Chris Sugden of Edison Partners joins Nate to discuss The 20 Year Evolution of Venture Capital, Growing a Firm with Zero Investments in Silicon Valley, and the Multi-Stage Fund Reckoning. In this episode we cover:
Investing Outside Silicon Valley and Silicon Alley
Comparing Boom and Bust Cycles
How to Decide Between Growth Equity and Venture Capital
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Transcribed with AI: 0:00 Chris, welcome to the show. 0:02 Thanks for having me, Nate. Great to see you. 0:03 Of course, it’s a pleasure to have you. Can you walk us through your background and your path to Edison? 0:08 I’d love to; I get the question a lot because people notice I started out as an accountant when they look way down the LinkedIn scroll and being a CPA is not a normal route to VC or Private Equity. But the long story short, three or four years as a as an accountant, and a shout out to any young people listening, because I think being an account is one of the best training grounds you can get. Because it all begins it ends with Can you read a set of financial statements. And it served me well in my career, but I jumped to the startup world pretty soon after, in fact, became a CFO of a company that this happened twice in my career. Before joining Edison, the CEO had a young guy started a men’s magazine targeted the younger crowd, you may know deep Details magazine, or GQ, but a younger version of that kind of nice, Fast Company. And this 26 year old founder wanted a CFO that kind of looked like the audience. So the good news was I qualified as that. But I didn’t qualify as a CFO. But you know, kind of jump in with a challenge. and off you go. So we were backed by both a strategic and a financial investor, that lasted about four years publishing business was a tough business because we were literally an old school magazine, because that actually really well. And the whole idea was create a social community before things like the connectivity we have now. And the phones we have in our hands made social makes sense. This is back in kind of mid 90s, late 90s. And I jumped into a payments company in the internet billing space, what we call online payments today. And it was really the forefront late 90s, kind of pre.com bubble into the.com bubble and before the burst sort of CFO for a second round that I became CEO to have that startup. So I saw a front row seat as a CFO, as employee number six have a committed a couple of million bucks and raising it’s a round. But a similar story. The a round investor, one of the CFO this time actually had some qualifications and had a Princeton professor as the founder, but you’re not a rocket scientist, because he was a physics professor. And he literally the first question, he asked me, What does the CFO do. So I like to say, joining this sort of side of the table as a as a VC as a PE growth equity investor, I spent the first half of my career on that side of the table, if you will, and I you know, some might refer to this as the dark side, you know, the stuff we do for a living. But I guess my training and all that leading up to Edison is, I have a real appreciation for the real stars of the show, or the the the entrepreneurs and management team, and you’ll get it done every day. We’ll get into this maybe depending where you want to go. But I think the era of celebrity VCs and celebrity PE investors is way over done, and it can’t stop. And the real hard work gets done by the folks who show up every day and have to make payroll and they’re about to find out we’re about to find out how hard it gets when it isn’t so easy when the tide starts to go out as we’re dealing with the macro kind of stuff that’s going on. But all that being said, you know, 15 years CFO coo track CPE at a start, I literally met the founder of Edison in a golf tournament. And I had to at one point or another pitch one of his partners for the billing and payments startup that and they turned me down. Probably a lot of good reasons turned us down a couple of times. But our business was in Princeton, New Jersey, so we’re just down the street. And long story short, gross margins are too low valuations too high. Not sure we believe an adoption of online billing will take place as fast as you say, which of course it didn’t, it took a long time. So many of the names were actually correct. But I told them, they’re just you know, they’re missing the boat. They’re too old. They don’t get it. I’m not really paying their bills online tomorrow. But he did say, this is the founder at that point at the golf tournament, when you’re selling that business, come and talk to me, let’s just chat. And I find, frankly, that I just go into one of the portfolio companies and Edison. Fast forward. I’ve been here 20 years. And we actually, I was the leader of buying the founder out and kind of moving to the second generation of the firm, if you will, here about 10 years ago, 11 years ago. So we’re one of the few firms I think, that have navigated a founder transition really well sort of navigated an evolution from what was venture, but with some revenue, we can talk a bit about what we do for a living to more of a growth equity focus in the last kind of four funds. So last year, we raised fund 10 year, a year and a half ago, and we’ll be coming back with fund 11 next year. So that’s the quick version. But that wasn’t so quick. So I’ll probably should pause it. 4:10 And how big was the A round back in the late 90s, early 2000s, when you were raising it? 4:16 It was actually a relatively big one. So this is 1997-98 because it was Q4 into Q1 as a $10 million round. 