The Games Fund is a Moscow-based $50 million early stage fund that launched last weekRead more...
Alpaca recently rebranded from Corigin Ventures
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!
While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
David Goldberg is General Partner at Alpaca VC, which recently rebranded from Corigin Ventures.
Goldberg's responsibilities include deal sourcing, analysis, and execution, as well as portfolio company support. His investment interest areas include marketplaces, subscription commerce, shifting demographics and the sharing economy. He sits on the Board of Directors of The Inside, Minibar Delivery and Perch Interactive.
Previously, Goldberg was co-founder and CEO of FreshNeck, a men's accessory rental subscription business, where he led day-to-day operations until its exit in early 2014. David began his career as an Assistant District Attorney in Brooklyn, NY, before transitioning to finance, first with Merrill Lynch, then at Jefferies & Co.
He holds a JD/MBA from Fordham University and a Bachelor of Arts in Marketing from the University of Miami.
VatorNews: What is your investment philosophy or methodology?
David Goldberg: Corigin Ventures was started in 2015, when Ryan Freedman and I got together, both as former founders. We aligned on this concept that, at the earliest stages, often pre-revenue, we didn't have the mentorship and the coaching and the value-add from our investors that you typically find from later stage investors. Now there’s tons of them, but we believe we were one of the early ones to start this trend. We really created Corigin Ventures with founders in mind, treating our firm like a startup and a product, continually iterating, openly with the goal of providing as much value to founders as possible. We wound up going to bring in a third partner, Aubrie Pagano, in 2019 to really double down or, I guess technically triple down, on this concept of all being successful, former founders who have been on the journey, which helps us not only find an active deal flow but actually help companies scale from zero to one and inject second-time founder DNA into first or second time founders.
Originally, Corigin Ventures was spun out of my partner’s operating firm, which was Corigin Real Estate, and, as such, we were doing about half of our deals in proptech. The reason for the rebrand to Alpaca was, one, there was just confusion around the structure; were we a corporate VC or a family office? Were we a traditional VC? There was also confusion over what we focused on, where some people thought we only did proptech. While it still remains a core competency today, many of our successes, like Transfix, Paintzen, Zeel, Wheels Up, Imperfect Produce, are not in proptech and we thought it was a bit confusing, so it was opportunity to build a brand from scratch that we thought was authentic to us and to our mission.
VN: What are your categories of interest outside of proptech?
DG: On a high level, Alpaca invests in the seed stage, in companies that are reshaping the real world. Obviously there's a nod to the physical world, to physical space. We're really investing in the people, the products and the profit that power the physical and digital worlds.
Ultimately, each of the three partners has their own individual, what we call “sweet spots,” that, either over a couple of years, or even for a shorter period of time, we'll dive into. For me, particularly, I'm investing a lot recently in marketplaces, and especially B2B marketplaces. I'm also investing in consumer companies that have what I would call "non-consumer distribution." So, instead of going out and acquiring customers one by one, there's some type of mass distribution system, whether it's through third-party distribution channels, real estate owners or operators, or some kind of distinct and proprietary competitive advantage in distribution.
B2B marketplaces are exciting because, one, the numbers are just so much bigger. But, ironically, the amount of innovation and the amount of venture dollars that have got into it is much lower. This is not surprising as, oftentimes, people are building for what they know and everybody out there is a consumer of some sort or another, while very few have domain expertise, especially in the old, unsexy businesses like long haul trucking or manufacturing or something industrial.
VN: What's the big macro trend you're betting on?
DG: It’s hard to think of just one, but, at the broadest level, it’s the reimagining of work. That can be everything from remote work, which is a huge trend that we just closed an investment in, but also around the micro entrepreneur and the freelancer and inflexible work. Then if you branch it out, B2B marketplaces are changing how businesses, and the people inside those businesses, gather data, do transactions and connect with other people, source products, and so on and so forth.
VN: Some of these are things that you mentioned, like freelance work and remote, have been accelerated by COVID. How is that driving some of those trends?
DG: It’s an accelerant. These are trends that we were seeing and investing in way before COVID, but this is one of those events that can take maybe two to three years of time and condense it into a couple of months of rapid adoption.
VN: What is the size of your current fund and how many investments do you typically make in a year?
DG: We are investing out of our second fund, which is a $37 million vehicle, and we make between 6 to 8 investments a year,
VN: You said you invest in seed stage deals. How much is that in dollar amount for you?
DG: We invest in pre-seed and seed. We have an ultimate target of 10 percent ownership. So, if you think about valuations, in a pre-seed round we’re often putting probably $250,000 to $500,000. In a traditional seed round it’s probably $500,000 to up to $1.25 million.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
DG: We are very comfortable investing pre-revenue, but the caveat there is that more data is helpful. I don't believe that early traction and early numbers are not relevant; they're not everything, but they're certainly relevant. Now, I am less concerned with top line numbers, like users and revenue and I am more concerned with understanding the underlying leading indicators, like repeat rate or frequency of purchases. So, I’ll look at early cohort data to understand, even on a small number of users, how much they like their product. Are they coming back to buy again, or use the product again? Are they doing so at an accelerating or a decelerating clip?
