Banana Capital's Turner Novak on his unconventional path in breaking into VC, being a successful stage agnostic investor, and leveraging social platforms to build advantages

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.

We’re thrilled to bring you my conversation with Turner Novak, founder of Banana Capital. While fairly new to venture, Turner continually brings some of the most interesting perspectives about technology, and is one of best venture follows on social media.  

Turner has an incredible backstory on how he broke into VC, and ultimately within a few years was able to found Banana Capital in January 2021, with $9.99M in commitments, including several institutional investors. Prior to having his own fund, he was General Partner at Gelt VC and also interned at a pre-seed firm Afore Capital. 

We talked with Turner about the value of social media in VC, how he thinks that successful investing can be stage agnostic, and his views on where the public and private markets are today, and where they may go in the future.

A message from our sponsor:

Pacific Western Bank is a full service commercial bank with over $34 billion in assets. The venture banking team specializes in financial products and services for startups, venture-backed businesses, and their venture capital and private equity investors.

The experienced team is committed to the space and dedicated to delivering high-touch, tailored solutions, helping innovators take their business to the next level.

In the first half of the year, the venture banking team has booked over $800 million in new loan commitments to help support the community. No matter the size or stage of your business, you can expect guidance, resources and flexibility, making them the perfect team to support your evolving needs.

Turn your vision into reality with PWB. For more information, visit www.pacwest.com/lending-solutions, or follow us on LinkedIn and Twitter.

*Equal Housing Lender & FDIC insured

*Total assets & loans booked are as of June 30, 2021.

In this episode we discuss:

02:00 Turner’s journey into Venture Capital

03:21 Getting his first internship in VC at Afore Capital

07:43 The early days as an investor and his first investments

11:25 How he built a strong deal flow channel despite being so new.

13:37 Choosing to raise his fund without a 506c provision and going the traditional way despite a huge social following.

15:42 The impetus behind raising $9.99M

18:55 Turner’s scaling plan

22:04 The role of speed in the capital environments today

25:26 Using social media to amplify his strategy and brand

30:51 How he strikes the right balance on social media to ensure he’s productively adding to the brand, but while staying authentic.

34:28 Turner’s investment criteria and how he evaluates deals and companies

38:06 What he believes the markets will look like in the next 2-3 years

43:18 The most counterintuitive thing he’s learned as an investor

45:10 The lesson he’s learned from an investing miss

46:51 The investor that most inspires him

Mentioned in this episodeBanana CapitalGelt VCAfore Capital

I’d love to know what you took away from this conversation with Turner. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.

Transcript:

Samir Kaji:

Hi, I'm Samir Kaji, host of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. Today, we're thrilled to bring you my conversation with Turner Novak, Founder of Banana Capital. While fairly new at venture, Turner continually brings some of the most interesting perspectives about technology and venture and also happens to be one of the best follows in social media.

Samir Kaji:

He's also got a great backstory on how he broke into this sea and ultimately within a few years was able to found Banana Capital in January 2021 with 9.99 million amendments, including several institutions participating. Before starting his own fund, he was a general partner at Gelt VC and also had interned at pre-seed from Afore Capital.

Samir Kaji:

We covered a lot of ground at this podcast, including the value of social media in VC, how he thinks being stage agnostic can be a successful strategy and his views on the public and private markets and where we're headed. Now, let's get into the episode to hear all of that and more.

Samir Kaji:

Today's episode is sponsored by Pacific Western Bank, a full-service commercial bank with over 34 billion in assets. The venture banking team at PacWest specializes in financial products and services for both startups and the venture and private equity funds that back them. I've worked with many of their team members over the last few decades. And I can attest to their commitment to bringing a high touch and personalized experience for every startup and fund manager client they have.

Samir Kaji:

So, whether you're a founder or a fund manager at any stage of development, and you want to find out more, check them out at www.pacwest.com.

Samir Kaji:

Hey, Turner, it's great to see you, man. Thanks for being on the show.

Turner Novak:

Hey. Awesome, thanks for having me.

Samir Kaji:

This will be a lot of fun given your backstory, which is really unique, and then all the great content that you put on Twitter and TikTok regarding venture and tech in general. But let's get back to how you got into this, why you became interested in being an investor. And then ultimately, how did you actually break in when you didn't have the traditional Silicon Valley networks that a lot of people that get into venture do.

Turner Novak:

The first time I really got interested in venture and knew it was possible to do it from Michigan, was I read a post from Blake Robbins at Ludlow saying, I forget the title, it was how I became a VC from Michigan. And it was always something I thought was fascinating because there's intersection of all these different things I wanted to do when I grew up and what I was interested in.

Turner Novak:

But yeah, I live in Michigan. I kind of thought I might have moved to a big city at some point, but ended up getting married right after school, met my girlfriend, now my partner during school. So, we never moved away.

Turner Novak:

And yeah, so I remember reading Blake's post was like, "Oh, cool. So, it's possible." And that was really the first thing that kind of got me. I mean, I had joined the investment club in college and was the president of the club for a couple of years.

Turner Novak:

And I just loved investing. And I was mostly investing in venture style things in the public markets anyways, kind of knew that's what I was going to do. But I never actually thought it was possible until that moment when I first read that.

Samir Kaji:

Yes. So, you read the post that inspires you. You're like, I think I can do venture from a place like Michigan. But it still requires you to find a landing spot, have somebody believe in you in the early days. And I know you interned at Afore, how did you go about actually getting in front of folks like that to even intern or even ultimately get a job?

