The Full Ratchet (TFR): Venture Capital and Startup Investing Demystified

Patrick Gallagher of Tuesday Capital joins Nick on a special Crisis Coverage installment to discuss VC Firm Survival, How Seed Investing Scales, & A Glimpse at the Road Ahead. In this episode, we cover: Walk us through your path to venture How did things first come together for Crunchfund w/ you and Michael Arrington? Why did Michael leave and why did you rebrand Crunchfund to Tuesday? Gives us the highlights of your thesis? How do current events effect your approach going forward? Anything you'll avoid/be much more cautious investing in?... or anything you're leaning into? Some have said that many seed venture firms will not survive the current crisis.  I think there may be more than 1000 seed firms currently...  Do you think the volume of seed players reconciles as a result of this correction? What is your reserve strategy?  How much and how do you make decision as to how you deploy reserves into current portcos? Why the partnership with Frog and what does that mean for your portcos? Aside from design, branding, storytelling... what is an area that is significantly under-utilized as an area of value that VCs can provide to starutps? I believe you're in Airbnb and Uber... was it difficult to invest in their later rounds while you had a young seed-focused fund? Do you believe seed funds can scale? Why do you think there are so many people that want to do this job?  The numbers aren't good... it takes a long time to establish yourself, most funds fail and even the successful ones take a long time to make money. Before we wrap things up, what would you say to a young individual that wants to make a career in venture capital? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Darren Bechtel of Brick & Mortar Ventures joins Nick on a special Crisis Coverage installment to discuss The Built World in Crisis. In this episode, we cover: Background and path to venture? South Park... must be a story behind the name there? Overview of the thesis at Brick & Mortar? Just have to say... I suspect that the impacts of this crisis on the built world will be more profound that we can possibly imagine... and I won't pretend to know what those might be. Can you talk a bit about what you're seeing and what that could mean for the future? Circling back to your path to venture... How did your family react to your pursuit of a career in VC in lieu of the family business? Walk us through your first angel investment -- was it opportunistic or were you looking for startup investments actively? How'd that one turn out? Prior to founding the firm, were there any existing firms in the space that you looked to for inspiration? Talk about your first fundraise... you had access to a lot more capital than you closed. Why didn't you raise more? What was the biggest mistake you made when launching your first fund? Now that you're nearly 5 years into Brick and Mortar, is Built/ Construction tech where you expected it to be and are you as bullish on it now as you were then? Do you think a major infrastructure bill gets passed? Trump has been talking about this for years and it seems like, with the current stimulus, now is his opportunity? I have to imagine this will be a big tailwind for some of your portcos (and prospectives)? Safety has been an area of interest that you've spoken about in the past. How does that apply in the context of your investment focus and does that change w/ the current crisis? What advice would you give to a founder in the built technology space and how might that advice differ from the standard advice given to SaaS or consumer tech companies? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Welcome back to TFR for the first Investor Stories Cram Session. In these special releases, we have aggregated the Investor Stories from previous episodes. In this installment, the following investors are featured: Jonathan Struhl John Greathouse Joanne Wilson Semil Shah Bryce Roberts Troy Henikoff Jason Heltzer Christopher Mirabile David Brown Brad Feld Each investor highlights a situation where they decided not to invest, why they passed, and how it played out. To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Somesh Dash of IVP joins Nick on a special Crisis Coverage installment to discuss Late Stage Impacts and Prioritizing Mental Health. In this episode, we cover: Quick background and what led you to venture/IVP? Overview of the firm and your focus? Covid impact on later stages The 2008 crisis... '08 was still strong for C round funding, steep dropoff in 2009, stayed pretty low in 2010, returning to fairly strong levels in 2011... thoughts on timing, severity and duration of impact on later stage funding? Directional impact on average valuations at late stage? Thoughts on exits? What do you think happens in the secondary market? What do you think happens with the well-funded, late stage companies in markets that are highly dependent on social interaction, mobility, travel, etc.? Reasonable to complete deep diligence in a completely remote environment?! You've been w/ IVP since '05... best recollections of changes in strategy made at IVP in '08/'09? Suggestions on how early-stage VCs should adapt the playbook? Best moves startups made to survive and/or thrive at that time? Biggest mistakes you've seen CEOs make? Investment in Lyra's Series C.... Mental health now more than ever... expectations for industry amidst WFH/social distancing? Tips for delivering hard news? -- furloughs, layoffs.. especially remotely Suggestions for leaders to help their people through this? How to keep team morale high? How are you adapting communication or work habits at IVP to better keep engagement of your people, your portcos and your LPs? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Semil Shah of Haystack joins Nick on a special Crisis Coverage installment to discuss VC Fund Management in a Pandemic World. In this episode, we cover: Last time we had you on was Nov. 2017... quick update on you and Haystack since then? LP interaction - are capital call defaults a serious issue to consider in this environment? How do you think investment dollar volume adjusts in 2020 vs. '19? I know you've had a lot of calls w/ friends and mentors lately... what are you hearing from the veteran investors right now? What feedback or insights have surprised you? What actions have you taken since the crisis hit to adjust your own strategy? How do you see the value of face-to-face interaction playing out in the VC-Founder interaction during pitches moving forward? How are you prioritizing reserves when triaging? In the case of a fund running low on dry powder right now, what are your thoughts on reopening a fund? In what cases should an early stage company change their business model to address the changing environment? What are your thoughts on GTM, or changes in GTM, in this environment? I saw that you guys are Crowdsourcing a list of startups who have changed their business model to help fight covid-19.  What have been the most interesting so far? Over/under on duration? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Samir Kaji of First Republic joins Nick on a special Crisis Coverage installment to discuss Relief $ for Startups via CARES Act, EIDL, PPP; & How an Extended Downturn Affects Emerging VC Funds. In this episode, we cover: Startups... The CARES Act became law on 3/27, but many are having trouble making sense of it and how it applies... Let's start out w/ the two types of loans that are available to small businesses... First off, can you explain the difference between the Economic Injury Disaster Loan Program (EIDL) and the Paycheck Protection Program (PPP)? EIDL - No forgiveness potential and and requires personal guarantee? PPP - Forgiveness potential and no personal guarantee? Affiliation...  Dan Primack was writing about how the 500 employee rule and how much of Private Equity portfolio companies will be excluded b/c of how the language is written.  Can you explain the "affiliation issue?" How can this be enforced/checked... so many obscure LLCs used for investment in companies... hard to verify. April 3rd - Is this the date that PPP applications are available? What advice do you have for startups right now, to be prepared and get to the front of the queue? How will seed stage be impacted? Some of the best companies (Uber, AirBnB) first took institutional capital after the 2008 crisis; is now the time to be aggressively investing? VCs... How are the existing funds w/ committed capital adjusting? Will we see a lot of attrition / VC firms shutting down? What are the impacts on firms that are actively raising? Advice for those planning to raise a fund in the next year? What do VCs and LPs need to hammer out before moving forward in this environment? (projections/protocol for capital calls, projections for investments, communication plans, etc.) LPs... What are you hearing from institutional LPs? How about the family offices? Is it still in a crisis/panic mode or have some allocators put together a solid investment plan going forward? If you had to estimate, what % of capital commitments will default and/or be adjusted down? Final thoughts and advice for startups and investors? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

David Horowitz of Touchdown Ventures joins Nick on a special Crisis Coverage installment to discuss How Corporate VC Will Respond. In this episode, we cover: What is your current view of the venture market given the current crisis? Corporates have a history of pulling back in economic downturns, what will happen now? This is your 3rd economic downturn, What is different about this economic period vs. prior recessions? Are there advantages to new corporate funds vs. existing corporate funds? Committed capital vs. not committed You told me you believe corporations are more important in this environment than startups why? What advice do you have for start-up companies on dealing with corporations? Fair that those discussions or partnerships slow down? What is your prediction when things return to normalcy? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Chris Douvos of Ahoy Capital joins Nick on a special Crisis Coverage installment to discuss the LP Lessons from '01 and '08, The Denominator Effect, Capital Calls & Fundraising in a Down Market. In this episode, we cover: What is the denominator problem/effect? Why does it matter? How do LPs react when they face the denominator problem? How quickly do LPs tend to rebalance their investment portfolio? What's the implication to VCs? How should VCs react when their investors face the denominator problem? LPs lose access to future funds if sell position as secondary? When VCs make capital calls at times like these, what's the ripple effect down the line for these LPs? What were some of the typical LP reactions you've seen from the dot com bubble and the 2008 crisis, that you expect to see again? Can you talk more about the thought process of LPs during a crisis like this? Are they rushing to liquidate? Are they putting that money somewhere else? VC capital calls - guidance? What's the impact on VCs that are fundraising? What type of VCs have had success raising in a down market?  What are some best practices/principles for managing LP relationships in a time like this?