The gross numbers aren’t important, one, because it's early and things will change, but also because they’re really just an output of the dollars that you put in. I mean, no matter what you're selling, you can get 1,000 users if you're willing to pay for them. Now, are you paying a number that is amenable to an investor is another question, but it’s just a lot less important to me.
The other thing I’ll add is there are other types of traction that I find important. It may not be sales and revenue, but it may be partnerships or talent or it may be product or technology traction.
VN: What other signals do you look for? Team, product, macro market?
DG: It’s funny: I feel like every investor says that it’s all about the team, and then they spend 90 percent of their meetings talking to their teams about the markets and the product. Team is absolutely important. I want to know why is this team not just great, smart, hungry, all the characteristics that I'm sure you hear over and over again, but why are they uniquely positioned for this specific market and opportunity?
I'll give you an example: one of our successful investments is a company called Transfix. It's a B2B marketplace, a la Uber, for long haul trucking. If you just saw the founder Drew's resume, he's a smart guy who went to Georgetown, was probably 29 or 30 at the time, ran his family's business for a little bit, nothing stood out that would have been like, “Oh my god, whatever this guy builds I’m in.” He didn't have Uber or whatever on his resume. But, given the company he was building, and the time he spent inside his family business and the customers he knew, we believe he had a very unique insight and advantage to speak to two sides of the marketplace. On one hand, Chief Logistics Officers and Fortune 500 companies; on the other hand, truck drivers. That was a very unique skill set that we thought gave him an advantage that someone else did not have. So, what I'm trying to say is that it’s not just a great team, but it’s also, what is specifically about this team that makes them uniquely positioned to tackle this market?
Market is also really important, but I do not believe product is really important, especially in the early days, where, with some of our most successful investments, the product has changed post-investment. So, it doesn’t make sense to spend too much time there. The reason we talk a lot about products and markets with founders is they're a lens to figure out how much we like the team. You can’t just ask them directly, “Oh, are you smart? Are you hungry? Are you disciplined?” You have to work your way around to build out that type of opinion.
In terms of the market, I personally like a market that is not just big but is growing, it's fragmented, and also has a little bit of controversy around it. Because those are the ones where a great product can win and it can be a big and sole winner. Everybody knows that certain markets are really, really large and that’s why you have 13 competitors all going after it.
VN: What do you mean by “controversy”?
DG: Controversy is probably not the right word. I don’t controversial in terms of regulation or anything like that. I mean, maybe, non-consensus. Maybe it is not obvious that it is a fast growing and large market.
VN: Ok, because when you said “controversy,” it made me think of something like Uber or Airbnb, where they were going after these regulated markets, which they've had a lot of problems with.
DG: I think those are actually great examples, but not because of the regulations. If you remember, when both those companies started they were both collaborative consumption, sharing economy questions. They were not obvious and most people questioned, “Is that even really even a market? Are people really going to want to get on couches, or get in cars, that are owned by other people?” Uber had black car but would you really do this with just a regular driver? So, I don't mean controversial in terms of regulation, but that’s actually the perfect example of something where you need to have a little bit of insight and basically take the opinion that something is going to be different in the future than it is today.
VN: What do you think about valuations these days? How have they been affected by outside conditions like the economy and COVID and all the things that have happened over the last six months?
DG: I thought I would see more of a change. What I really see is what I would call a bifurcation; what I mean by that is, two years ago if you had any decent resume and a not stupid idea then you could probably go out and raise a small seed round of a $1 or $1.5 million. Now, it's not guaranteed and a lot of companies and a lot of markets are struggling to raise that first round of capital. But, if you have the right resume in the right market, money is being thrown at you at valuations that just don’t make sense.
A venture capitalist has one job, and it’s to take money from LPs and deploy it, and to deploy it well. It's not really our job to time the market. And so, if you're going to deploy money, you're probably better off deploying it with a little less risk in a known quantity, in the founders that you know, and give them more money, rather than spreading that risk.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
DG: There's two halves to this equation: you have what I call the hard side and the soft side. The hard side is, what do we do? What do we invest in? What's our value? For us, really, our bread and butter DNA is, again, that we've all been successful founders and operators. The three of us have founded four companies, all that have either sold or are profitable today. That trickles down to leveraging those networks to be able to access the best deals and then convince founders to want to work with us and partner with us, and then we actually add value after that. Those are the pillars of what a VC needs to do: see the deal, win the deal, help the deal. We think we can do all those things.
The other half, the soft side, is what I call more like a value and experience-driven approach.I don’t know how to say this other than we spent a decade, each of us, building out reputations with founders, as well as co-investors, so people want to work with us. We do things the right way, we're very transparent; if we can't help, we tell them we can't help. We get very aligned with our founders, and that probably comes from the fact that we've been in their shoes and we empathize with them.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
DG: This is a very similar question to the one about LPs, in that my pitch to LPs is that founders want to work with me, and then we try to peel the onion to explain why. With founders, it's the same thing.
