, you know, I thought they were a good venture, you know, investments, because I love the thesis, I love the team. But then we realized, like, during it, it’s like, you know what, this is better a cash cow business. This is a more service based business where it’s going to take time to build up, like, you know, certain venture capitalists money, like, Okay, well, we have a three year window to invest. And now I need you to get to like, you know, 1 million Arr, in order for us to, you know, get you your next round. But if then, like, if you don’t like I mean, you got to burn more marketing dollars to get there. But that might not be good. What if you could actually become profitable within that year to two year window, and not have to raise any more money? Can you keep your equity? I mean, that’s what’s exciting to me, because sometimes there’s so many great businesses, they don’t need venture money at all, like you went to go get a loan, and you have a great business that you could sell down the road. I mean, that’s what I think because it’s not about just growing as fast as possible, because you can sometimes, like you see that with like, certain like Casper, for example. I mean, the people used to joke like, Hey, you by Casper, they send $300 for it, because like Casper is losing money every time they send out a mattress, you know, is it that’s a crazy business model, like he’s, you’re spending so much money to acquire a customer to buy, and like how you’re getting recurring revenue, you’re not going to change your mattress every year. So the idea that I think is like, you know, what, we don’t have to grow by any cost possible, you know, and you’ll see that once you go IPO, you know, Wall Street’s gonna see like, wait a minute, like, we can’t justify this valuation, because they’re not getting enough customers and recurring revenue down the road. So I think you could great companies could be privately built like my father’s business, we at one point had 50 million, you know, revenue, you know, that’s doing wholesale in clothing, like, and we never needed to sell to anybody, you know, he was able to, he never raised a tremendous amount of money to get venture money. And like, it was a really great business. It helped me get through all these colleges, and gave me the opportunity now to do what I’m doing now. So, you know, that’s a perfect example where he built a multi million dollar business with just loans and a couple key, you know, partners along the way.
Well in its I think it’s timely that you mentioned loans because we’ve seen all these new financial instruments or maybe not new but at least a proliferation of them springing up around venture now, you know, as b2b SaaS in particular, has gotten more sophisticated in cash flows, more predictable contracts, you know, with customers are secured. There’s all these non dilutive financing options springing up between Pipe and Capchase and Clearbank and just Lighter Capital and a whole slew of players. I think there’s like 30 on our list. I was talking to one of our founders last week, and he mentioned he thinks he’s gonna go straight from pre seed to Series B, because it’s, it’s an enterprise b2b SaaS model, the growth is good, the cash flow is nice. And he can access non dilutive funding, right? Could he get there a little quicker with equity funding, probably. But it I mean, it begs the question, should all these companies be raising these vanity rounds? You know, when it’s, in some cases, the capital isn’t necessary for growth, but it’s part of the venture model, right? If you’re not raising every 12 to 18 months, then you’re making your VCs look bad. And you know, you’re not, you’re not on the cover of TechCrunch.
No, no, I mean, I agree with you. I mean, I think we’re gonna find like your capital as a service is going to be so interesting. You know, I mean, like, it’s gonna be like whether, like, you know, you don’t even need like VCs anymore. We’re now like, people can start a GoFundMe campaign, you know, and you get these metrics right away, or it’s like, you don’t have to be an accredited investor anymore to make these bets. I mean, like, I’ve invested in a company called Alto IRA, were like, you know, this is where like, you don’t have to only invest in public equities and fixed income, like you can invest in crypto, you can invest in artwork or something. Totally, there were NFTs right? That’s the hottest thing now as well.
And, I mean, whether you believe there’s value down there, oh, there could be. I mean, like, I always say, like, it just depends. You just never know, because it only takes one person to buy. I always tell people like, hey, a company just got bought by just one company. It doesn’t matter. Yeah. Is that to be a free for all for like, 20 people are betting, you know, trying to, you know, drive up the price. Like, it just took one company, you know, and sometimes, like, I think about that, like, we’re like, I invested in DocSend, you know, six, seven months ago? And I’m like, Well, yeah, it’s probably gonna be me Dropbox or DocuSign. They’re gonna buy him. Like, you know, if he was to, like, gain more revenue over there, Russ, he would probably would have to, like, raise more money.
Well, he did sell to Dropbox, right?
Yeah. That’s right.
I look like a hero now. Right? I mean, you just never know. But it just you take the right chances. And that’s along the way.
Art? So are you a buyer or seller on NFTs?