Turner Novak:

Here's a long process. Initially, it started, I had just started tweeting, essentially. I'd use Twitter for, I don't know, a decade for fantasy football. I think that was initially what I use it for a lot. And I just noticed that it seems like a lot of people are on Twitter talking about this stuff. It's a way to kind of share your thoughts, build a brand, a kind of funny word to say but showing how you're thinking about things. And I kind of just slowly started to meet people that way.

Turner Novak:

And initially, I just kind of picked a niche or certain things to talk about with the end goal of eventually making the jump into VC. So, I kind of started, I think the first couple months I was on Twitter, all I talked about was Snapchat and just how I thought it was coming back. I mean, the consensus at the time was this is the next Myspace. And I was very firmly just thought that was just wrong. And if I just put my thoughts out there eventually over time. It might take a while, but I'd kind of show how I was thinking about things.

Turner Novak:

And then started tweeting a lot about TikTok when it first launched, just same thing. It was kind of crazy at the time, but I was just like, I mean, it's the best product I've ever used. I think this is going to be the most valuable company in the world one day. And again, crazy things to say, but that's what you have to do to be a good investor.

Turner Novak:

And then probably one of my big, I guess, the smarter things that I did that kind of accelerated things was I made this fantasy VC portfolio. So, it's fantasy football combined with investing. I had a fake million dollars, picked some startups, fake invested. Honestly, I had no idea how these companies were doing in most cases. It was going on Google, Reddit, Product Hunt, listening to a couple of the founders who go on a podcast.

Turner Novak:

And there's a 30, a 15-minute conversation, it was kind of like you talk to them, they talk about the business. Maybe they'd share some metrics and how they were doing. But it was basically just, essentially, what's the business model? Does it make sense? Does this seem like a good venture bet, to kind of hack together this fake portfolio.

Turner Novak:

And one of the founders actually found it and threw it up on his Twitter. And he had 100,000 followers at the time, and was just like, this is the best analysis my company I've ever seen. And I was like, "Whoa, did not expect that. That's pretty cool."

Samir Kaji:

What year was that? That was around what, 2018?

Turner Novak:

Yeah. It was the summer of 2018. I kind of just used that type of stuff over. It was like a two-year period, maybe a little under two years. But just DMing people pretty strategically, trying to line up meetings, San Francisco. And if enough people said, yes, I'd actually book a flight, take time off work to go.

Turner Novak:

And it was a very long process, probably had about five interviews all at once. We're kind of associate principal type roles moving to San Francisco and Afore was looking for someone to help out part time as an intern. But they're open to someone working remotely. And that was kind of insane a couple years ago. That was off the table at every firm. They weren't even open to discussing that because there's all these great candidates in San Francisco.

Turner Novak:

And so, I ended up taking that job. And it was interesting, because I remember having conversation with Anamitra, my old boss, and I told him, I'm just going to quit my job and I'll work for you full time. But you can treat me like I'm an intern. And it actually took me a couple days to convince him. I was just like, "Don't worry, I will drive for Uber. I'll do whatever I need to do to just make money."

Turner Novak:

And what I ended up doing was I couldn't afford my mortgage. So, we just sold the house we were living in. And then I had a rental property, too, that I bought. It was like a couple of years prior, my mom had got some money from her divorce. And I used that and my tax return or tax refund as a down payment on a rental, and then she lived with me. So, she prepaid me 12 months of rent and lived with me in this house. So, I had a ton of equity in the house. And I sold it also and then we used that to live off of for a while. So, that was the initial kind of how it happened.

Samir Kaji:

That's a great story and certainly epitomizes some of the sacrifices you made to get into venture. And I'm curious in terms of when you started actually putting money in the ground between the constructing that fantasy portfolio and then pre-Banana Capital, which we'll of course talk about later. What was that process like and what were the early days of your investment career?

Turner Novak:

It was a lot of fun. It was interesting story. So, I had met Keith Wasserman, my partner at Gelt, a couple of years prior on Twitter. He'd been following me. We'd met up a couple times when I had flown out to LA to interview, meet with people.

Turner Novak:

And he was dead set convinced on I was going to be a good VC. We were going to raise this venture fund from his real estate investors. And then I was going to invest the fund split everything three ways. And he kind of convinced me that ... He was more for this than I was, that I was going to team up with them, and we were going to do this fund.

Turner Novak:

So, kind of how it went, I joined, no, October 1st of 2019, we started investing their personal balance sheet and kind of built a deck around the portfolio companies that I had invested in. And our first close was set for March 31st of 2020, which, if you remember what it was like then, it was pretty crazy. It made it a little bit difficult to get everybody across the finish line.

Turner Novak:

It also the dynamics of running a $1.5 billion AUM real estate fund and then a $5 million was what we're shooting for venture fund, they were really focused on the real estate business. And I was trying to raise this fund that I honestly had no idea what I was doing to be completely honest with everybody listening, never raised a fund before. I thought I might do this in 10 years.

Turner Novak:

So, I was basically just forced to go try to fundraise and a lot of people I was talking to, they were saying like, "I would love to invest in your fund, but this doesn't really make sense. If you ever do your own thing, maybe we can talk about it." And so, when you talk about what it was like investing it, I remember looking March, I think I have a couple founders on a waitlist. Three things I've committed to, doing the first close at the end of the month, and I can send you the money.