4:22 Okay. 4:23 And but you’re starting to see the early days of the .com bubble percolating. And we’re really we’re the early days were probably a year or two into it. And he sold the company to be worth a billion dollars, you know, in a week type of deal. But I do vividly remember it was about a 50 million pre 10 million bucks. And we were doing a couple bucks of revenue. So some of that sounds very similar to what we’ve just been dealing with the last several years. But it was Princeton, New Jersey based, which kind of like we talked about before, underserved geographies is kind of unique in that I’ve kind of spent my career while New York certainly a well served geography for FinTech beyond New York, we’ve spent Most of our time, and I personally spend most of my time outside of any of the kind of hotter markets, if you will. 5:04 Yeah, if I’m recalling correctly think Edison has made but over 230 investments, I believe all of them are outside of Silicon Valley. Is that right? 5:13 Yeah, it’s pretty wild. Someone was kind of quizzing me on that. So I went back and did some work. Just literally the last two weeks, I was trying to make sure I can say that, truly and connected us and wanting to win the records may not be so you know, so well kept, but literally founded in 86. Right, so you go back and see what data you have. And it looks like we’ve never done an investment in Silicon Valley, I can safely say in the last 20 years, 100%. But I’m pretty sure it’s all 36 years. So yeah, 240 plus investments, we actually just closed that investment last week, never in the valley, in fact, a whole bunch of Northeast kind of quarter. For those listeners that might know the kind of Amtrak kind of that’s one way we kind of think about DC to Boston, and frankly, early days of my career here, New York was, you know, kind of a blip, it was still sort of trying to catch up. There was a something called Silicon Alley. Early days, people were trying to coined around the marketing advertising space. But long story short, the thesis of Edison’s founding was actually there must be deals outside the Valley, which is kind of interesting. So our founder, literally putting a stake in the ground in Princeton, New Jersey, where we’re headquartered. And you sort of say, well, you’re outside New York, we were but remember, New York going back 30 years, and even 20 years ago, was a bit of a ghost town, nonetheless, you know, 10, it’s become, you know, isn’t the second market or the third market, depending if you talk to someone from Boston. But long story short, yeah, we’re big believers in what’s going on outside and always have been, but you’re seeing it I know, you know, your firm, you know, your your day job, like my day job, we spent a lot of time and we’ve really seen the Midwest and the Southeast really take off in recent times. And it also drives me crazy when people talk states, right, because really their ecosystems around different cities, which I spend more time on, but each of the interesting, you know, kind of cities around the country that are beginning to show up and COVID driven some of that even faster, I think. 6:56 Yeah, one of the facts that our General Partner shares that I think is a great one is, Chicago today has more unicorns than Silicon Valley did 10 years ago. So as we think about technology being pervasive across some of these non coastal hubs, it just goes to show that these companies can be built anywhere today. That’s not to say that they’re gonna be built at the same velocity or the hub is going to grow at the same rate as Silicon Valley. Of course not, but right. Again, it does go to show that there is real validity in the thesis. 7:27 That’s absolutely right. You’ve seen it accelerate even more. So you know, sort of, through the last couple of years, remote, and all the things that have been associated with the last few years, some kind of boomerang back to their roots, right, getting away from the big cities, where from anywhere, so people started to be in search of kind of more balanced, and they’re starting to find and are cost of living, frankly. So you’re seeing all kinds of drivers around that to your point. Well, we’ve seen frankly, this goes back probably 10 or 12 years, you know, a city gets a unicorn to your point, I think about Indianapolis, which is a great startup kind of Tech City, you know, exact target hits a big Salesforce opens an office and all of a sudden, you’ve got just a bunch of people spinning out, and now indeed kind of becomes an interesting hub for startups as an example, if you will. 8:11 Yeah. Yeah. You know, I’d love to pick your brain about the history of venture because you’ve been investing now for over 20 years in the industry has changed quite a bit since the late 90s, early 2000s. Up until today, from your perspective, how much has the industry changed over the past five years relative to the previous 15? Would you say the change has been fairly linear? Or has it been especially exponential as of late? 8:35 No, I think exponential; it’s a great