Um, well, I have to say I’m a buyer actually just we just invest in a company called OneOf, you know, that’s doing NFTs from music. You know, I listen, just like in crypto currencies. There’s some some good ones and some bad ones, right? And it’s really just who’s underwriting who the team is? Like, what the future is for this? Like, are you making a marketplace? for this? I mean, I think NFT, certain NFTs are definitely a bot. No question. I mean, because there’s a marketplace for them. Just like I used to collect baseball cards. And then like, you know, I love Kobe Bryant, I have his rookie card, like, you know, I think that’s worth more than when I bought it, right. But I didn’t do it just to make money when I was like, you know, in my teens, it was just because like, hey, look, it’s great. And I’m not looking to sell right now the raise money, but it’s just like people have this great interest is passion. Let’s see, though the car collecting art. I mean, you can’t explain that. As long as it’s like, there’s a niche market that you’re trying to fulfill. Like not everything’s supposed to be like, for the masses someplace or just for the classes.
So you’re a Lakers guy, not a Clippers, huh?
Yeah, even though, you know, the Clippers are doing much better this year.
So Jonathan, give us your quick take on you know, SPACs versus direct listings traditional IPO?
give us your thoughts.
For me, it’s like, you SPACs obviously, are getting a lot more publicity than direct listings. I mean, we got lucky, in one sense, where, you know, we had Coinbase Coinbase had a direct listing, there’s more SPACs and there are direct listings right now. I think it’s just a great way of raising money. You know, and it just depends on each company. I think more and more companies still do the traditional IPO route. But now like, where we are now, like, you don’t have to do a traditional roadshow, what they used to now you can just like sell your company on zoom, and invest like much faster. So for me, I think, you know, with spacs, like, you know, I’m in a, I was in a stack as well. I’m in Clover Health, you know, and so fortunate, like, you know, today it’s down, right, but like the other day was up 85%. And like, for my for my stack, like, I still can’t sell. So like, I didn’t look at it just like Well, I’m trying to day trade. And like, hey, let’s figure this out. Like I can’t, we can’t trade it until like July 6. So hey, whether it’s like Wall Street bets takes it up again, or, you know, retail investors take it up. That’s not why I invested in the company. I knew, like, it’s it was decent, where it was when I got in at the entry point about three, four years ago. And I know that like whether it’s backed or IPO, you know, the team will build a product that will last. And so it really just depends sometimes like you find money, like we talked about, like you don’t have to get venture money, you could go to debt financing. Right? And when you become public, like these are the vehicles that you can do it, sometimes it makes sense to SPAC sometimes it just doesn’t. And you should stay, you know, private. I think the problem is a spacs is that there’s just too many SPAC out there now, with not enough companies to be spent.
Yeah. Well, and there’s between us and the audience. There’s a lot of late stage companies that were failing, right, that are now SPACing, it doesn’t mean they have a sponsor, but in some cases, you know, I think a lot of companies are seeing it as a potential exit path or path to liquidity when, you know, the underlying asset is not good now, we’ll see if those actually, you know, secure sponsors and and actually SPAC or if that’s just kind of last resort. Hail Mary option.
So what about you know, are we in in a bubble again, is this is this an overhyped tech sector at the moment? I mean, I’m looking at TechCrunch right now and Klarna you know, FinTech in Europe, you know, just right. Is that 45 point 6 billion? I mean, weird. Like, we’re talking about unicorn ventures and deca, CT ventures at the top of the interview here. Are we at kind of all time high for valuations or, you know, what are your thoughts?
You know, actually funny card, I got presented an opportunity to invest right before SoftBank did. And so we’re like, like at a lower valuation. So like, on paper makes sense. But then like, I’m not just in it for just like unrealized gains, right? I think, you know, there will be a pullback eventually. But it’s all about, like, how great of a company is like, I look at SpaceX, for example, like, we don’t know what Elon is thinking in terms of like, how we’re going to exit out of this or IPO? Like, I mean, right now, it’s just like, Well, I think what’s gonna happen Starling is gonna make a big difference, you know, and that’s probably going to be like, shot off from like, going to Mars. And so there’s definitely this opportunity to get in. I mean, I’ve talked to people when they invested in Facebook had a billion dollars, you know, valuation, and like, and they would set tell you like, there was no way we thought would be worth 900 billion now, or trillion. But it’s how a company grows. Who knew they were gonna buy WhatsApp who knew they were gonna buy Instagram, as any great, you know, CEO or founder is like, you’re gonna have to do something different than you did 10 days ago, versus like, a year ago, you’re gonna have to find ways to grow your revenue, grow your team grow your business. So yes and no, right? If klarna for example, if they don’t figure out how to like, you know, maybe it’ll go into Africa, maybe they’ll go into South America, if they can grow and expand. Yeah, it’s totally justified, you know, for the valuation, it’s just how they’re growing their business. I think that’s so much more important. And if it makes sense, the metrics that we talked about, like the cell cycle, the recurring revenue, like how are they able to you know, pay, you know, finance everything, it that’s what matters, and I think we’re gonna find it because like the fortune 500 companies or the s&p 500 they change every day, every year. Right now it’s Walmart’s always number one for a while. But number two wasn’t Amazon, you know, now it is, but like, five years ago, was not Amazon, you know, Apple comes up, Exxon comes up, you know, Google come up, like they’re all fighting every day.
