On this special segment of The Full Ratchet, the following Investors are featured:
- Kevin Jiang of Mangusta Capital
- Joseph Ruscio of Heavybit
- Alexander Niehenke of Scale Venture Partners
We asked guests to describe the biggest change to their investment philosophy over the course of their career
The host of The Full Ratchet is Nick Moran 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:
0:18
Welcome back to TFR on today’s special segment, we ask guests to describe the biggest change to their investment philosophy over the course of their career. Here’s the special segment called rewriting the playbook.
0:36
On today’s special segment, we have Kevin Jang of Mangusta capital, Kevin, how has your philosophy or approach to investing changed over the course of your career?
0:46
Absolutely, it’s interesting question. I think, you know, I have obviously started from a bunch of different, you know, a different place than where I am today. In terms of my investing experience, I started out at Apollo, which is a very value oriented private equity firm that, you know, focuses on leveraged buyouts, you know, EBITDA, cashflow positive businesses. And so for me, it’s, it’s been an interesting journey to actually see a bunch of different varieties of investing, everything from, you know, profitable cash flowing businesses to obviously hyper growth, scaling businesses that were growing 300% 500% 1,000% year over year, when we were at Softbank, investing in these phenomenal growers. And so for me, I think the way that my investing philosophy has evolved over the years is actually kind of melding those two different aspects together, where you not only have the growth that obviously is important in venture capital and early stage investing, but also a appreciation for profitability and unit economics. So even when I look at businesses that I invest in today, where it’s a pre seed or seed company that’s starting to generate revenues, I think it’s still important to understand what are the margins that you have in your business, what is the unit economics of your product look like when you bring on an additional customer or additional user, and these are things that you know obviously will change over time as the business continues to mature. But I think it’s a very important piece of the puzzle that a lot of early stage investors and founders don’t really think about, that is worth thinking about as you want to build a long term sustainable business
2:42
on today’s special segment, we have Joe Ruscio of heavybit. Joe, how has your philosophy or approach to investing changed over the course of your investment career? Yeah.
2:51
So I think probably one of the most important things is I’ve realized, I think, as a former technologist, both coming into investment. Like, I think those afford, those give you a certain number of superpowers if you use it correctly. But I think there’s also some really, potentially bad blind spots, I think some of which I was aware of, some of which I’ve learned, and I try to stay really focused on finding them. But there’s some bitter lessons, I would say, right. Like, one is, as a technologist, I had this notion coming in that, like, obviously my ability to do technical due diligence and really deeply and understand the tech, and that’s important. But a thing I’ve learned repeatedly is that what matters is the customer’s pain and how well you solve it, and how well you communicate to them that you will solve it and are solving it. And the customer really doesn’t care about, like, how efficient or beautiful the code is behind that process. Like, all right, how does it matter? How does not matter? The customer does not care. Like, this is the thing I repeat ad nauseam, out of my founder. So I’m like, the customer does not care. So, like, there, there’s two sets of two buckets. And the what does the customer care about is really all that matters. The whole other bucket with whatever the customer does not care about is just in service of that first one, as a technologist, that’s a hard pill to kind of swallow, but it’s important. I think the other one is kind of two sides of the same coin, but like both in terms of, like, the end customer, the TAM, right, like, whether I think something, whether I agree with the founder that something should be a certain way. That is a necessary but it is not a sufficient condition, right? And like the world, not just in Developer Tools, but the consumer product landscape at at large, there’s a graveyard just full of like, better, more elegant, smarter solutions that didn’t make it just because, honestly, it like a nice to have, versus, you know, are you a painkiller or a vitamin, right? Like, how important is this problem? Like, just because it should be like that, can the user, will it be a top two priority for the customer? Or this quarter, right? Like, there’s nothing worse. There’s, like, no worse thing you can hear from a customer than like, Oh, that’s great. We’re gonna do that in a couple quarters. Because that means never, right? And I first time founders, they’re like, Oh, these people said this. I mean, yep, when they’re searching for design partners and kind of still ideating and getting the first version of the product together. They’re like, oh, all these people said this, and I’m like, Yep, and they are lying to you, and they don’t mean to, like, they really, they have every intent, but until you bring the actual product to them and make them, like, make an opportunity cost decision, like, what am I not going to do? Because I’m going to look at adopting your product, you actually don’t know, right? And so that’s I think we’ve had a number of investments. I have had a handful of investments that haven’t worked out, because the world should be that way. But it doesn’t matter if it doesn’t have to be that way, right? Maybe it’s a way to look
5:55
at it. You make such a good point like it reminds me of a discussion I had with a founder last week where we were talking about key objections that they’re getting from customers, and it’s I like it when the objection is around, like workflow or user interface or a feature that’s missing, it’s not good when there’s a high volume of objections where it’s, oh, we can’t do it right now because it’s not a high enough priority, yeah, that is, that is like, you’re probably in the wrong lane altogether. That is one of the reddest flags, like, if you’re if you’re hearing, I mean, and the tricky thing is, if you talk to 10 people, like, even if you’re doing the right thing, don’t be one or two say that you really got to be attuned to, hey, if half the people are saying that, or, let alone more, like we got to really figure this out, because that’s a terrible place to live
6:46
as a company. Yeah,
6:53
on today’s special segment, we have Alex Nienke of scale, how has your philosophy or approach to investing changed over the course of your career.