(Chris was in PE, as Co-head of PE Investing at the Investment Fund for Foundations in 2008 crisis) What was the biggest lesson you've learned from previous crises in 2001 and 2008? VC's metrics are dependent on the market, like PME. What's the impact of the current situation on the VCs performance metrics? Is there some downward pressure for VCs to lower the Net Asset Value (i.e. the valuation of portfolio companies) to reflect the current market situation? Can you explain the disconnect between VCs that want to actively invest (because of lower valuations) and the LPs who are rushing to liquidate? What does this mean for later-stage startups that were thinking of IPO-ing in the near future? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Steve Blank joins Nick on this special "Crisis Coverage" installment to discuss The Playbook for Startup Survival. In this episode, we cover: What industries will be most affected by social isolation? How do you see this playing out over the next 3 - 6 months? How does this pandemic and the impact on the economy compare to the past 3 market crashes? Similarities/differences? Having lived through 3 crashes, what's the biggest mistake CEOs make? So lets say I’m a startup founder -- What are the major questions I should be asking before putting a new strategy together? Let's talk about burn and runway -- can you break down the key elements and how much runway one should plan for? What are the first cost cutting measures that should be taken? Should startups consider a change in business model, go-to-market or even target customer -- why or why not? Do you have any guiding principles when it comes to communication -- whether it be to employees, customers or investors? What happened to startup fundraising at different stages (seed, A, B, C) in the last crisis of 2008? You've stated that the health of the venture business may depend on what hedge funds, investment banks, private equity firms, sovereign wealth funds and large secondary market groups do. What are the possible and likely scenarios in your estimation? What advice do you have for those companies that have limited runway (3 months or less)? How about advice for pre-funded startups that are just getting off the ground? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.

Mark Suster of Upfront Ventures joins Nick on a Pre-Crisis chat to discuss Building a VC Franchise; The Shift to Bite-Sized Video Content; Last-Mile Attribution; & the Impact of Corona Virus Over The Next 6-12 Months. In this episode, we cover: Last time we had you on the show was December 2016. Any notable updates or changes at Upfront since then? Just chatting w/ Minnie Ingersoll and she was saying how great the Upfront Summit was and how I need to attend next year... what were the highlights for you this year? Content companies are beginning to optimize for quick 1-5 minute gaps everyone has in their day, on their commute, between meetings, etc. where really short form content can be consumed beginning to end.  You had a chat w/ Meg Whitman, CEO of Quibi at the Summit... and I'm going to read a quote from your blog post about that interview "her analogy of content like “The Da Vinci Code” which had 464 pages and 105 bite-sized, fully realized chapters. In essence, you’re not intimidated by the size of each episode so you dig in and might just read 8 chapters in a sitting before realizing you read 35 pages. And so it is with video."  Clearly Quibi is trying to capitalize on this short form video content w/ A-List celebrities and over $1.75B in venture funding...  Mark, do you believe this is significant emerging trend or is it overhyped and overfunded? Quibi successfully sold out of $150m in first-year ad inventory even before they launched, which says a lot about the current marketing landscape. Channels like Google and Facebook are becoming saturated, and marketers are desperate to find that new channel that will give them an advantage... thoughts here on the macro digital marketing landscape? Seen any great companies doing last-mile attribution? - Whether it be the corona virus, the election and/or a potential market correction... what do you think the next 6-12 months will hold and what effect will that have on early stage startups, funds and IPOs. What's the biggest mistake LPs or the VCs that are guiding them, make when co-investing? Who haven't you gotten yet as a featured guest at the Summit that you'd like to get in the future? Since we last spoke, you’ve inserted an “Inclusion Clause” into your term sheets at the firm. Why'd you do it?  Talk a bit about investing...  You wrote a blog post about key lessons since the first VC check you ever wrote.  Can you highlight the most critical things you've learned. - Assessing the intangibles are so important when evaluating an early stage founder ie. grit, personality, drive etc. Are there specifics methods you apply to assess for these intangibles? Are there any traits or characteristics that you think are being over-indexed on by some investors? Jason Calacanis was on recently and mentioned that you work harder for your startups than anyone else... what is your playbook for helping startups and what determines your level of involvement? In early 2019, you wrote a post about why seed investing has declined. You ended the post saying "Seed investing is here to stay (although the firms may change — with some seed funds becoming A investors).” What are the biggest shifts you see happening in early stage VC? It looks as though you took a 4 month "forced hiatus" from the blog.  What was the motivation for the break? To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes. Also, follow us on twitter @TheFullRatchet for updates and more information.