Turner Novak:

And then, we don't exactly have a first close. There's a little bit of money that came in, but there's a global pandemic. The economy is essentially like the stock market is collapsing. These founders need money and even over the course of the summer, it was basically like, I'm in to give you the money. I just need eight weeks to raise it. And I've got a couple people that actually need it more than you. And I was basically raising 100K, I've wired to a founder, raised 50K, wired to a founder. It really affected the kind of companies that I was investing in.

Turner Novak:

And I basically just had a really, really good relationship with the founder. I mean, it's basically founders that didn't need my money at the end of the day. I was coming in at the tail end of an $8 million round or something or couple million dollar round and I wasn't making the difference.

Samir Kaji:

As you're doing that, you're right, trying to close during the beginning of the pandemic, you'd spent a lot of time looking at the public markets and March 18th, I think was a low point where we saw the markets really dipped to I think the Dow was something like 18,000. And everyone was really nervous. I mean, if you talk to VCs, everyone's thinking about triage, think about their existing portfolios. LPs, it completely stopped. But here you are, getting a new close, you started investing.

Samir Kaji:

But you were still pretty early. You did an internship at Afore, now you're investing out of a fairly small fund. Why were founders allowing you in into these, it seems like these rounds were oversubscribed? How much of it was related to the fact that you had been putting your thoughts out there? And I do want to get into this creator economy and what we're seeing right now is so many funds that are 10 million or under raising in different ways than the past. But tell us a little bit about what really helped you get into those deals in the early days?

Turner Novak:

It was usually people that I had an existing relationship with who, I remember one founder specifically said, "I could raise money from anyone, but I wanted to have you just because I know what you've done over the last couple years. And I just I want to work with Turner, not logo of some big fund." So, that was genuinely what it was. A couple of them are my fantasy companies, fantasy portfolios that I was following on to, quote unquote, like for real.

Turner Novak:

And typically those I had a good relationship. They were just pumped that, holy cow, some dude from the internet is excited about our company and they wanted to have me in. That's typically kind of how and why they're having me. And I mean, maybe I had interesting things to say or share. And then even as a writing publicly about certain things for a while, I mean, people start to see how you think and maybe you kind of have a track record where maybe people want to be a part of your track record, per se, is taking an early bet on them. So, that's mostly what it was.

Turner Novak:

And then other times, it wasn't like hot competitive rounds. It was just, I was just someone on the list of a couple other people they're raising money from and maybe they didn't even fill around, that kind of the thing. That's typically more with my style is I really don't try to do these hot rounds, I just think the lower the valuation, the better. You got to go earlier rather than later.

Samir Kaji:

So, you're doing this and then ultimately do decide to launch your own firm, which you raised. And I think it was 9.99 million for the first fund. What we've seen, of course, with things like rolling funds and AngelList is this new generation of investor that is raising in one or two ways. They raise typical, which is raise a small fund, you do it as a private placement.

Samir Kaji:

And then there's this new method that is actually been around for a while, the 506(c), which is you can go on and solicit. You decided not to go that route, which for me, it was a little surprising because you do have this major Twitter presence. And a lot of the folks that have large Twitter followings really weaponize it by getting in front of a lot of people through a public fundraise. Why did you decide to go the route you did and what are the pros and cons?

Turner Novak:

Yeah. I think for me, I am trying to get an institutional capital base as fast as possible. And so, a lot of conversations I had with institutional investors, there's a lot of questions around it. And me, I was an LP. I worked in endowment for three and a half years. I was also looking at maybe what the incentives look like for someone investing that fund. And it was a little bit different than I'm going to build an institutional investment firm.

Turner Novak:

They really feel like an evolution of scope programs. To me, that's how I think about them. I mean, I know so many people that instead of being a scout for a big fund, you launch a rolling fund. And you're essentially a scout for 10 or 20 firms then instead of just one. I probably could have done it and it may have made my life easier. But over the long term, I mean, I think it's important to have a more permanent institutional capital base. That's honestly what I'm going for.

Turner Novak:

So, I've just been trying to build those relationships and had a couple of those people in my fund. And I think just showing that I'm trying to do it a little bit more institutional from day one and just sets the messaging right. And so, that was really the main reason.

Turner Novak:

I also honestly didn't want to take oxygen away from other people who probably needed it. I didn't have to do it. So, I didn't want to take away from anybody else who actually maybe doing five or six, even actually really benefited down. I was lucky enough that just kind of all the people I've met over the last couple years, I didn't have to do it publicly.

Samir Kaji:

You look at that first funded, I was thinking about fund sizing, and there's a lot of discussion that, hey, $10 million and other funds are really interesting for a number of reasons, because your low friction checks to those founders. And generally speaking, it's easier to get in at 50,000 or 100,000 than it is at 1, 2 or 3 million. Was there anything intentional about why you raised 9.99? Because based on what you just said, it sounds like you had plenty of interest that you probably could have gone above that. Why effectively cap it at 9.99?

Turner Novak:

I knew that I was going to have more than 99 LPs just based on ... It was a lot of friends, people that were interested with smaller checks. I think the smallest check I took was $1,000, just from a founder that I back to a year prior. So, I had a bunch of founder, like seven founders that I've invested in the past, who gave me like, very immaterial amounts of money, but it's good signal. Also, friends who work at tech companies, maybe they're like a PM at Snapchat. They know all the people leaving Snap starting companies. Those people are writing me million-dollar checks.

Turner Novak:

And I knew that I would get way past that 99 LP threshold just based on how I was constructing it. I ended up having some institutional investors that came in at the end, who wrote really weird small checks to make it work, some of the smallest checks they'd ever written. And I wasn't planning on that. But it was nice to just get them on board. I got a couple commitments to the next fund kind of a thing, which it was awesome to just kind of already start building towards that.