question. And kind of reflecting that kind of time, you know, the temporal kind of idea of 15. And then the last five years, or the last five has just been incredible, right? The bursting of the funds being raised new fires being started, you know, like you said, it’s hard to call something a unicorn when there seemed to be sprouting every, you know, day or week at least. So even all of that has been pretty amazing. I think that there’s a lot about the.com bubble, having lived through it as both an operator and then joining this firm in 2002, that are similarities. I’ve been saying to myself, even entering this tumultuous period, the last, you know, six, nine months, sort of in the public markets, and you’ve started to see it show up now in the private markets, which you always do. There’s always a lag effect. But I think the biggest difference between back then and the.com, boom and bust versus this one, which I’m not calling it a bust, but we’re gonna go through some pretty painful periods here. There are real businesses that have been funded. I think the valuation train ran away from us in a big way. So that’s kind of the five year run we’ve seen versus the 15 or even going back again, you know, 15 or 20 years overfunding businesses happened back then. In terms of too much capital chasing too few deals, and certainly too few, for lack of better word quality deals. I think the good news is the quality’s up the last five years. The vernacular, all the words we use are actually being practiced. So people are focused on unit economics people are focused on go to market models, frankly, It’s great when I see young firms, young people in the business to start their own firms actually focused on those things back then it was, we’ll figure it out later. And all that goofy metrics that had to do with the kind of vanity, there’s still some of that we saw some noise, certainly last five years of, you know, kind of just when things are booming, things get funded, they probably shouldn’t. But for the most part, it’s been pretty good investing sort of diligence, if you will. But here’s what it really happened, right that the meteoric rise of fund size has sort of the biggest change to me is the tail wagging the dog. So what happens is that venture growth, equity investors, we know growth in many, many times kind of did late stage investing to in the last five years, you had fund managers, guys like us, and gals like us, managing really big funds, sort of telling entrepreneurs, they should raise more money. And now we’re going to find out that was the exact wrong advice to be giving folks and it should be the business model that’s driving it, you know, you don’t call it milestone, I don’t think about investing in milestones, but we generally invest in around the word get the company to profitability, and then have a decision, right if it’s not already profitable. So we also investigated our insertion product market fit. So we think about execution risk, that’s a little different from early stage venture for sure. But long story short, I think font size, led to round size, which also led to valuation booming, we’ve seen the valuation movie before, maybe not quite as egregious as it got, you know, kind of in the heat of the pandemic. But we saw that actually, with the public markets too, right now that reckoning is happening. But I do think round size is getting big, because the funds were big, wasn’t exactly a big recipe for a reckoning. So that’s the biggest difference in the last five years, I would point to, and that sounds a little bit like I’m talking my own book, you know, cooking my own food here, because we stayed relatively small for growth equity firm, you know, just under 500 million, our last fund, it’s kind of by design, we want to invest kind of 10 to 30 million bucks in a stage with this the right amount of money to get the company to a really interesting place. Is it a strategic sale, sometimes they get public without any more money. But now in this current market, you can take them to a PE firm, and you have a recap kind of option we roll founders can take some off the table and keep on going. So from my perspective, all raising too much money, does that limit your exit opportunities? Yeah, not only that only, of course, creates a, an expectation that’s really high for an entrepreneur. But that just got lost, right? The entrepreneurs forgot that the plot was last night, how much do I own? How much I’m gonna owned? And if this thing goes south, where’s my investor gonna go? Right? Because a lot of times we saw it right? It was throw a big round in at a really high valuation if it doesn’t work in six months and move to the next deal. That sort of, and are you really going to stick it out with the company and go figure it out? That’s the other I think the second thing that’s really changed besides capital rounds and with with font sizes, sort of this whole notion of value add, I think it’s a controversial one the VC land, because VCs would say, There’s no such thing, we pick a great team and let them run. I think in growth equity, and buyout and private equity lab, we think a lot more about how can we influence the company. And I would say, there’s some really good models out there. And and some not so good models. In the stage, we invest, you know, kind of 10 to 20 million in