16. Venture in the Media (Erin Griffith)

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Erin Griffith joins Nick on the podcast to discuss venture in the media including:

  • Erin Griffith Venture in the MediaIf you take a 30,000 foot look at the media environment what are the major categories of venture players within media?
  • How has the mix of players changed in recent years?
  • This certainly isn’t new, but Blogging has very much arrived and become ubiquitous across the tech industry. How do you think blogging has changed the industry and audience consumption?
  • What are the major methods/channels that are used by the media to connect with their audience?
  • Recently we had Charlie O’Donnell of Brooklyn Bridge Ventures on the show to talk about deal-flow and how investors find startups. He had a great question and noticed a parallel that, very much like investors, journalists have to evaluate and select startups to write about. In a world with no shortage of options, how do you choose what and who to write about?
  • One can’t subscribe to every newsletter and immerse their self in every good media outlet. What advice would you have for busy venture investors that need to stay current and educated in this sea of content.
  • I recently read your article, featured in the Term Sheet newsletter, about finding startup founders before they’ve become founders. Can you first address why investors are trying to do this, and then touch on what was found in the study on the profile of founders?


Itunes:  http://bit.ly/Zq5yIa


Direct-audio:   http://bit.ly/1wDuMR3


SoundCloud: http://bit.ly/1eeDMpb

Guest Links:


Key Takeaways:


 1- Democratization of the Media & Shock Headlines

So Erin talked about how we are no longer in a media landscape with just the traditional journalists and players.  There are now many practitioners that are active bloggers, providing perspective on trends and creating content to educate other investors as well as startups.  She mentioned a few of the more famous ones including Mark Suster, Fred Wilson and Ben Horowitz.  On this point, there were two main messages that emerged from our conversation:
  1. Pick some good sources and use them to help filter.  The reality is that there is just too much content to read on a daily basis, so subscribing to the newsletter of great content creators and aggregators, like those Erin mentioned, will eliminate a great deal of the noise.  And the reason why you’ll often hear to pick a handful is b/c you could fall into the trap like I did, where I’ve signed up for 40 newsletters and I can’t even manage my inbox.  So whether it’s the newsletter or your twitter stream, remember to edit.  A quick tip here is that Twitter allows the creation of “Lists.”  So, it’s very easy to organize and review your stream around topics.  For example a list on Venture, one with just your friends, one on Chicago and maybe another on sports.
  2. The second message here related to the increasing number of shock headlines.  If you take a step back and consider, have you ever clicked  a really compelling link or headline only to read the article and be disappointed?  Unfortunately, there are not only bad content producers but also those that are great at getting people to read the bad content with a provocative headline.  So again, it can help save time to proactively curate your media diet instead of reactively reading the catchiest headlines.
2- Signals 
Erin mentioned that when quickly evaluating a large number of startups that she could write about, she looks for some signals, including:
Who is this person?
Why would they be successful?
How’s their idea different?
What’s compelling about it?
How can I get excited about it and
Why should other people be excited about it?
Any startup that is looking for good press or even looking to raise capital, should evaluate theirselves against these questions.


3- Social Responsibility
The last takeaway I wanted to mention is related to social responsibility.  It’s unclear how much VCs have thought about or how much they’re concerned about the ramifications of companies that they invest in that are potentially making the world a worse place.  So there are venture firms and accelerators that focus just on some sort of social enterprise… but that’s not what came up today.  Erin was curious about established firms that don’t have a focus on social responsibility and if they are purely making decisions based on potential Return on Investment or if they are concerned about a net negative impact on society at large.  
And finally, she pointed out the disproportionate balance of women in venture and private equity relative to other fields as an issue that needs to be addressed.  I recently had Ann Winblad as a guest on the program and considered asking Ann about this issue.   However, I decided not to b/c I wanted to approach the subject like any other.  She is a venture professional, here to talk about a venture subject, not to make a statement about how her gender is vastly underrepresented in the field.  But, in retrospect, I should have addressed it.  While I asked her to interview b/c of her chops as a practitioner and not b/c of her gender, it is issue in this industry and one that we should be considerate of and celebrate those like Ann and Erin who have done an incredible job of representing women and showing us all how much better off we’d be with more women like them in venture.


Tip of the Week:   Follow the herd or create your own?