Turner Novak:

Again, also, I didn't want to go out and raise a massive fund, because I think the different dynamics investing a $10 million fund and a 50 or $100 million fund, and those two numbers were both thrown out, and I just started thinking, no way, that's insane to think that I should go and do that right away.

Turner Novak:

So, they'll happen eventually. And I've been working on kind of synthetically through SPVs. You write a 200K check from the fund, but you put in a million dollars total, or you put in 500K total to just start showing that the economics on this fund, it still totally makes sense. But your kind of almost training and getting everything ready for when you do the next one.

Turner Novak:

I mean, it's just like, a VC will tell the founder, just start doing the things before you need to like, yeah, I think about the same way. What's my product? What's my distribution? I'm investing, my distributions, like founders taking my money, essentially, or how they know about me. So, I kind of think about it in the same way. So, as a founder of a company, I'm just a founder of an investment firm.

Samir Kaji:

Right. No, and I agree. A lot of times I do say that if you're raising a first time fund and you're starting a firm, you're basically an entrepreneur. You're writing checks versus writing code. But ultimately, you have to build. You have to build your brand and you have to execute, and you have a product that you deliver to founders and your LPs. So, what I heard is 10 million allowed you to take more than 100 because I think you're going to go up to 250 LPs if you wanted to under $10 million.

Samir Kaji:

The other thing though is a lot of people don't stay at that 10 million and under. And they level up to something bigger, 20, 30, 40 million in a fund two or maybe even a fund three. And oftentimes what happens is the investment model is dramatically different because you're writing bigger checks. Oftentimes, that means the value you had to provide these founders is more than just, hey, I want to get in, here's 50 or 100K.

Samir Kaji:

How do you think about scaling yourself up in terms of the product you're providing these founders as you invariably will grow your base given that you have institutional LPs, who I know want to see bigger funds in the future?

Turner Novak:

I think the most value investor can provide to a founder is just by default, just giving them money, having conviction and just not bugging them, getting out of the way, not ruining anything, 90% of it I really think. I think the best founders don't actually need help 99% of the time.

Turner Novak:

I think that's the biggest thing is just you basically find things that you have really high conviction in or you have a thesis in. And it's not about doing a ton of due diligence, dragging people along. It's just like I already know that this is what I want to invest in because I've just spent so much time thinking about it talk to or looked at so many companies, or going super fast.

Turner Novak:

I mean, this past weekend, I just made my biggest first initial check ever. I spent the entire weekend doing a bunch of research, wrote my model for it, actually sent it to the founder to read and show him my thoughts and everything. I just accelerated everything, just went super quickly. I mean, I think you have to be super fast.

Turner Novak:

Being through a bunch of portfolio companies raising a bunch of follow on rounds, the people that aren't moving fast and are just dragging their feet and don't have conviction, they're missing out. So, there's other dynamic of moving fast, it's easier to mess up. But I think you do have to just have a ton of conviction and you have to go fast.

Turner Novak:

And that's really the best thing you can give founders. And you can maybe have a couple things. I mean, I've helped founders, I'm sure you want to talk about this later. But with memes and marketing strategy, and just every VC, you can help with fundraising, you can help with recruiting. But for me, I really don't do anything unique that another VC can't do.

Turner Novak:

So, I never really pitched this value add because I just think it's kind of silly at the end of the day, if for me, it's just like, I really want to invest. Here's why. Here's the money. I can wire it to the next day. I'm ready to go. I don't care who else is investing.

Turner Novak:

And typically, for the founders I'm investing in, that's what they need the most. And yeah, I'm really not trying to sneak in any rounds and prove why I'm worth it. It's just I don't think that's the way I want to invest. So, it works for me so far.

Samir Kaji:

And what point does that actually matter? This conventional wisdom, and if you talk to LPs just say, all right, Turner you're going up from whatever your fund is, now you're writing bigger checks. I think that in order to win in a competitive market because there's so many seed funds out there, you have to have some kind of superpower. Something that you're providing these founders that's tangible that they're saying, hey, I want him on my cap table because of X, could be customer introductions, can be this.

Samir Kaji:

And everyone plays that up. In those VC, LP meetings, VCs always talk about that. It sounds like you say at the earliest stages, it's really over index on things like high conviction speed, kind of get out of the way and provide the capital that they need. But is that something that scales up if you're raising 100 or $200 million fund, and now writing 2 to $3 million checks, do you still think that would be your philosophy or do you think that at that point, yeah, you need to start to drive different type of value propositions?

Turner Novak:

In theory, yes. You probably should. But again, I really don't think the best founders really care. They just want people to give them money. I can't tell you how many times the founder, like yeah, the two-month fundraising process, and how many times we just take, wow, somebody just made me an offer after our first meeting, I'm just going to take it. That happens so much more than what is publicly discussed.

Turner Novak:

So, I'm really at the end of the day, I think it is just having conviction and speed. And we saw it with SoftBank, who maybe they had some good ideas. And now we're seeing it with all these crossover funds that are coming into private markets.

Turner Novak:

These are very solid investors. People put up 30 to 50% IRRs over long periods of time. I mean, I think even the big ones that we all know about, I mean, they're just sub 30% IRR. I mean, better than most VCs at the end of the day. These people are good investors, they come in prepared. I mean, they come in with prebuilt models and assumptions on these companies and ask them three questions. And then, they know if they're going to invest or not.