7:01
So my first project, I moved down to LA. I’m working on this film financing, and that’s kind of what I want to talk about. But I always like to tell the story of, like, my naivety coming out of college. It was, like my second week on the job, and we were writing an investment memorandum. This was like the days where you wrote like, 50 100 page investment memorandums. My job was God knows what to edit within that investment memorandum. And I went through and I made this edit because there was this mistake all throughout the document. The next day my partner, he’s like, Alex, he’s like, I got one question for you. Did a lot, a lot of good work, but he’s like, we’re raising $50 million for the film studio, and Why’d you change it to $5 million everywhere? And I was like, I was like, well, we’re not raising 50 million that’s too much money. Like, we’re not raising $50 million for I’m like, I’m like, $5 million would seem like a lot of money. He’s like, What? What do you think we do? Right? I was so naive and like, $50 million felt like such an extravagant amount of money, I couldn’t conceptualize that we were in the business of raising so much money. But the context of why I tell the story, other than that’s funny, is, I started my career in film financing industry, finding money for for film studios in order to make their movies. And as we were doing that, the individual that I was working for at the time, this gentleman, by the way, Michael Montgomery, he also had a lot of connections into the big media studios, and then we’d assemble a team of young folks like myself that had a lot of interest in the digital media and how things were changing. And so we took that traditional media experience and we converted it a digital media business, and really had a lot of success around that. And that was really intellectually stimulating for me. But when you look at the media businesses, how do they monetize? It’s almost always advertising. So I started digging into that, and I got really into, like, the mid 2000s and like ad networks and lead gen and a lot of that stuff ended up being pretty terrible businesses. But I spent a few years digging into that, and as I focused on that, I realized that there were these more interesting, more sustainable business models in there, where you were the software layer that was allowing people to buy advertising, you know, basically what has ended up being marketing SaaS. And once you monitor into marketing SaaS, it’s like not that far before you end up in like ERP and HR software, and then eventually you reach the arc of your career where you’re digging into the depth of construction software, and that’s like the end of the road, right? Like the train stops there. And so I always laugh a little bit about it, because when I was doing like, film financings and digital media companies that was really cool at family arenas, people were like, Oh, what are you working with? And these days, when I tell people like, oh yeah, I have this really cool supply chain startup, everybody just walks away at the family arena, like, no. Family. Nobody cares, right? That’s right. But like, hopefully you can see it from my spot. I freaking love this. So like, what have I learned within the arch of that I love business, and within each of these businesses, there are consistent pieces that carry across in certain learnings, and the way that companies get built is more frequently similar than it is different, and that’s where, like, my passion comes from. And so I tomorrow, it could be garage door openers that I’d be investing in, and I think I would have as much enthusiasm as long as there’s innovation there as well. And that’s just like that. There’s a there’s this, like, never ending innovation that exists in the business world. And I freaking love that. And I’ve just had the pleasure of seeing that across a bunch of industries as my careers. Are you?
9:44
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.