Below is the “Tip of the Week” transcript from the Podcast Episode 16: Venture in the Media (Erin Griffith) Throughout the conversation, this theme of finding startups early kept coming up.  While there are many angels and early-stage investors that tend to follow the herd or they hear about the hottest startups and try and participate in the investment round, this can often have an adverse effect on a deal.  For one, the valuation will often inflate.  Erin talked about the great number of investors at the early-stage and how this may be pushing valuations up.  While on the surface, this appears as a win for the startup and loss to the investor, but it doesn't always play out that way.  Once a higher valuation is set, the bar is raised and the milestones are more aggressive.  If the startup experiences challenges, this can cause difficulty in raising the next round. So we had talked today about how people like Charlie O'Donnell, who recommended Erin for this interview back in Episode 6, tries to meet startup founders before they even have a startup. Erin also gave an overview of the article that she wrote about Mattermark and Bloomberg Beta's effort to identify potential founders before they have embarked on their startup journey.  And she, herself, will use her network of practitioners, industry players and founders to try and identify early startups that are still very much under the radar.  The reason I'm calling attention to this is b/c there seems to be a theme amongst well-respected, seed-focused professionals that they want to plug-in and find out about these great new startups before the rest of the world does.  This doesn't mean that each of the investors are making bets at the idea stage... rather it means they are meeting with these companies before they have decided to do a formal fundraise.  This is an important distinction b/c a startup could be at... the idea stage, have built a product, have achieved product-market fit, or maybe they have significant traction in a vertical before ever considering a fundraise. The message isn't to invest earlier, (more…)Read More...

*Please excuse any errors in the below transcript


Nick:      Today we have Erin Griffith with us to talk about the role of media in venture. Erin is a writer for Fortune that focuses on startups, tech, and venture. She recently authored the Term Sheet newsletter when Dan Primack was out on vacation, one of the most well-read newsletters in the VC and PE industry. And she has written a number of great features on venture and technology founders. Erin, welcome to the show, and thanks so much for being with us.

Erin:       Hi Nick. Thanks for having me.

Nick:      So can you start us off by walking us through your background and how you began covering the venture business?

Nick:      So I kind-of fell into it when I was starting out – this was in like ’05, ’06. The publications that had the highest demand for writers were M&A and private equity publications because it was an M&A and private equity boom at the time. So I ended up sort-of having no background really in finance or economic, writing about M&A, for this company called Mergermarket. Became really interested in, you know, these big deals and how they worked. Went to Reuters. Was covering private equity at this publication called peHUB which is where I worked with Dan Primack, and yeah. And so, I was covering that for a while and then the financial crash happened and two years later, it seemed like everything went back to normal for private equity and it almost got a little bit less exciting to me at that time, so I kind-of walked away and decided to try to write about something else. I wound up at Adwick and found myself writing about venture capital and Addtech stuff again because I had that background, and now, you know, there’s a tech boom. And so there’s a lot of demand for writers covering that area. And so I was at PandoDaily for the past two years before I joined Fortune, and that’s where I became really obsessed with the startup ecosystem and the sort-of cult of entrepreneurship. So been knee-deep in that ever since.

Nick:      Well, you and me both. So the topic today is media, and there are a number of media players and outlets that cover venture in the startup industry. If you take a 30 000 foot look at the media environment, what are the major categories of players within media?

Erin:       Yeah, I mean because there’s such a great interest in this area right now, all kinds of people are suddenly thinking about becoming angel investors. And with crowd funding it’s kind-of… suddenly angel investing is something that is becoming of interest to people beyond the just very narrow, you know, Silicon Valley tech investor world. And the kind of information I’m looking for is increasing, so yeah. There’s everywhere from the tech blogs like, you know, your standard TechCrunch, Re/code, Gigaom, The Next Web, VentureBeat, and then there’s the legacy publications that have been covering this forever, the traditional publications, magazines like the one I write for and all of our competitors. The really interesting thing is that in the last five years or so, the rise of VC venture investor blogging has given the actual investors a really great outlet and their own voice and their ability to sort-of contribute to the conversation without having to filter it through an interview with the journalist which is unfortunate for me a little bit, because it means that if Chris Dixon or Ben Horowitz has something really smart to say, they don’t have to do an interview with me and I get to write it into a pretty little story and put it out into the world. They get to just write it on their blog and hit Publish, and thousands of people read it. So that’s been really interesting because it not only gives the world a lot of direct access to some really smart people saying some really interesting things, but it also sort-of cuts out the middle man where people like me have to be the ones who are deciding who gets what information and why and when and how. So that actually, it makes it harder, because I have to be a little bit more on top of stuff. And I’m now competing with my sources a little bit sometimes for information and insights.

Nick:      Yeah, interesting. So how do you think blogging has changed the industry and audience consumption?