Turner Novak:

So, I think at the end of the day, yeah, it kind of is defensible in some senses. And I think there's also founders that do maybe want some help. But I've also seen too some founders actually get disenfranchised from that help. They're just like, I took this deal because there's all this value promised and it wasn't actually there. So, I'm never doing that again. And I think that's just becoming more and more prevalent. And part of that is a function of the capital markets and where we're at. And that could very easily change.

Turner Novak:

So, I don't have very hard set in stone rules on it right now. I think, for me, I am working on building out more sustainable distribution value add maybe in that sense and maybe it's more related to memes or helping get the word out about what you're doing. But I don't really think that's my, to my value.

Turner Novak:

I mean, I think my differentiation in an LP's eyes is that everything I'm doing is something they've never really seen or invested in before. So, that's typically why people are investing right now. And I have some ideas on longer term defensibility in the model, but still playing around a lot of stuff.

Samir Kaji:

You have a lot of latitude in terms of what you invest in when it comes to stage regions, valuations and all those things. And I think there is a unique model that I think it's really interesting, especially where you are right now. The other thing I was going to bring up is social media and the creator economy, which obviously, over the last 5 to 10 years has exploded.

Samir Kaji:

I remember you used to tweet about really serious things and you still do every now and then with some deep analysis, but at the same time, over the last couple of years, you've really created a brand around things like memes both on Twitter and TikTok.

Samir Kaji:

What a lot of people often ask me is that when people do that and they're building these big brands, how does it actually help the investing model? Is it a sourcing thing? Is it winning? Is it a combination of the both? How do you cut through the noise invariably that you get? I'm sure you have plenty of DMs on your Twitter of founders. Because I think it was very intentional, very strategic, in many ways, but tell us why did you start switching your style and what that's meant for you from an investor standpoint?

Turner Novak:

Like I mentioned earlier, I think about it as I'm a company, I'm a startup. Every VC will tell the startup founders, you're fighting against incumbents that have distribution. They have a bunch of existing things they do. You probably won't beat them head on. What kind of product can you build that's differentiated, and hopefully, over the long term differentiated where you also become an incumbent over time. I mean, that's ultimately what VCs are investing in.

Turner Novak:

So, that's really how I thought about it as an investor. It's like, "Okay, I'm competing against incumbent venture firms. There's thousands of them. A lot of them do the same thing." I basically just said, "How can I literally do the opposite and do things that are unique to what I'm kind of doing and building and just essentially build an investment firm or brand like VCs that are almost just completely the opposite of what everyone else is doing?"

Turner Novak:

And you don't quite inverse everything, but you do pick apart certain things that maybe you think, oh, I literally just do the opposite, this is actually better in this case. So, I'll just do that. And since you kind of find whitespace.

Turner Novak:

So, initially, it was more serious content. It was just trying to show how I was thinking about things, building a track record. And I think that worked over time. I kind of think of the content piece as there's all these different people that you're trying to hit. You want founders of companies of people who want to build $100 billion businesses, you want them coming to you and talking to you.

Turner Novak:

You all seen both the angel investors who might had some deal flow. You might think about the VCs who also might have some deal flow might want to follow on. You all think about the public market investors who are coming earlier, also, don't want them shorting your company when it goes public. You want them bringing the price up and supporting you in the public markets. And I mean, there's also LPs. You want to attract capital from LPs.

Turner Novak:

So, I kind of thought about what kind of stuff that I put out there. And it was really the more serious stuff. It was typically deep dives on companies that people weren't really talking about at the time, like Snap, ByteDance. Pinduoduo was a big one. That also really kind of overlap with my thesis as an investor. I'm doing mostly consumer stuff, which there's not as many people doing that. So, pitching into an LP and giving you a little bit of a different exposure.

Turner Novak:

And it was over time, I had started ghost tweeting for meme accounts on the tech Twitter and there's every tweet would do insanely well. And so, I got to a point where I was like, man, I should just start doing this for my own account because I'm leaving some stuff on the table.

Turner Novak:

It was risky, for sure, in the same sense, as a big established venture firm thinking we're going to start posting a bunch of crazy stuff online, instead of these serious blog posts about how to run a sales process. How to hire a board member or how to cold email us or make a pitch deck? You have something that no one else is doing. There's some VCs that kind of do it. I was just like screw it, entire thing.

Turner Novak:

And the more I was thinking about it, at the end of the day, the reason that venture firms do that stuff, it's just a top of funnel brand awareness, it's pretty insane how much top of funnel you get when you just constantly have things that you're doing, blowing up the founder group chats, making everybody laugh.

Turner Novak:

When you talk about inbound, so much stuff on some strain of hey, raising around, they don't really know very many VCs, don't like following them, but I really want to reach out to you because I think you get it and want to chat or around coming together, here's the people they're investing. I just wanted to talk to you before we close it out because I value your opinion want to have you on board.

Turner Novak:

It's so many times founders that are they're like Indonesia or something. And I asked him like, "How did you know to reach out to me?" He's like, "I saw your TikToks." Or, "My one friend, he loves your stuff. He thinks you're hilarious. So, I just wanted to talk to you." I'm not raising any money right now. But it's a lot of that kind of stuff.

Turner Novak:

And so, it was really dialing it back. I was just thinking about what products do I need to build to allow founders and LPs to give me money and take my money at the end of day. It was just building something different that I think will generate really good returns over the long term. And that was fun, too. That was another thing is I think too many people take themselves too seriously. I don't think you have to take yourself 100% serious. And you can dial it back just a little bit. So, that's another thing I kind of want to do.