revenue, we’d like to think of it as a pull model, we’ve got a whole platform for value add. And what’s happened in growth, equity, and private equity is value has become not only a cliche, but everyone’s got something the question is what are they really have to be entrepreneurs should be looking for a lot more than capital, right? In an early stage, it’s network and connectivity in the next round, and you know, kind of pressure test, the the idea, the model, etcetera, help help the company find developers, but later on, it’s a lot more than that. I’m a big believer, we’ve we’ve invested a lot of money in what we call the Edison edge. And that’s not for every entrepreneur, but we find is outside the valley, most entrepreneurs do value. I know I got to this point, to get to the next point. So I think that’s another thing that changed is we see a lot more value add kind of capabilities and discerning entrepreneurs can go get that if they want it. 14:01 Yeah, Edison Edge was one of the areas I wanted to touch on today. I’d be curious, what does Edison edge entail? And in general, how do you think about winning the right to partner with a founder, as we see a number of these multistage funds start to look more like an enterprise versus a venture firm? 14:19 Yeah, we were certainly again at a modest size relative to AUM, but a real kind of pound for pound investment in the edges is very high, if not the highest in the market. We’ve heard that from LPs. And it’s very intentional. I took over from our founder, one of my founders, a company called build trust, which just transacted going from public to private and nice when it was an over tax went for us. One of my first deals back in the day. I remember that founder, one of my favorite CEOs to work with still to this day sits on board with us, said to me, so I looked around your table, Chris, who’s going to help me north of 50 million in revenue, who’s been there and done it who’s seen the movie, because if we do what we’re supposed to do in three years, your ideas are gonna be old ones for what I’m doing. So the Edison edge is born out of, you know, talk to CEOs, what do they need? What are they looking for? The firm at Edison had the Edison director network was sort of the first pillar, we take two board seats in every deal. And one of the pillars of the edges, the Edison director network, we’re big believers in more operators at the board table than investors. When investors outnumber operators, I think that’s a recipe for disaster. And that’s from early on all the way up person, frankly. And you kind of see it play out, especially in times like this, because the investors are there sort of a one track mind a lot of times when things are good or bad. And operators are the much better at delivering tough news or bad news or asking hard questions. So the Edison director network existed, but that was really it. When I got here, we hired a woman named Kelly Ford, who recently became our CFO to be our first kind of operating partner but full time, I didn’t want to have operating partners who were part time, hence what was born then frankly, she named it because her cmo and the chief market officer, you have to name something, right. So the US manager is born about nine years ago. And that until it’s directed at work, centers of excellence. So think about FPN, a go to market product, and tech and people leadership. Those are the centers of excellence, we’ve stood up. And then the last one is content and programming like our CEO Summit, that’s next month. And we do roundtables. And you’d be amazed at how often these people show up for these things if you actually provide a platform that’s safe for conversation. So in other words, don’t be there have a have a person who’s sort of an operating partner that kind of been there done it lead those, those meetings. So long story short, is real operators with real experience, but the difference the way we do it, and there’s some firms one or two, we’ve gotten pretty famous about their playbooks, our playbooks are much more instead of kind of a framework and a playbook because companies at our stage right again, 15 20 million in revenue, it’s got to be a little bit de novo, it’s a little bit of the market model, go to market, maybe a little different for company A versus B versus C. And we’re also multi vertical. So a FinTech go to market model may be different than a, you know, enterprise software model. So all that being said, you really want deep depth on this on the centers of excellence. So in the last three years, we’ve gone from a handful of inside partners with that are full time to now adding about six operating partners that are there full time dedicated to us, but it’s not their only job, they have a consulting practice on their own. So it’s a pretty deep capability. And again, I the beholder, because everyone says they got value add, that’s the good bad about, you know, the cliche, I think what you see from us is we, again, Kelly coined this and I steal it and use it all the time, we should have this term pull versus push, by all firms push, right, they own the business, they’re gonna push the change, push the playbooks in, in our model, it’s a pull model, you know, the resources exist in diligence. And we want the great magic teams to kind of pull us in, we give you a set of what