Erin:       Yeah, I mean, in a lot of ways it’s cool because, say you’re starting a company twenty years ago, you would maybe like go to the library and read some books about… I don’t know if Lean Startup was even out by then. But you’d read those books. There’s still not a lot of practical advice like, how do you structure your term sheet? Or you know, how do you even start reaching out to VCs? How do you find them? Who are they? A lot of VCs didn’t have websites in the beginning, and some firms still don’t. But over time the investor, I think, have realized that there’s a lot of value in being accessible and sharing information, not just with their portfolio companies, but with the entire world. And so there’s just so much information out there that entrepreneurs can get directly from the venture investors. You know, if you go back and just start reading Fred Wilson’s archives, you are light-years ahead of where you’d be if you just had a meeting with him, or something. You know, so that’s really great. On the other hand, it’s also very overwhelming because it’s not like it’s presented in a very, you know, textbook or something. You could probably go through the blogs of some, you know, Mark Suster and Fred Wilson and Ben Horowitz and some of the really prominent VC bloggers and make a college course out of it. I’m guessing some people have. So that’s, I think, really great, but then there’s also a lot of noise out there and there’s a lot of people who believe that they have to blog in order to make a name for themselves and that they won’t get deal flow unless they have a lot of Twitter followers, and so they’re kind-of these like sudo philosophers who are spouting off opinions and all kinds of things, and it’s kind-of hard to sort through, I guess, and find the stuff that’s really good and sort out the stuff that’s just kind-of people bloviating and bull***. So you know, there’s a little bit of that too, but in general the trend of VCs blogging and being more open and accessible to entrepreneurs is obviously, is a good one. And then on the blogging side. So I was a journalist and I was writing for this publication called Buyouts magazine, and I had the opportunity to work for Dan Primack on his blog which was called peHUB. And I can remember how uncomfortable and difficult it was for me to suddenly start inserting the word I into my stories and to start having an opinion or trying to make arguments. You know, it’s basically the transition from just writing down the facts to being a columnist. And that’s essentially what blogging is, it’s being a columnist. And the same standards apply to being a good columnist as being a good blogger, like you have to have facts, you have to make a good argument, you have to cite your research, and you can’t just kind-of have an opinion and say what you want and think that you’re going to have influence. The most influential bloggers out there are the ones who can really make a good case, and so that’s always been the case with columnist going back to the opinion pages of the newspapers for decades. So I think there’s a lot more voices out there with the democratization of blogging, but the really strong ones and the really good ones are just as high quality as the ones that are being edited at newspapers at times. So learning to do that and having the outlet of doing that on the Internet has been a positive.

Nick:      Yeah, it’s certainly, to your point earlier, it seems like there’s so many people that are blogging and there’s so much noise. It’s really hard to boil down. Who should you be following and who’s got a really unique voice that’s providing value? So hopefully with the podcast here and with the interviews I’m doing, people can sort that out for themselves.

Erin:       It’s a little bit unfortunate. One thing I would say to that is kind-of always a bummer for writers, is that the people who make the trolliest comments or who have the most provocative headline often get the most attention. I tweeted something the other day and a lot of people seemed to really resonate with it, and it wasn’t really into venture capital at all. I had read this article that said, “Kale is dead. Put kale out of its misery.” Kale, the vegetable. And it was just this rant about how much this person, they used to love kale but now that it’s popular they hate it. And it got shared a lot and it was kind-of like, this is just downright idiotic, but it’s getting so much attention, because it’s just like making a provocative statement. So that’s the one unfortunate thing about the Internet, and Twitter just really amplifies it, is that people who get a lot of attention also tend to be the ones who are saying the dumbest or the most ridiculous or the trolliest and the most, you know, infuriating things. And so that is one major challenge with the sort-of media landscape as it is, especially in tech where there’s so many voices and everyone wants to be heard and everyone wants to make a name for themselves and everyone wants to be influential. It can be a challenge to find the nuanced level-headed opinions.

Nick:      Yeah, I hear you. It’s kind-of a shame how shock journalism has become such a prevalent thing in society, and investigative journalism and some of the deeper efforts have kind-of fallen by the wayside. But that is probably a topic for a different show. So social has evolved, Erin. We’ve got, you know, newsletters very much in place like yours and Dan Primack’s. Talk about some of the major methods and channels that are used by the media to reach their audiences.