Samir Kaji:

Yeah. I'll tell you, the content is great and it's memorable. And for a lot of founders, ultimately, they sort of feel like they know you before ever meeting you, and they kind of know your personality. And people do want to work with people they like. I do think that in today's world, especially in the early days, I've always seen this, the founder or the partner brand will far exceed the actual firm brand. And it's really about who am I working with.

Samir Kaji:

So, I think you've done a phenomenal job. But conventional wisdom, as you talk to these LPs, especially the institutional ones, they have their own boxes that they like to fill in. They talk about differentiation that if you're too differentiated, and everything's inverse, inverse, inverse, they get a little nervous, too. It is a high risk sort of maneuver in terms of some stuff you put out. How do you balance that and how did you get the institutional to be excited about such a different way of doing things?

Turner Novak:

I guess that it's working so far. That's probably, I guess, the short answer I mean, essentially, I'm trying to do a bottoms up crossover fund. So, I look at all these public market, hedge funds, creeping early and earlier. They're doing like Series B, Series A. I think it's really hard to be a good pre-seed and seed and even Series A investor.

Turner Novak:

So, my internship at Afore was a pre-seed. The Gelt Fund was mostly pre-seed and seed with a little bit of A. Banana is mostly pre-seed to seed with a little bit of B and C. And I've always been talking about public markets. I mean, I have a ton of theses out there of companies where if I would have invested, it would have looked really good. So, I'm kind of building the public markets component. And essentially, it's going to be a bottoms up crossover fund. I can be the first jack. I can write 200K in the company. I can do 2 million Series C, a 100 million in the public markets, different funds, obviously.

Turner Novak:

But essentially, you're just like these crossover funds, but you have the DNA to source and be the very first one in. And you're able to follow up over time. You can come in for the first time at the D, like you're super nimble. And it takes a little bit more consumer, but you can invest any sector stage, check size, geography. There's good founders building things everywhere. And my whole, I guess, the DNA of Banana has all been on the internet and not going on existing networks that already exist. And I'm building a bunch of those now.

Turner Novak:

But I just had to think about what were my advantages as an investor and just lean into those. And kind of walking LPs through it, showing them how it's working. I mean, I have a bunch of case studies of invested in the seed, was able to follow up all the way to it becoming a unicorn and potentially can keep investing over time when you just have a couple case studies of that. And it's even inbound, like the founder came to me and wanted to take my money.

Turner Novak:

So, just being able to kind of show those, it's been a fairly easy sell. I mean, I haven't got a whole lot 100% committed yet because obviously, it's a small fund. And it was more of a maybe like, let's just get to know each other. I also treated it as, no, I think a lot of emerging managers, they'll raise the fund and then they'll go invest it for a year or two. And then, they'll be like, oh, s**t have to fundraise again. And then they get back into it.

Turner Novak:

I probably have like one LP call a week, just staying up to date with people, I think know what I'm doing. I mean, it's just like, if you're a VC investing in companies, it's great to get to know these founders. And then, over the course of six months, you're like, "Wow, okay, let's just do this Series B right now. We don't have to really do a whole process, let's just do it, because we've gotten to know each other." So, it's kind of the same strategy, I guess, with LPs. And it's just I also love talking to people who like investing. It's just fun to hear what's going on. So, that's kind of been the strategy.

Samir Kaji:

Yeah. And speaking of inverse thinking, because one of the things that a lot of people say is, okay, venture or tech investing really has three categories. You have growth and crossover. You have lifecycle investors who put most of their capital the funds in A and B, and then you have the seed category. And they're pretty bifurcated because a lot of people say the muscles that you need to have or in skills really from a seed to a growth is completely different. But you're doing everything.

Samir Kaji:

What's your view on that? And are there things that are just really similar from an analysis standpoint that you sort of look at and say, "Well, it's really not that. You can actually invest across the stack and be successful within a sole GP or within one person looking at all those type of deals?"

Turner Novak:

Yeah. I think as an investor, it's ultimately especially like a tech investor it's is this a platform that has really high returns on invested capital probably the most granular way to put it. Will this have a competitive advantage, now at scale? So, I think that just thinking about it that way, it's basically every startup investment that I make, it's could this be a publicly traded company? A lot of different ways to answer that question, but then in terms of public market, it's really just if they triple quadruple revenue, how much of that is just incremental cash flow? And do you have a different view than other people?

Turner Novak:

I mean, I think that's really what you have to do to be a good investor is you have to have a different view on things, different opinion, maybe you have to be early, you have to be right over time. But you just have to see it before other people. And that's ultimately how you make money as an investor at the end of the day.

Turner Novak:

So, there's a lot of similarities or differences. I mean, to be a good public market investor, you listen to a lot of earnings calls, you're making fairly robust spreadsheets. And it's almost unnecessary, but it is important to sort of do that versus, I mean, some of the startups I invest in, I don't make a spreadsheet for invest. There's almost no need to. It's more about, can they build a product? What are they charging for it?

Turner Novak:

Okay, in theory, they could do a billion revenue, maybe. But that doesn't even matter at this point because nobody's a customer yet. The bigger question is just like, can they hire a team? Can they convince someone to sell it? How are they going to grow it? Can they grow really quickly? A lot of those kinds of questions. So, there's a lot of similarities. I think you also have some advantages, too. Like one of the companies I'm investing in, there's a bunch of publicly traded comps that are massive businesses, and these guys have a way better model, but I think they've unlocked.

