Investor Stories 355: Why I Passed (Klein, Patricof, Strebulaev)

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

  • Todd Klein
  • Alan Patricof
  • Ilya Strebulaev

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:

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

on today’s special segment, we have Todd Klein of revolution growth. Is there a time that you can recall that you decide to pass on a perspective investment from whatever you found or surfaced during the immersive experience? I

think there’s one time where I could mention where I wished I’d passed

Can you share the story? You don’t need to name names. But so

we had invested in a prior firm. We had invested in a company that did that did healthcare elder care in China. And as we all know, China is changing demographically. Certainly, the one child policy was very impactful to that. And so the traditional process by which the younger generation would care for the older generation was breaking down. And so we got involved in a business taking care of older members of the Chinese population, particularly those that had dementia. So in order to understand what exactly that trade off was like, because again, you’re trying to overcome 2500 years of filial piety, right? I spent about four hours in the dementia ward of a Chinese state run elder care facility, which I don’t recommend to anybody. I think, I think serving food at Cabo was better. I’ll just put it that way. But anyway, I think it was hard to really learn the lesson there, because that wasn’t the right comparison point. So it was a mistake. We ended up doing the deal and regretting it, and for a bunch of reasons, China is not the easiest place to do business. But anyway, I don’t regret the experience, just from a, you know, a life experience standpoint, but you can’t, you don’t get every answer from that. You have to look in in other places too. What about

maybe the opposite question, what is there an immersive experience you’ve had where, as you were participating in it, you just realised this is magical, right? Like from the outside, and it sounded like a good idea, and actually participating in this, this is unlike any experience that you’ve had before.

I think the closest thing to that would be, at one point in my career, I led the first x round, institutional round in an entity called the thinkfood group, which was is a restaurant community and chain created by Jose Andres, the humanitarian chef, and so in that case, you know, a lot of people were sort of looking at it in the small plates. It was trendy, whatever. But before we did that investment, I spent three weeks cooking with Jose at his home from like 11 at night till three in the morning and in the

Yeah, hardly sounds like work. Todd,

I’m not seeking sympathy, although I will say the Tempranillo did nearly kill me. But anyway, because I had to get up early, Jose could sleep in. But understanding his mindset and how he thought about food as software in people’s lives was transformative. And I knew just from spending time with him, this was going to be a person that was going to have a big impact. And all of this was long before he became the person he’s subsequently become, but that was just, I just knew the way that he was approaching it, the way they were building that business, you know, had magic to it.

What do you mean by that? Food is software. Can you expand on the way? So he would,

he would tell you that food in people’s experience is, is, is a function of, it’s like, you know, it’s like, how they interact with the world. It’s the tool with which they experience culture. It’s the it’s, you know, it’s the it’s it’s the way that some of them express their philanthropy. It’s a way that they connect with their family, like you can just go down the list of the role that food plays in people’s lives. And therefore it’s meant, in his mind, to be something extremely precious and special and and so I remember one at one point during the course of this, if this process I was talking about, he had made this little dish, and it was a deconstructed Caprice salad, which you can now go get at the bazaar restaurant if you happen to live in a town that has one, Chicago being one of them now. And he put the plate down in front of me, and he started circling the table and around and around around, like Jose, what are you doing? He said. He said, Listen, if I make something for you, it’s not just for you, it’s for everybody at the table, right? It’s part of their whole experience. So it has to look a certain way. It has to present a certain way. In his mind, that’s software, that’s software for human connection and interaction. You. Everything

on today’s special segment, we have Alan patrikov and Abby Miller levy of primetime. This question is the anti portfolio? Tell us a story about a startup that you passed on.

Well, mine is in this simple story. I’ve told it so many times that I’ve got to think of another one more recently, but I passed in the 1980s we had an office Apex out in California. And one of my thinky, touchy feely, esolid, oriented analysts or associates, I should say, had this, you know, triathlon bike rider had this great idea about a coffee shop in Seattle that he had seen that he thought was an interesting investment for us. And, you know, sitting in my office in New York with two coffee shops on every block, I thought he was out of his mind that

venture capital, then I can guess which one Alan in a coffee

shop was a way to make money. Yes, you, just push it. And Howard Schultz and a lot of other people associated with Starbucks could laugh at me now, but at that time, I believe there were about two coffee shops in Seattle. So that was the big one, the big fish I missed.

Can you believe that coffee shops are still getting venture funding, like blue bottle and such? You

know, I was with a guy the other day. I’d written a book you didn’t mention it, called no red lights, and I was invited by someone very prominent to come down to Washington to have dinner, to talk to their three sons, which I thought was great, because they thought the book would have a great influence on them, as well as had on the older people, as well as their sons. Anyhow, one of their sons has just started a chain in Washington of 16 coffee shops. Valley is doing very well. I forget the name of it, but coffee shops, they’re still going up every place it’s, you know, the economics are good. I assume that basically price of coffee and what they can sell it for but I don’t think it’s an investment for prime time.

On today’s special segment, we have Ilya strebul of Stanford. Ilya talk to us about a critical opportunity or decision you chose not to pursue. Was it the right call, and why did you pass on the opportunity?

You mean me personally or professionally? Yeah, well, absolutely. Well, both personally and professionally. So I think. And this is again, another chapter in our book, another principle saying no 100 times so that I think what makes a successful VC, which is for my research, shows, for every single investment opportunity, smart VCs end up pursuing, they typically say no to at least, on average, 100 opportunities. Okay, so therefore saying no is very important, and yes, I did say no to many things, and I think most of those nos were was a good decision. One is, I found myself at Stanford, both by serendipity and by what I call the prepared mind. But then I had a lot of opportunities to go elsewhere, and every single time when I had this opportunity, I said no, because you compare the option of going and the option of remaining, and I think there’s a fixed cost of changing something in your life, and you realise that you know what you are in an amazing in an amazing place, and you would like to to stay in that place. So I think that using the venture mindset, you have more tools to compare whether to change your life or to remain where you are. And I think I’m using that kind of those venture mindset tools myself now, because you start reevaluating the trade offs between flexibility and commitment, and so that is one of my kind of personal big learnings from working on the venture mindset perfect

that will conclude this instalment of investor stories. If you’re enjoying the programme 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.