Erin:       Yeah, obviously, social is huge. It’s kind-of interesting because in the last six months or so, there’s been this like resurgence – the return of the newsletter. Like I was like Dan’s been doing Term Sheet for, I don’t know, probably fifteen years in various forms, and it’s always been the same thing wherever he’s been employed. And it’s always been extremely useful and extremely popular. But, you know, recently David Karp from the Times wrote the story about like, you know, “Newsletters are back in vogue, and everybody has a newsletter.” And I have always loved newsletters. That’s just because I think that your email inbox is always going to be the easiest way to reach people, and so for me, I’ve always loved newsletters. I read probably about fifteen different newsletters every morning. Obviously I don’t get to them all every single morning, but it’s the best way that I get my news. A lot of people use social, and that is a big part of our audience development for Fortune, is social, but we’re still kind-of trying to figure it out. I think in the investing community, it’s been really interesting to watch the adoption of social because obviously, the venture world has backed social media and it’s in their DNA, so they understand it and get it and have been using it. But the private equity world which is obviously closely related, is pretty averse to it. I mean, when I was writing at peHUB, none of the private equity firms had Twitter accounts. Now, you know, a lot of big publicly traded ones do. And people didn’t want to be on social media because that felt like… the whole world of private equity has the word private in the name, and it was like, “We’re doing deals. This is quiet. This is not for public consumption. We don’t want these deals to leak. We don’t want to be sharing information. We don’t want people to even know who we’re meeting with, when. And so why would we be sharing things on social media?” And so that attitude, I don’t know. I think it’s maybe started to change a little bit, especially as some PE firms have gone public, but on the venture side it’s always been like very open and share everything. So for us, that’s where our audience is. So definitely Twitter, even though the average doesn’t read Twitter as much as the average sort-of tech person does. That’s a big part of where I engage with readers and where I share and talk about all of my stories.

Nick:      Great, so we recently had Charlie O’Donnell of Brooklyn Bridge Ventures on the show to talk about deal flow and how investors find startups.

Erin:       Yeah.

Nick:      He had this great question and noticed a parallel that very much like investors, journalists have to evaluate and select startups to write about. In a world with no shortage of options, how do you choose who and what to write about?

Erin:       Yeah, it’s funny. Like I’ve definitely noticed that parallel over the years, and there’s always those times when I’m at an event or I speak on a panel or something and with some investors, and afterward the startups rush up to the table and start trying to pitch both me and the investor. And we’re kind-of look at each other like, “Yeah, we’re kind-of in the same boat here.” Like, I bet our inboxes look a lot alike. But it’s funny because one of the main… I mean, I get, you know, tons of pitches from startups, and when I was at PandoDaily and we very much wrote from the perspective of the entrepreneur – at least I did. And we wrote about a lot of early stage startups. It’s like, if we could get the first story out about a company, that was one of our things that we aspired to. At Fortune, we definitely don’t aspire to write the first story about a company because I don’t write as many stories as I did there, and they want me to write about companies that are going to be around for a while. Like, they don’t want to waste our audience’s time with something that might get sold to Yahoo in six months or something that might run out of money in eight months or something. And like, I can’t even count the number of startups that I wrote about for Pando that don’t exist anymore, and that was only two years. So you know, obviously these things come and go and a lot of it is very [00:13:32.23]. So at Fortune I’m definitely trying to evaluate things based on if I think they’ll last, if I think they are really going to have a meaningful impact, and if they have anything to do with the Fortune 500 which is at the heart, is the bread and butter of our publication. So I definitely love finding out about new products and love following them and learning about them, but I might not write about them or every little development that they announce. Certainly, the best thing for me, being pitched by a startup, is an intro from an investor, which sounds funny. But I feel like that just gives an extra layer of validation, because I get lots of startups that email me just sort-of out of the blue, like, “Hey, we just made this app. It’s going to be huge. It’s going to change the world. Why don’t you check it out?” It’s like, “Okay fine, I’ll check it out, but who are you, what is this, or why are you the one who’s going to be able to succeed at this when so many others have failed? Like, what’s your… Where are you coming from?” You know, it’s really hard to sort-of get a sense of like who is this person and what’s happening behind the scenes here. But if an investor intros me, then I know that they’ve already gone through the vetting process once, like some due diligence has been done on this human. So that always is very helpful. If a company, you know, hasn’t raised money yet, that’s fine, but I often wonder like, why do you want press? Because super, super early stage companies, a lot of times they just get it in their head that like, as long as we’re on TechCrunch or as soon as we get like our name in a publication like Fortune magazine, then we’ll know we’ve made it. And it’s like, my little article is not going to make or break your company. Like in might, you know, get you some inbound interest from whoever you’re trying to reach, but in the end, press is really secondary till you’re executing on your goal. And so sometimes when people are really desperate for an article, I have to wonder why. And my goal is not to help promote their company. It’s to tell great stories and to inform my readers about what’s going on, and so often those don’t converge. Sometimes they do, but yeah. It is definitely very similar to investors. I’m just trying to find signals that show, “Okay, who is this person? Why would they be successful? How is their idea different? What’s compelling about it? How can I get excited about it, and why should other people be excited about it?” So in a way, it’s very similar, but I also have, you know, different goals. I don’t have to make money on this at the end of the day, and if a company I write about goes under, I’m not going to lose money. I might just be a little bit disappointed that I invested time in something that failed. But it also could end up being a story in itself. Like, why did this fail when it had so much promise? So I win either way. Investors don’t.