we found a diligence, 180 plan, kind of a fast start kind of plan we agreed to before we fund we actually do a review of the 180 plan together. But you can use your your resources, Mr. or Mrs. CEO and management team. Or you can use some of the resources we provide where we have third parties, of course, we can bring to the party. And the point is when you’re a minority investor, you got to earn your way. And that’s the poll. So when I know what’s working is when we have three or four different CEOs pulled into a deal, right after diligence occurs because they saw they saw it as collaborative as opposed to sort of just a no offense, a proctology exam, right? It’s like that diligence isn’t really adding value, if that’s the way you’re going about it. 18:18 Yeah. So where does the industry go from here? We talked about the gradient of change in the slope being higher in the past five years, as it was in the previous 15. Do you think we’re going to continually change at this rate? Or what is the future of venture look like from your lens? 18:34 It’s timely. I don’t know when you’ll post this, but right, it’s October 13. And some PitchBook data came out today. So we had like the lowest quarter in a while of dollars deployed, but one of the highest quarters ever of capital raised, which is a real interesting recipe for this dry powder thesis, like things are going to kind of burst again, with deals getting done. Everyone thought q3 might do that right to slow q2 in our busy q3. But I think in the short term, there’s there’s two answers, right? We can debate whether we’re in a recession or not, I think I think it’s pretty clear. We’re in we’re in some amount of pullback and forced by the Fed. So I kind of look at this as a three year question, and then a 10 year question, because I think it’s going to take three years, I’m not predicting a three year recession, but it’s gonna be 12-18 months of pain, especially if you’re a public equity manager, it’s probably gonna feel really painful. In the private markets, what we’re gonna go through the next three years is, you better have not only a path to profitability, better evaluation that made sense, or you’re gonna get a really ugly kind of cap table, because what we’re seeing right is we saw this in the.com, boom and bust and remember, I was in that zone, I actually we’re going to go public, right as frankly 9/11 happened. So it was a really interesting, I’ve seen this movie inside the the operating business raising around ft had a valuation that was headed for an IPO is really painful, right? So I stopped participating preferred back in 2001, I guess it was, when I got to Edison, they’d never heard of it, which is kind of funny. And we’re starting to hear it again. Right? You’re starting to see structure again. It was just an article the other day about corn and afterpay. And kind of what’s the real valuation, right, some of these high flying unicorns. So I think that’s the three year pain. And that the big trick here for an entrepreneur is, again, talking my own book, down rounds, you’re not selling the company today, get keep your capital clean, instead of going and making a ton of, you know, structure, that’s just kicking the can down the road, because it’s going to come back to haunt you at some point. And that’s a really painful conversation, but value the business for what it’s worth, not for what your last round was, I guess, is one. That’s one thing that industry is gonna go through. And there’s a lot of young people no offense, Nate, because I know I’ve got the gray hair to prove to you. But the bottom line is there’s people just haven’t seen this movie, right? You just got industry in the last five or 10 years, you haven’t seen this kind of situation. So I think you’re at this three year reckoning of what was overfunded where the cap tables look like, if you have 10 years, I think what’s really interesting to your enterprise, kind of behaving like a business, venture firms no longer being a handful of people doing deals, really being thoughtful about how you deploy capital, being thoughtful about follow on capital, now I’m talking more the structure of the industry versus what trends we’re gonna invest in. I think there’s no better time I’m in the camp of great companies are born in tough times, we love entrepreneurs who either started a couple years ago will start now, you know, because they really have to figure it out. And they have to be capital efficient, and really thoughtful about treating our money, like their money, or their parents money, so to speak, or their grandmothers money is the way to think about as if you’re an entrepreneur, say we got that going for us for frankly, from right now, going forward, I think the next 10 years, you’re going to find the value add or five or 10 years, the value add is going to come down market, because you’re competing as a smaller venture firm, with some firms have, as you said, multistage and have a lot more resources. So I think how magic fees are deployed, to really bring value to the companies, there’s going to be a bit of a reckoning for earlier stage, I think it’s gonna come down market has been pulling. They’ll still be founders, no people, and there’s good network during a great set of early stage investors together to do a, you know, a smallish seed or a round, I think