Investor Stories 328: Why I Passed (Wagner, Lyman, Jones)

Investor Stories 328: Why I Passed (Wagner, Lyman, Jones)


On this special segment of The Full Ratchet, the following Investors are featured:

  • Peter Wagner
  • Lily Lyman
  • Michael Jones

Each investor highlights a situation where they decided not to invest, why they passed, and how it played out.

The hosts of The Full Ratchet are Nick Moran and Nate Pierotti of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.

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Transcribed with AI:

0:02
welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran. And this is the full ratchet.

0:18
Welcome back to TFR on today’s special segment, we ask guests to discuss their anti portfolio startup investment that they passed on. Here’s the segment called Why I passed.

0:35
On today’s special segment, we have Peter Wagner of wing VC. Peter, can you tell us a story about the anti portfolio a story about a startup that you pass on? You

0:45
know, in my world, you know, it’s it a lot of times, it’s less about the thing you passed on and more about the thing that you didn’t see, or the thing that you fought for and lost. So I’d say the most, the most famous one that comes to mind off the top of my head is Google. So in the there was one summer when there were you know, a couple of disciples Edexcel at the time, and there were a couple of very high profile deals going around. I won’t, I won’t name the other one marquee founder. And you know, really interesting opportunity. And then there were the Google guys. And you know, we were competing hard for both. And we we actually thought we had been selected as the investors by the you know, Sergey and Larry, and we were really excited about that. And then we were surprised to learn, because they’ve been saying they only wanted to work with one venture firm. We’re surprised to learn in the end that we had lost that opportunity. And they were going with, you know, Michael Moritz and John Doerr from Sequoia and Kleiner were like, Hey, guys, what you know, what’s up with that? You know, you said you only wanted one investor? And they’re like, Well, yeah, and if we, if we were gonna go with one investor, it definitely would have been you. But we decided that that pairing was going to be that I was, I wasn’t like on the front lines of this. You know, my partner, Jim Breyer, was the you know, the one that was leading the charge on that. But you know, we were we’ve just sort of an all hands on deck situation. So that was, that was frustrating. And as a consolation prize, we want the other deal, but let’s just say that it wasn’t Google.

2:12
On today’s special segment, we have Lily Lyman of underscore, Lily, can you tell us a story about a startup that you passed on?

2:19
Sure. There have been lots that passed on and probably lived to regret, there is a company that we met is actually a couple of more UCHealth out on the West Coast, we met them sort of early in their journey at the at the seed stage. And they’re basically digitizing and automating care programs. And, you know, transparently, this was early in our evolution of thinking about where should we play in digital health, and what types of digital health companies are the right fit for our thesis. And I think, you know, the founders were incredible, they were really young, but they had the attributes that in retrospect, I know what to look for, which is in terms of being avid learners, really thoughtful, and what we call heat seeking missiles, in terms of recognizing where the opportunity is, and then how to unlock it. So they were West Coast, and we, you know, sometimes when we get to meet West Coast companies, we’re like, you know, why, why is that, but we, you know, relationship and reason to meet them. So we ended up passing, and I always look at them as like a, you know, darnit Chevy, every venture firm has it and every investor should have that, I think the entire portfolio, but anyway, it’s a great company, and i i They’re playing in a space I think is really powerful in terms of automating and digitizing how patients and clinicians navigate complex care. So it’s a company that I think is very cool, interesting. Admire the founders. And, you know, one, one for the one for the reminder, if you see the right part of the founders, it’s all it’s all about people and attributes. And that’s fun. Then I’ve met founders.

3:47
We’ve all got them.

3:54
On today’s special segment, we have Mike Jones of science. Mike, can you tell us a story about a startup that you passed on?

4:02
I mean, I pass them tend to startups, right. You know, I think the early days, you know, we passed on honey, early days, honey was being a monster acquisition. We couldn’t find like, it was funny. When we first met with that team. They had not found their monetization strategy. We had done Chrome extension. And two of our businesses in the past, we 100% knew their monetization strategy. We walk them through, we’re like, look, we want to get involved. This is the monetization strategy, you need to approach. And their statement then was like, we’d never do that. Like we’ll never do that. Like, that’s just not that’s not our ethos. It’s not really the premise of the business. And so they originally had this very, like religious founder pushback. And then we also couldn’t figure out our terms with them. So we passed, and it obviously was a huge mistake. And they eventually did find their way, essentially, to the monetization strategy we outlined like it was and what I should have realized is like, in some cases, they’re just not So conclusions, right? Like, and so it’s hard to like talk with the founder being like, look, I see this, I see this six miles down the road. I’ve seen this before, like, you’re gonna end up here. Can we just get you to do it now, but they weren’t ready to be at that point. Yeah. And that was my mistake being like, look, we’re gonna get to that point, like, I can trust lead myself that we’re gonna get to this point. So like, I don’t have to cure from you, they can convince today, but you just have to be open that you might end up here. So our approach was wrong, because we were like, Look, if you’re not going to do it, it’s just not gonna work out. And that was super short sighted of us. Right. And we missed out on a big deal. I

5:36
don’t know, that’s pretty tough when they say they would never do it.

5:39
But like, yes. And, you know, it’s like, time and growth and pressure and business and opportunity. Yeah, you know, it’s like, you know, it’s like, I’ve encountered like, I will literally never sell the company. I’m like, sure. Okay. Like, right. And you could definitely like, Are you sure? Right, like, so? You know, it’s it is it’s one of those things, right?

6:01
I had a conversation with one of my favorite founders last week. And he had another business when he started the one that we funded. Yeah. And he said, Nick, why don’t why don’t you tell me to shut that down? And I said, because I knew you’d get there on your own. And you had to get there on your own? Because if I, if I had told them that would have like, damaged a little goodwill early, but I knew it would within six months, you’d be done with it. And sure enough,

6:25
you know, it’s a really hard question. Like, I have this this weekend where like, I know, founder of mine is making a certain mistake. It’s not a detrimental mistake. Like it’s not a deadly mistake. But I also know that if I tell them about the mistake, it will hurt their ego, probably so much that will be worse than swallowing the mistake. Yeah, right. And so it’s like, was advisor, do I become transparent be like, well, we have this, I think this you’re not fully recognized this problem, and maybe we should adjust the way we’re approaching it? Or do I just be like, I’d rather not deflate your ego in this current moment. So let’s just like go forward with it. Right. Like, it’s interesting. Totally question, right.

7:04
When when they get so mentally committed to something, and it’s not like a it’s not a cat catastrophic issue? Yes. You know, you’re gonna fight with them. And as founders, we’re all a bit irreverent. Like, we want to fight the convention. That’s right. And it just makes them want to do more sometimes, right?

7:20
Which is like, I mean, we’re backing that trait, right? We’re backing a certain level of stubbornness and drive. So like, it’s again, like so let’s imagine you and I started the seed fund. Right? And we’re 22. Right. And we’ve never run a company. Right? And suddenly, we were deploying $25 million, and we’re getting those calls on a Saturday. Right? Like, I’m not I think our advice would be different. I think in retrospect, we’d have a different approach.

7:46
Agreed, agreed. 100%. Sometimes you got to let people fail a little bit a little bit, but

7:59
that will conclude this installment of investor stories. If you’re enjoying the program and would like to see it continue. Take a moment and leave a five star review in iTunes. Okay, that will wrap things up for today. Until next time, over prepare, choose carefully and invest confidently thanks for joining me