Nick:      So how have you adapted your approach so that you can sort-of speed up this evaluation process, because you’re getting hit by so many different startups and you’re trying to boil it down to some key questions. How do you get through the noise, and how do you evaluate these startups quickly?

Erin:       Most of the stories I write are not based on inbound pitches. Most of the things that I choose to cover are either self-generated ideas that I have come up with, because obviously a big part of my job is reading all of the news all the time. So I’m very on top of, you know, what people are talking about and I can come up with story ideas from that. If I couldn’t come up with story ideas, then I wouldn’t be very good at my job. And so the majority of stuff that I write about is stuff that I’ve come up with on my own, a trend idea, or it’s related to breaking news, because that is a part of my job, is definitely to find out about deals before they are announced or find out about things that people don’t want me to find out about and write about that. And then there’s ideas that I get just from talking to people. And often, I’ll be having coffee with either an investor or another founder or just some random person in the tech ecosystem and just ask them like, “Okay, what’s the one company that nobody is talking about that has a great story.” And usually they’ll mention a couple, and you know, I’ll reach out to them. And they’ll be surprised, like, “Why are you calling me?” And I’ll be the first person to ever write about this company. So I think VCs when they talk about proprietary deal flow do a lot of the same thing. Like if you’re just relying on inbound, then you’re missing out on a whole other category of people who are just heads down and not focused on reaching out to you.

Nick:      Interesting. Yeah, something you said earlier reminded me of sort-of my approach as I began angel investing. I first was asking myself the question, “What company is going to be successful?” Or, “What set of founders are going to be successful?” And I noticed that that kind-of evolved over time and I started asking myself, “What company and what founder is most likely to get funded?”

Erin:       Interesting.

Nick:      And those are not always… Yeah, those are not always one and the same. You know, Sam Yagan I think it was, recently wrote an article about his successful investments and how most of them were going against the grain. So they were not the popular, hot companies to invest in in his area. And it was actually some of the less popular, more nuanced opportunities that have become his successes. And I think the challenge is, you can’t go too far against the grain, because if your company is not going to get funded, then they’re going to die even if they have something great. But at the same time, all these hot opportunities where investors are competing to participate in the round, it’s hard to get in and I don’t think they’re always the big pops that we might expect. So… Alright, so Erin, one can’t subscribe to every newsletter and immerse themselves in every good media outlet. What advice would you have for busy venture investors that need to stay current and educated in this sea of content?

Erin:       Oh man, everybody has their own sort-of preference and their own media consumption habits, so that really is a very specific-to-each-individual-person question. I don’t know. Definitely read Term Sheet. That’s one of my favorite newsletters. Yeah, it’s kind of… I don’t know. I think people definitely struggle with it, people definitely find the sea of information to be really distracting, but you just kind of have to like… at least my way of dealing with it is that you have to just like carve out little niches, and if there’s times when you miss all the hilarious jokes that, yo, just came out on Twitter, it’s okay to chime in a couple of hours late. But kind-of have to sort-of create your own individual media diet. There’s a lot of great newsletters out there and I definitely love like MediaREDEF. I read Re/code, I read Quartz, and I read, you know, several others that really don’t… only tangentially are related to tech, but often will surface things that are in my world that other people haven’t quite tapped into yet. And so, I don’t know, I think it does help to sometimes go out on a limb and dive into some weird parts of the Internet that the rest of your… that your colleagues are kind-of ignoring, and you can find some really interesting stuff there. And that helps for a story generation for me and it could help for a story generation or for deal flow generation for angel investors.

Nick:      Yeah, when I first started I think I signed up for forty different newsletters, and I was on LinkedIn. I was looking at Facebook and Twitter newsfeeds, and doing it at all times of day of course. And ultimately I had to boil that list down to like five major sources and get all my information through those and pick a time during the day to review those things so that it wasn’t consuming all of my life.

Erin:       Yeah.