we’re also going to see middle to long term rounds, getting back to being sensible, size wise, and nothing like little pain to kind of get people back to their senses. So those are some of the things I’m kind of focused on. But in our shop, I think the good news is, we’ve always been fundamentally driven. And I say that high growth but also with ease rule of 40 I don’t like this burn multiple, that that was just a dumb thing to be talking about. And now it’s coming up more like you better manage your burn multiple No, no. If you have a burden multiple, you’re probably going out of business or your current investors are gonna fund you. That’s, that’s short term, what we’re dealing with. But I think whether it’s rule of 40, whether it’s a unit economic measure, that’s really important. This no longer becomes a luxury going out the next few years, it’s going to be sort of embedded again, we saw that. I think the good news that’s that’s for the industry and the entrepreneurship like your two LPS when the.com Bubble hit, they really pulled back and they missed good vintages. So my so my experience raised literally six different funds here at Edison. I think most LPS were really good institutional, no, they can’t kind of just take advantage off take a year off from investing. So 23 is really interesting, because there’s going to be denominator effect, which we can talk about if we want to. But the point is the LPs are going to be tight with their allocation, but they’re not going to just sit it out. And that’s what happened in the.com bust, they literally venture became persona non grata for several years, and a lot of great outcomes were missed. So I think that’s good news from what was learned from the last boom and bust cycle. This one, we should see some benefits for having a lot of LPs having seen that feel like they missed something. 23:39 What is your opinion of these crossover funds, Co2, Tiger, I’d be curious to hear your perspective on what the future is for them. I mean, we’ve seen a number of the partners leaving, it seems like something’s brewing under the surface, I’d love to get your perspective on that. 23:55 You know, the ones who sort of stuck to growth, really growth and kind of the higher end of growth. And I think you see this, but once you’ve kind of gotten into late stage venture as a growth fund are the ones who overpaid and have now have companies that are bleeding way too much capital for even them that have, you know, theoretically endless amounts of a fun size, but they put big rounds in so it’s not as endless as they thought. I think what you’re seeing, to your point about some of these departures inside the shop, the folks who are doing venture ventures not be able to be done anymore, because their LPs are gonna hold them accountable. So you’ve got a little bit of this, what really made your money? Was it a growth kind of company or was it a venture business? I think that reckoning is happening inside these firms. And I don’t want to call any of them out specifically because I only know a few really well. But I think what’s also happening is you got some young people are going “wait a minute, it really doesn’t make sense to manage several billion dollars in a multistage firm, when am I going to see carry?” There’s just that’s the reality. And you got some young people made some good investments that want to go off on their own. So I think that always happens but it’s happening in stage and you look at font size. Look, when you look at Andreessen, you just got to respect what they’ve built, to be honest, because that is an enterprise, right? Hundreds of people doing some really interesting things. But I think if I understand what he’s done, what those two have done really well is they’ve kind of set them up as businesses inside the different strategies really run independently. We’ve actually inside our 10th fund, we’ve done control deals and minority deals, these are kind of 100 and $50 million enterprise value or less kind of buyout, but it’s really because a founder says, I want to roll but I want to I’m okay giving up control because sometimes they don’t know. But if fun, size stays reasonable, you can pull that off, if one side starts to get really big, and you’re keeping kind of a multi strategy inside you got Investment Committee, where’s my carry? It’s all the stuff that kind of goes on inside of venture firm lessons getting to an entrepreneur for your audience, if you get too much into these weeds if I do, but here’s what I’d say. If you’re getting taking investment from a multistage firm or a multi strategy firm, you better understand who’s underwriting a deal. Because if you think you’re a growth business, but you’re, you know, your investors, the venture person inside that shop, that’s gonna come home to roost, or vice versa, in the next round, or if you hit the skids. So there’s sort of for an entrepreneur, the advice there is, you really want these firms on your masthead, on your website, this is great, I got you know, the best of the best until you realize it’s a mismatch, what you need in the next stage of your investment lifecycle. So then from the entrepreneur perspective, it all became a logo Chase, as opposed to who’s really investing, what do they know about my business? And how do I fit into their strategy? Yeah. So