Turner Novak:

And so, if you understand the publicly traded model, you're like, "Holy cow, if this actually works, this is going to be insane." And no other VC is thinking about it that way. They're just like, what's the TAM? What's the LTV, the CAC? All that comes up. Where do you go to school? So, it's a totally different way of kind of thinking about it, if you can kind of blend the two.

Samir Kaji:

Yeah. I agree with that. And since you have a lot of views that are not consensus, I want to maybe zoom out for a second and look at the market as a whole, particularly since you've spent so much time thinking about both private and public markets. It seems today that if anyone has invested in technology over the last 5 or 10 years, they've probably done pretty well as a function of this massive economic expansion coupled with the size and scale of these technology companies.

Samir Kaji:

And today, there's 750 unicorns, companies worth over a billion, which at one point in time, it was really rare for a company to hit a billion-dollar valuation in the private markets. I'm curious in how you look at the world today, because there are two views right now. One is everything's vastly overvalued as a function of the massive supply of capital out there chasing yields and it just can't continue.

Samir Kaji:

And then there's the other school of thought that, yeah, while valuations are perhaps ahead of themselves across the entire board, a lot of these companies eventually will grow to a point where some of these valuations will look like a bargain one day. And the scope of what a successful exit is, is going to be redefined forever. Where do you sit on the spectrum and what's your view of what the next two to three years might look like?

Turner Novak:

Yeah. I mean, I think we've probably had a lot of multiple expansion that people are painting on revenue, cash flow, users or height, however, you want to think about the thing you're paying on multiple on. I don't expect a lot of multiple expansion in the future, maybe even some contraction. I mean, I think it's just about finding businesses that are growing really fast that are actually economical. That's totally what I tried to do.

Turner Novak:

And if you company growing 100% month over month, if they can truly sustain that, I don't want to say the valuation doesn't matter, but it almost doesn't. It might seem high but then a year later, it might seem like, wow, we paid half of this month's revenue. It was the valuation that we paid.

Turner Novak:

So, it's really just about finding good businesses. And I do tend to skew away from things that are extremely insane. If it's a category, that's a thesis in the slide of another VCs LP deck, I'm probably not investing in it. That's kind of, I guess, how I think about it.

Turner Novak:

Basically, you just want to find those things before they become super hyped up. Invest in a company that's growing 20% month over month, but is going to be growing 100% in a year because of new products, new hires, changes in the market, timing, stuff like that, that's kind of more how I think about it. And then, I get a little more comfortable investing in those kind of hyper growth companies because you've been there and maybe you understand that a little bit better.

Turner Novak:

And I do think we're going to see the public and private markets just continuing to blend. I mean, essentially, it's the illiquidity premium that's in the private markets is kind of going away. And that's ultimately why all these funds are moving in. They're just like, why are we paying 40 times revenue and we could pay 20 in private or 30. And then that's where all the VCs get upset because they're throwing everything out whack in the public market investors like, wow, we're going to get 30% IRR, what a steal.

Turner Novak:

And so, I think that will keep happening. I think it's getting easier and easier to raise a small fund. I mean, as more capital if you just look at, if you're an LP doing analysis, you have a billion-dollar portfolio, you have to distribute some, you've got all your buckets, equities projecting 5% returns, real estate projecting whatever, fixed income projecting 5% returns, shoot, we got to earn 7% a year, where are we going to get the extra 20%. No, it's in venture capital, because historically, it's done it.

Turner Novak:

So, it just makes sense to put a bunch of money. And so, there's just going to be more money coming in from the top until LPs decide they don't want to do that anymore. And that flows down to the bottom where someone like me can pretty easily raise money from other downstream investors who essentially just want deal flow.

Turner Novak:

I mean a lot of these smaller farms are essentially scale funds for someone, whether it's a hedge fund and LP that wants to do direct another VC firm, GPs these funds, maybe friends or companies who want to invest in the SPVs when there's breakouts. That's ultimately what all these small funds are doing at the end of the day. So, I just think it's getting easier and easier to access that capital.

Turner Novak:

So, to your earlier kind of question of, yeah, just make sense. It's kind of fragmenting and I think networks are getting ripped apart, where it's more and more on the internet. We're seeing you can make a venture back business in Georgia, like in Russia, or in Tanzania and Africa. Instead of just San Francisco and maybe the San Francisco on that's a trillion dollar outcome. But maybe in Peru, it's like, yeah, it's like a $10 billion company. It's still an awesome outcome depending on the economics of who's doing it, who's investing.

Turner Novak:

So, yeah, I think is just going to keep opening up. But I do worry about a wipeout in terms of March 2020 happening again, markets not recovering, which is why I've been kind of really thinking a lot about institutional LP base. I just think it's really important to have those long-term partners. I want to be long-term partners to founders, to my investors. So, I think that's important to kind of get to and that's what LPs want to.

Samir Kaji:

Yeah. It's hard to make a case that there's never going to be some level of a recessionary environment, it's just cycles. Historically, it never lasted forever. This has been one of the longest economic expansion. So, you start to feel it. Although I will say, a lot of us are thinking back in 2015, we're like, okay, there's a bubble now. Now, 2016 is going to be a bad year. And then 2017, '18, '19. And of course, if you and I ran this conversation in March with like here it is, it's going to be a couple lean years, and that didn't happen.

Samir Kaji:

So, it's going to be an exciting time to see tech, obviously, and where innovations, it's a long-term effort that is not going to stop. And it's just a matter of how do you future proof yourself? We saw people that were really successful venture funds, not be able to raise in '08, '09, because they didn't have the right type of LPs.