Nick:      But fortunately, things like the Term Sheet are great ways… I mean, you guys aggregate some of the best information on the web and you provide it in one focused email and it’s a great way that I can scan through and find the things that really apply to what I’m doing. So…

Erin:       It’s kind of funny. I was talking with a VC once, and he told me that they actually print out, for their Monday meeting, they print out the last week’s worth of Term Sheets or they have an associate go through the last week’s worth of Term Sheets, copy and paste all the deals that are relevant to their investment mandate, and print it out, and pass it around to all the partners, which is pretty hilarious and speaks to sort-of the value of being a clear aggregator on this kind-of stuff. So yeah, I mean, there is definitely I think also a value to sometimes just like going around to like Boing Boing and reddit and The Daily Dot and some of those like, you know, sort-of wacky publications, just kind-of seeing what people are doing on the Internet, because that will alert you to things like Snapchat before they become Snapchat and things like that. So it’s like good to obviously be up on the proper news but then also to sort-of have your finger on the pulse of the sort-of weird independent web is, I feel, always pretty helpful, especially as I get older and that kind-of stuff doesn’t naturally surface itself to me through my friends.

Nick:      Right. So, I’ve got to ask you. You’ve covered the Term Sheet for Dan when he’s out. How the heck to you have your finger on the pulse so well and how are you able to aggregate, you know, all these very appropriate activities that are happening all around us?

Erin:       Oh, yeah, so I used to do this for Dan when I worked for him at Reuters, and I remember when I left that job I was like, “Oh, thank God I never have to do this again.” And so it’s kind-of ironic that I found myself in that position again last week, but you know, I have nothing but the utmost respect for him that he gets up every morning and does this because it is a pretty grueling thing to put together. But I also understand why he does it because you’re forced every morning to read literally all of the news related to the deals. Like, you’re not just going to TechCrunch or CrunchBase or whatever, you’re going to Business Wire and like PR Newswire and like just going through and finding anything related to private equity. And so it’s kind-of like homework. It’s like you are forcing yourself to not only read, process, and then type out every single deal in the morning. And so typing it out and then also, you know, googling where the company is from and making sure you have their name spelled right, and finding out who all the investors are. That is an exercise, and during those two weeks when I was filling in for him, like now I understand why he has an encyclopedic understanding of all the deals that are every done every in the history of deal-doing because he is forcing himself to do this exercise every morning. And so it really did give me like a really great sort-of understanding of what was happening, just by forcing myself to do that every morning. So I understand why he does it, and there’s ways. Like he could definitely get interns or algorithms or somebody to make it a lot easier, but I think he prefers to do it by hand because it keeps him on top of stuff, and it is just like a fount of story ideas because you’re just looking at this and re-writing it, and as you’re re-writing you’re thinking about like, why is this, and how is this happening? And so it was fun but I certainly couldn’t do it every day. He definitely deserves all the credit that he gets for it.

Nick:      One certainly notices the difference between the Term Sheet and something like a Google News aggregator, because there’s a level of insight and analysis that comes with it, which is really valuable for the readers. So Erin, I recently read your article that was featured in the Term Sheet newsletter about finding startup founders before they become founders. Can you first address why investors are trying to do this and then touch on what was found in the study on the profile of founders?

Erin:       Sure, so I first found out about this at our brainstorm tech conference, and I was talking to Roy Bahat who runs Bloomberg Beta, which is the, you know, investment arm of Bloomberg. And they’re very, very early stage, and you know, so is Charlie O’Donnell who we mentioned earlier. He’s super, super early stage. Like he wants to invest before the company is even a company, when it’s just an idea. And that kind-of comes into the trend that Mark Suster wrote about a couple of weeks ago of the bifurcation of the venture market. The angel and early stage investing market is really, really, really crowded and then the top of the market is also extremely crowded. We’ve got all of these hedge funds and growth funds coming in and wanting to get a piece of Uber and Airbnb before they go public because they’re waiting so long to go public. This has been a trend that’s been happening for a little while, but you know, it’s increasingly… it’s interesting to see it happening on the early stage too. So there’s not a whole lot happening in the middle, but it’s very competitive, very early and very late stage. And that’s having a really impact on valuations. So that means that angels are sometimes doing seed rounds at a $10 million pre or $20 million pre which is totally insane and doesn’t make sense if you’re trying to do a lot of deals and protect, you know, your returns. So the people who are investing at the early stage are having to get a little bit craftier and for some people that means moving earlier and earlier into the lifecycle of the company. Sometimes that means, you know, investing before it’s even a company or before they’ve even really decided what they’re going to. They just know they’re going to do something and they’re kind-of researching it. And for Bloomberg Beta, that means trying to identify founders before they’re even thinking of becoming founders.