So, okay, so in light of that, I’m going to put you on the spot. out of the top 10 most valuable companies, five years from now, give me three in the top 10 that aren’t in the top 10. Now,
we can the top 10 I think like Exxon won’t be the top 10.
that’s one of them. Maybe CVS, maybe Walgreens, you know, because they’re the top 10 right now, because I think like there’s a huge push for telemedicine. Right? What Amazon takes market share?
no, those are things those are couple companies. I think that could come down a little bit. You know, because we’re so used to buying, you know, our drugs, going into the retail store, right? But things have changed. You’ve seen like, goodRx, you’ve seen PillPack, I actually had the opportunity to invest in PillPack. I said, I turned it down the series C now, I can tell you like so you do this long enough, you’re gonna have an anti portfolio.
What about companies on the come up, though, companies that aren’t present in the top five now that will or top 10? Now that will break in?
You know, I think there will be opportunities, like, you know, whatever you believe your politics are or what’s going on the world like, you know, I tell people like Alibaba still relatively cheap, you know, like, they’re coming up. I mean, like, they’re only focused on China. Right. But that’s a huge market for them, that every single day, they set a new all time record, right, a sales, and whether they go to other countries, or what like, calling them the Amazon of China’s it’s almost a disservice because of the potential that they could do. But now we’ll see what happens with like, you know, the government and, and how they’re run and how and financial does with an IPO. But really there there are some companies there were, they’re growing, like what it could be like, you know, it could be like a SpaceX down the road. No, it could be a Stripe, you know, we’re right now, private companies, and they, they’re just going to be the thing you don’t even think about, but they’re part of our world.
Well, kudos to you for not just listing out your portfolio companies, because that’s what I would probably do. Alright, Jonathan, what do you know, you need to get better at?
I always had to learn a you’re always learning because like, you know, do I know enough about crypto and blockchain? Probably not. You know, like, have I made bets? Yeah, I made bets. But what about like, now NFTs? What about where we’re going in how like, what’s internet 3.0? Because I think like, you know, there are 2.0 was Google and Facebook using your data to monetize off of you with ad revenue. Now, it’s like, well, how am I as a creator or influencer? Gonna monetize myself? How do I sell my own data? And I have to understand that it’s totally different world like, whether you’re a Gen Z or a millennial like how do you focus on what what that consumer wants or needs. I mean, I went to MIT and I there’s something called the age lab there and there was something that the H lab director said demography is destiny. So you have to look at the demographics of the world, like when people are living longer, you know, so the person who was like 6070, they might live to 90 and 100 nowadays. So it’s like, so they have social security, they have money, it’s not just going to be passed. So the gen Z’s are the millennials of the world. So why don’t we still have in companies that there are investing and targeting them, because they have the spending power, they have the money, they own their own homes, right, like, whereas most millennials still don’t?
Awesome. Finally, hear what’s the best way for listeners to connect with you and follow along with your investment efforts.
For me, please, like, connect with me on LinkedIn, or, you know, have my website, Jonathanhung.com, you could send me an email from there, or send me your pitch, and I’ll look at it like, you know, me, and my team will go through it, you know, and we’ll see because I can’t promise you I’ll respond back. But hey, if it’s something compelling, I never know.
Well… Well, thanks for the time today. This is a lot of fun. You’re you seem like a really authentic transparent guy. And you’ve invested in a lot of big winners. So hopefully you find some more and hopefully we’ll be able to revisit those successes in the future.
Yeah, sounds great. I’m always looking for great partners and meeting someone like you. That’s what’s important to me. I always tell people it’s not like hey, I’m, it’s it’s, it’s not just like, Oh, I’m shutting everybody out. It’s all about finding the right partnerships and my people to invest with or work with.
Awesome. Thanks, Jonathan. Appreciate it.
Thanks a lot, Nick.
Transcribed by https://otter.ai