Samir Kaji:

So, it certainly makes sense to get some of those institutions. I want to end with our heat check and I have three questions that I feel like the first one, we've kind of talked about a lot of this stuff, but what's the most counterintuitive thing you've learned as an investor in the time you've invested in startups?

Turner Novak:

I would say the most counterintuitive thing, if you look at some of the biggest outcomes, breakout companies, they weren't necessarily always backed by who you think of is the best VCs, which the narrative is that those are the best funds, and they are really good. But you can also build a great business if you don't raise capital from one of these brand name funds.

Turner Novak:

Eventually, the numbers will speak for themselves, and investors will back and support it. And if it's really good, I mean, you can build a 50 billion, $100 billion business and there's been so many cases of someone's struggled to raise a seed round a bunch of angels or it was maybe led by a fund that was not thought of as one of these tier one great firms. But eventually those other firms did fall one come in.

Turner Novak:

And so, I think we kind of get away from that a little bit too much. Everyone thinks you have to raise money from whatever the top funds. I don't think it's necessarily 100% true. They're good investors and they'll invest in really good companies. But don't let it dissuade you if you're a founder and you struggled to raise capital from certain names, certain brands.

Samir Kaji:

Yeah, especially in today's world where there's so many different options. I have seen some of the best companies in the world. If you look at their cap table particularly early on, they're not the traditional tier ones. And so, there's another guest in our shed that said the same thing. I know it's been early and you probably haven't missed on too many deals and probably don't have a big anti portfolio.

Samir Kaji:

But is there a deal that you missed on that you look back in the last couple of years and like, okay, well, I missed it, but not necessarily like that you just missed it. But did you learn something from that experience that you took away and will help you if this type of situation comes up again, what company was that and what did you learn from it?

Turner Novak:

I would say I'm not going to say the name of the company. But there's a company that was probably the biggest beneficiary of COVID, like startup, that I remember someone mentioned it to me in DM back in late 2019. I was like, oh, it looks cool. I just never really looked it up. And I remembered it when I was like, "Oh, wow, I probably should have at least tried to talk to the founder." I guess that's the big miss.

Turner Novak:

I mean, I think one of my other misses has been not sizing positions and doubling down into the winners fast enough or aggressively enough. And I mean, I think part of it's just a function of, it's been kind of, I've had weird capital situations.

Turner Novak:

And again, that's partially why I'm trying to get to a really permanent institutional LP base, where I look at hypothetically what it could have looked like because the cases where founders like, what do you want to invest in the next round? You can invest whatever you want. And I do like 100K check in to 2 million, but I probably would have liked to do.

Turner Novak:

So, that's been another really big lesson and almost a miss honestly. It's just not doubling down on the company with a lot of conviction. And almost thinking I needed to get more shots on goal to just kind of prove that I could do it. But I think now I'm at a point where I really just need to start all the best practices that all these seasoned VCs tell me about. I'm like, wow, I need to actually start doing that now.

Samir Kaji:

Well, speaking about seasoned VCs, is there an investor out there that you particularly aspire toward that inspires you? If so, who is it and what about them that resonates with you?

Turner Novak:

I would say Bill Gurley probably kind of a maybe that's a cop out answer. But I liked the way he publicly talks about what he's thinking about. And I just think he's very good investor. I mean, that's what I want to be. I want to be someone who people say, "Oh, Turner, yeah, he's a really good investor. He's like one of the best." And that's ultimately what I kind of aspire to.

Turner Novak:

So, probably the answer, that there's a lot of other people I like different things or what they do or different philosophies they have. Maybe I've never even met them before and maybe how I disagree with a lot of other things that they say or do. And I like, yeah, person is a pretty good investor, there's a lot of things you can learn from how they think.

Turner Novak:

So, yeah. And that's one of things I love about investing is, I mean, you can learn just as much. As a VC, you can learn just as much from other VCs as you can from public market investors, fixed income investors, real estate investors, all these different asset classes. You can really learn a lot from.

Turner Novak:

And whether it's just how to think about investing in your portfolio, but also thinking about, I mean, especially now, one of the big themes a lot of VCs are chasing is unlocking liquidity in different asset classes. It's like the stocks and people that specialize in similar asset classes and learn how they think about it. So, learning from other people is one of the things I like the most fun investing. So, there's a lot out there.

Samir Kaji:

When I do read a lot of stuff and I talked to a lot of guests on the show, I don't agree at first, with everything people say, and then you started thinking about and you apply your own beliefs on what makes sense and what doesn't, but it does make you think. And VC is this continuous learning game where you're always confronting your own biases and challenge your own assumptions. And I think people like Bill, Bill was a public analyst before he was a VC. And he's never been afraid of actually speaking against some of the craziness that happens where a lot of people buy into the hype factory.

Samir Kaji:

And so, I'm not surprised that you mentioned the name. There are people across many different asset categories I also look at that are just super interesting. This has been great, man. I have really enjoyed the conversation. Congrats on getting the first fund. Look forward to seeing both more memes, but also the growth of Banana Capital over the next few years.

Turner Novak:

Yeah. Well, thank you. Thanks for having me.

Samir Kaji:

Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Turner. To learn more about him and Banana Capital, be sure to go to ventureunlocked.substack.com for detailed notes in the show, as well as my ongoing commentary about the world of venture cap.

Samir Kaji:

Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out. And hit that subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.

Podcast Production support provided by Agent Bee Agency

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com