Erin: And so he brought that up at a panel that we were talking at at this conference, and I thought it was so fascinating. He said, “You know, we wrote this algorithm and we found people based on sort-of some LinkedIn indicators and we identified several hundred people that might become founders or are likely to become founders based on certain criteria.” And so, you know, I asked him to follow up on that and we had an interesting conversation. He said that they had an associate work on a project for the summer who tried to kind-of backward engineer like, okay, what does a typical founder look like? What’s their background? Like where did they go to school, where do they work? How long did they work there before they started the company? Who did they work with? What did the company look like that they worked at beforehand?” All these different indicators. And he said it kind-of failed. The summer associate project did not work. And then he connected with Daniel Morel who has this company called Mattermark which is a really great venture and deal data company that she started out of Y Combinator. And she had come and announced here company as, “We want to be the Bloomberg for venture capital.” And of course, Roy Bahat’s like, “We’re the Bloomberg of venture capital. We’re Bloomberg Beta.” And so they kind-of connected and she decided to put together, you know, a study for him. And the way that they did it was super interesting. I think they created a dataset of like a million people who were in some way connected to founders and mapped out the likelihood of how many of them became founders. And then they did that backward and engineered sort-of a group of about, I think they said like 300 to 400 people in New York and San Francisco who fit all the characteristics of someone likely to become a founder. And they decided to invite them to a party. And they were just really fascinated by what happened. First of all, the people who showed up at the party, I think there were 75 in each city that showed up, and so it’s obviously a self-selecting group. If you get an email from a random person that’s like, “Hey, our algorithm has identified you as a potential founder.” That’s kind-of weird. You might in your mind be like, “Nope, I’m never going to start a company. Absolutely wrong.” Or you might think, “You know, I’ve always wondered if this was for me, and I want to see what this is about.” And so they said that the group of people who showed up was surprisingly diverse, quite a bit older than your typical founder.

Nick: Interesting.

Erin: They had, you know, a lot of people who had just never been tapped for this sort of thing before, people who… They’re standard founders, people who are kind-of the obvious choices. They get invited to parties all the time. They’re always being courted. And so the whole point was that they didn’t want to find the obvious people. They wanted to identify not obvious people. And so a lot of these people that showed up, they had never been tapped for this kind of thing. They’ve never been invited to this kind-of event and they were just really sort-of intrigued. And a lot of them were kind-of shocked, “You know, I’ve never thought of this before, but now I am going to think about it.” So in a way the result might affect the outcome a little bit.

Nick: Right.

Erin: Because these people might be starting companies based on the fact that somebody told them that they could or that somebody sort-of encouraged them early on. It hasn’t resulted in any deals for them yet. It might have resulted in some companies. It’s only been about three months, and so we’ll see. You know, it takes a while for companies to get started and for them to start announcing things and I don’t know if Bloomberg Beta will invest in any of them or not. They actually have a somewhat narrow investment mandate. You know, they’re focused on sort-of like data and information, and so some of these companies might be just totally off the wall – ideas that don’t fit their mandate. But it’s just still an idea that they’re making relationships with people very early on, and if they do start companies, they’re going to remember who kind-of supported them early or who encouraged them early on. So I just thought that was really, really interesting.

Nick: Yeah sure. These regression sort-of approaches, you wonder if it’s correlation or causation, of course. But Charlie had mentioned when he was on the show that with a lot of his deal flow he went back and he did a quantitative analysis of all the companies he funded and when he met them. And most of them, he had met before they formalized the company.

Erin: Yeah.

Nick: And then, you know, he developed a relationship there. I think it was an average of 821 days from his first connect, which is like 26 months. And then, you know, when they went on to found a company they come back, and there’s comfort level there. So Erin, what currently occupies most of your time at Fortune?

Erin: So I’m about to file a story about robots, so that’s pretty fascinating to me. It seems like there’s a lot of conversation out there about the future of work, whether or not robots are going to take our jobs, whether or not, you know, all this technology that we’re creating is good. So there’s some kind of big ideas around that that are really, really fascinating to me. There are some ideas around whether or not something that’s truly disruptive or truly turn into like a big world-changing company has to start out as illegal as we’re seeing Airbnb and Uber sort-of fight legal battles and, you know, they started out operating in the sort-of grey area of the law and now they have to make the law black and white in order to continue existing. So that to me is really interesting, and I’m sort-of, you know, interested in talking to people who have ideas about that. And then on the specific startup side, I’m definitely looking at lot of media stuff. Investors are still sort-of bullish on digital media, so the ecosystem around that, be it native advertising companies or publishing technology, all of that is always pretty interesting to me as well. On the venture side, the story that I did a couple of weeks ago about illiquidity in the secondary market and how that’s sort-of evolving, and the fact that CEOs are saying no more and more and their right of first refusals to letting employees sell shares before IPO is also sort-of interesting to me. And just the difference between what makes a company public and private as far as waiting longer and longer to go public, that’s always kind-of interesting to me as well.