hopefully, entrepreneurs start to ask some of those questions of the firms, they’re gonna be forced to now because they don’t have the reserves for follow up when they need a capital. But I think when you look at kind of what it means to be an entrepreneur, these multistage firms, the idea of, oh, my capitals here for a long time is interesting until it doesn’t happen. And then you have to answer the question of we have this big firm who backed me, why aren’t they investing? You know, we see a deal that someone’s in that and we’re going wait a minute, they should be showing how should they? 27:01 That’s something we think about a lot for some of the companies we have that have options that take money from multi stage funds, it comes at the risk, if they don’t want to double down and they’d be the sea or whatever future round it might be. 27:14 That’s exactly the two edged sword. It’s sort of like, you saw this in the data, I was just referring to the non traditional, right, the strategic investor, the corporates, corporate VCs, and the family office that’s pulled back first. You also see this in the multi stage, they pull back things that don’t feel like the core of what they do. So, you know, again, the next couple years are gonna see and even a couple quarters are gonna see these problems. But that should be to your point about a great early stage investor or a valuable procedure, industrial yourselves, have the company, the CEO that really says, Be careful. You know, what you’re wishing for may not be so great. If all you’re thinking about is the logo. 27:50 Yeah, yeah. One thing that you mentioned in your answer was the difference between growth equity, money, and then true venture dollars. And there’s an argument going on – I don’t know if you’ve seen any of the Twitter feuds, but how do you define growth equity versus venture? 28:07 I have seen several of those views, partaken in a couple of myself, but I generally do I lurk and read and one understand what the folks who yell at each other about NLP has asked this question, because we’re our revenue stages, again, 10 to 30 of revenue is our sweet spot, and our average deal and funds nine and 10, we’re about 15 18 million bucks. So that’s, that’s not a venture company, right. But when you look at the bigger growth, equity funds, some of these seem earlier to some of the LPS. So as you do by limited partners, number one, first institutional capital, or less than 10 million bucks raised those two things, because if you got to 15 million plus, and I don’t mean Arr, I don’t mean, right, I mean, GAAP revenue, and you raise less than 10 million bucks, you’re probably pretty capital efficient. But if we can get a first institutional capital company, which is about two thirds what we’ve done, I’ve went back and looked at some data, not just for this, but for my own stuff, as we hit our next fun, you know, kind of preparation together, go back to fun seven, which is the chosen 10 Vintage our last 12 years about 70% First institutional capital for a company doing 10 million or more in revenue. That to me is a checkbox of a growth firm versus a multistage VC firm. So when I talk to folks like you, and you go, Wait, so how does that even play? What we’ve got an interesting company? Do we miss all those? I think the key is, did you raise 20 million bucks on your way to five or 6 million in revenue? That’s a venture firm, right? That’s a raise in Series C or series D, they might get to double digit revenue. They’ve got a really big idea. But it’s been about kind of keep spending to figure it out. The other thing about venture businesses in my opinion versus growth, equity businesses, how do they find success? Is it kind of billion or multibillion or bust? And for us, we look at kind of average valuation being 75 to 80 million bucks in our portfolio for the last couple funds. Everyone can make money at 300 million bucks. Everyone could do really well, in fact, so we’re underwriting kind of three and a half to Four and a half times in our expected case. And if you’re going to put money in a 250, or 400 million or 5 million pre, you need some really big outcomes. And as we’re seeing the market is not paying for those right now. Right? The IPO markets closed. So the good thing about growth equity is how do you find success? And are we doing this for kind of a rocket ship or bust? And, frankly, that’s great venture capitalists do that? Well, people make a lot of money and do really well, we have great inventions. Let’s face it and innovation. The bottom line is, that’s not exactly what we’re doing with our LPs. That’s not where LPS have investing in us. For us. That’s the other part how this kind of question relates the entrepreneurs really understand what your investors and prospective investors, what they’re modeling, what they’re telling their LPs? Those are things that I think we’re seeing a lot better from, is that something that changed last five years, entrepreneurs are asking harder questions. There’s a lot more visibility, transparency, that’s less 10 years to our industry, but you still sometimes find a mismatch, like he didn’t really get at this evaluation argument that becomes I want 100,000,003 Instead of this is the multiple this what we’re underwriting is what we’re thinking about. I tend to find entrepreneurs who take you know, the