So, instead of pitching them that we're good to work with, we show them. If you're waiting, as an investor, until after you've decided that you want to invest to then try and sell the founder, it's too late. You need to start doing that from day one and it winds up in our reputation. So, what do we do? Our pitch is, “We’ve been in your shoes. We know what it's like. And we can help get you from zero to one. And we've been there and so we know how we would have wanted to be treated, so we're going to treat you the same way, but don't take our word for it. Go speak to founders that we've invested in, and also go speak to founders where they had troubles, whether we invested or not." Ultimately, you're going to live or die by your reputation.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
DG: Typically the ones people want to talk about are their best performers; one is Compass and one is Transfix.
Compass is a technology-enabled real estate brokerage. We invested in their first round, pre-revenue and they’ve since gone on to raise over a billion dollars from folks like SoftBank. They’re valued now at about $5 or $6 billion. It’s often the case where, we don't just wait for founders to come to us, but we learn an industry. We take more of like a bottom up thesis, to learn about a space, talk to all the stakeholders and form an opinion, so when we do meet the right founders, we can act very aggressively. And so, one of those is around real estate brokerage. My partner was the lead on that deal; the role of a broker has shifted over the years, and the amount of data that was once all gated by the professionals is now mostly open to end consumers, so the value of a broker has gone down. So, at some point that 6 percent commission is going to get compressed. Compass’ early iteration was to go after that. So, the initial thesis there was: huge market opportunity, incredible founders to take it on. Ironically, and this is what I was getting at before, they learned pretty quickly that their product was wrong, and they switched from a salary agent model to go back to supercharging agents. So, we were right on the team and we were right on the market, but we were wrong on the product.
What’s interesting there is we’ve gone on to take that same idea of using data to compress the role of the broker to other industries, one of which is Transfix, and the other is a company called Ocean Freight Exchange. Not to be repetitive, but it's a lot of the same thing: same market dynamics, where you have a huge, tens of billion dollars of commissions going in brokerage around dry bulk ocean freight, but it’s the unsexiest industry ever. It's people who are shipping $5 million worth of grain or corn or oil or natural gas, on a boat from Indonesia to Houston, but these brokers are making phone calls and using manual spreadsheets to earn five figure commissions. We were pitched by John Hanh, who is an industry insider, who had relationships on both sides, who understood how this works and could build out a data model to basically create a system where someone could come on and, with a few clicks, see what cargo is available, what ships are available, and make those matches and eat away at those commissions.
VN: What are some lessons you learned?
DG: I started my career as a lawyer, so I was actually a criminal prosecutor down in Brooklyn, New York. From there, after a couple of years, I transitioned and fell back on my MBA, went to traditional finance, first at Merrill Lynch and then at Jeffries. While at Jeffries, unbeknownst to my boss, I started a company as a side hobby that got some initial traction. I ultimately left my job on my one year anniversary to run the company, FreshNeck, full time. FreshNeck was a men's fashion rental company; very similar to what Rent the Runway is doing these days, we were doing back then in 2010. I built that company for about three and a half or four years before ultimately selling it. We made a little bit of money, and our investors made a little bit of money, but it wasn't like a huge exit. But I came away at that point knowing I was going to spend the next couple of decades of my life in the early stage startup ecosystem.
One of the things I’ve learned, now doing the investing thing for seven years, is that investing, is more than finding an underwriting companies. While that's a huge part of this job, there's so much more that happens behind the scenes that nobody realizes in terms of actually managing and running and building a firm and a fund. I think everybody thinks its like Shark Tank, where you see ideas and you just say “yes” or “no.” But we need to hire and manage and build processes and think about portfolio construction. Then, of course, we need to go raise capital. You wear a lot of hats and if you're going to be a GP of a new fund, you need to be very entrepreneurial. For me, that’s what I was looking for, but I think a lot of people get into it, not really realizing and then it’s a bit late.
VN: What excites you the most about your position as VC?
DG: At the end of the day, I'm an entrepreneur at heart, but I have severe ADD. So, being the GP at my own firm lets me scratch that operator itch of building out my own firm, my own brand, my own team and process. But, I also get to work with incredibly inspiring founders 10 to 15 at a time, across multiple industries and at different stages.
VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?
DG: We recently put out an initiative that we’re pretty excited about around diversity. We’ve been big believers in diversity from day one, from our founder portfolio level down to their individual companies. Given everything that's transpired over the last year or so, we want to see what we can personally do to have an impact. So, we actually carved out $2.5 million dollars of personal GP capital, and play the role of LP, to invest in five black and Latin-owned, emerging GPs.
We're doing this for two reasons: one is we think this will have outsized impact on the ecosystem by putting capital in the hands of the next generation of Black and Latin managers who then go out and make their own 20 or 30 investments and build out track records. But, internally, we now have relationships and anchors into some of the rising stars in this industry who have networks and deal flow that look very different from everybody else. So, we believe that’s another competitive advantage that we’ll have.
We announced this a couple of months ago and we have been running a process. We started with 75 managers who submitted and we're down to seven. We're ultimately going to invest in five, so we need probably the next two weeks to run final diligence and some internal processes to make those selections.
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