Nick: Yeah, I wanted to circle back quickly on the bifurcation point that you made earlier – Mark Suster’s article and sort-of these escalating seed valuations. Do you find that to be a localized phenomenon? And the reason I ask is because, you know, I’ll talk to people in Philadelphia or DC, you know, outside of sort-of the major funding markets. And then I’ve seen in Chicago as well. I have not seen this escalation of seed valuations the way that it’s being talked about in the Bay Area for instance. So I’m curious if you think that this is a localized phenomenon where all the capital is sitting, or if maybe there’s another dynamic that I’m not thinking of.

Erin: I mean, I think if you’re a regional investor, you certainly have an advantage where like you are going to be getting to those local companies first before they get discovered by the Valley or maybe the New York or Boston investors. I do think that there’s a sort-of weird stigma that still exists, and just, it’s a stereotype, so it’s not necessarily true that companies that aren’t in the Valley and maybe to a smaller degree in New York and Boston, are just not as high quality and therefore they don’t get the frothy, heated-up, exciting rocket-ship sort-of valuations. And I think it’s not a knock on the people that are building the company or anything like that, but I think it’s maybe a knock on the opportunities the company might have, like for mentorship, for partnerships with bigger companies, for recruiting. You know, the resources maybe just aren’t as readily available as they are in the Valley or in some of the other slightly bigger ecosystems.

Nick: Sure.

Erin: So I think there’s that. And so there’s a little bit of a bias against companies that way, and that you know, ends up being reflect in the valuation. And to be honest, like it’s kind-of a double edged sword. You want to have the higher valuation because you want to be valued and be seen as a great investment, but on the other hand you don’t want to be overpriced. So it’s kind-of a tricky conundrum there for some of the regional startups. I would say, you know, take the lower valuation and get the investment from the local investors who see the value early on, rather than trying to look like a Valley company.
Nick: So if we could cover any topic in venture investing on the podcast, what topic do you think should be addressed, and who would you like to hear speak about it?

Erin: One topic that has been, I think, top of mind… Well, so yesterday we published a story about secret and anonymity apps related to bullying, and basically it was pointing out that secrets anti-bullying security measures are just really lacking. And it kind-of points to the fact that all these VCs rush to invest in this company, but it’s not clear how much they really have thought about or how much they’re really concerned about the ramifications of whether or not this company is actually making the world a better place or whether or not it’s making the world a worse place. And so I would love to hear some of the VCs who have backed these companies discuss. And I don’t want to hear them just like validating or justifying why they did the deal like, “Oh, because what if it sells for a billion dollars? And I’ll kick myself if I lost it.” I would really love to hear more investors speaking [00:09:23.20] about like whether or not their investments are making the world a better place. I know, I think that’s sort-of a topic that’s been on everyone’s mind lately with the anonymity apps, and then with some of the same feature of work stuff that I was talking about earlier as to like, are these companies taking our jobs away and are we worse off with them or are we better off? The other thing that I think would be really great for either this podcast or just in general was, I would love to see more venture firms discussing or how they’re addressing the lack of women in venture capital. There’s been an increase in women coming forward and saying, “This is a major problem. Here’s my experience.” And I think that’s really great. Writing about private equity, first of all, on you know, that industry is so lacking in women, and just Wall Street in general. That industry makes the venture world look downright feminist, but the longer that I’ve been covering this, the more I’ve realized that there is just a pretty bad problem. And the stories are continuing to come out, and so I would really like to see some people addressing and responding first of all to the stories, and sort-of talking about they intend to change. So I think that’s a really important issue that needs to be talked about more and more.

Nick: Great. So Erin, what is the best way for listeners to connect with you?

Erin: Definitely on Twitter. I’m @eringriffith, and my email address is also in my Twitter bio, and that’s just erin.griffith@fortune.com. Always welcome opinions and people saying hello.

Nick: Awesome. I will include links to Erin’s email and her Twitter handle in the show notes. Erin, thanks so much for your work at Fortune. I love your articles.

Erin: Thank you! Awesome!