valuation conversation around ego and kind of like a report card. Wrong answer, what are we thinking about as our exit path? So I think those are some of the high level growth equity kind of checkboxes, if you will. And the simple way to think about it, product market execution risk, we think about as execution risk, where if you get to 10, or 15, or 20 million in revenue, you know, the dog in the dog food you may have, you may underestimate or overestimate the market size, but the products clearly working, but its execution. Can I go from a founder sales model, the CEO making all the rain maybe a VP of Sales hires one salesperson, that’s what you got, you know, in a company like the ones we back, Can we now take that to 10, you know, big quota carrying salespeople a whole bunch of STRS, a whole bunch of BD RS and scale sales and marketing. That’s a gross kind of business as opposed to search for Product Market Fit and search for the product being completed. 31:57 Chris, if we could feature anyone on the show, who should we interview and what topic would you like to hear them speak about? 32:04 So I have two answers for you. One I’ve been personally this is like a personal sort of journey around COVID. I’ve been spending more time in stoicism and there’s a guy named Ryan Holliday. He’s actually become fairly famous. He got a New York Times bestseller right now. But he really boomed I think in in COVID. But the daily stoic is his not only podcast has published a bunch of books. But I think the whole thing about stoicism is focused on what you can control. And you think about an entrepreneur’s life, if they can focus on what they can control is just so much noise around them. So Ryan has some really great stuff. And I would just say any listener would benefit from from reading and listened to some of his stuff. The second, again, it’s funny how this podcast thing kind of has turned into some relationship learning from me. But there’s a guy named Steven Bartlett, Diary of a CEO. I have found his interviews, discussions just incredibly insightful. Some guests that are really just interesting, and his his ability to get people talking about things you would expect to show up on a podcast in terms of transparency, and kind of vulnerability. Amazing. So there’s a couple of things for you that I think you’ll you may want to pay. 33:08 Chris, what do you know that you need to get better at? 33:10 And as I said that, that journey of personal growth, first of all, if you ever stop learning, and I’m hoping I’m thinking you’d always don’t put this on video, but you can see all my gray hair, but I haven’t stopped learning. And because you can see when people graduated from school, you know how old I am. I think the bottom line is, I want people to be as intense as I am. I’m learning that that’s not the case. And I say that because it takes all types. It’s not that I don’t care, it’s just people bring different styles to the to the table, and you need to respect that. So you think after 30 years of being in business, you kind of figure that out early on, but I continue to kind of want people to kind of run the same their motor as high as I do. And that’s not actually the right recipe for success, that focus on what you can control look as type a high, you know, sort of people want to be successful. We all sort of want to control things we can’t control. And that’s a that’s a lifelong journey in and of itself. I frankly would love to be a lot smarter about web three. I spent a lot of time there sort of back to an industry point and is it dead or not in this current world who knows but but I do think is a really relates to kind of a burgeoning industry. I spent a lot more time in the Creator economy to so i want to get better and smarter on that. 34:19 And Chris, what is the best way for listeners to connect with you? 34:22 That’s great. So we I do try and I’m sort of Inbox Zero person. That doesn’t mean I answer on the same day, but I do answer my emails. So the good old email. I am not mister big Twitter follower, but you certainly can pay me there with a DM. And then last but not least we do this podcast called electrifying girls as well, which we’d love to collaborate with you guys on. I’ve had listeners kind of take me through that which has been extremely gratifying because we’re sort of just starting. So you sort of get someone who listen and goes Hey, I heard you. I think the other thing is, you know, as people investing, the connection point is always critical right? To have some Want to shoot me a note that you know knows me? Because I just, you know, I don’t want to let my network down. Right? So if you’re an entrepreneur, this is sort of fundraising one on one. But how does one make the warm intro? I love cold emails if they’re well written and well done. But you and I both know, the trusted lawyer, the trusted angel investor, this trusted early stage investor that goes right to the top of the list, right, the priority list. So I guess that’s a little bit of a tip, but also, I do I do try to answer every email. I’m probably guilty of missing a few but I’m happy to do it. 35:29 Absolutely. Well, thank you again for coming on. Chris. This was a real pleasure. 35:34 Likewise, Nate, thanks. Great to meet you. And thanks for having me. 35:36 Of course. Transcribed by https://otter.ai