Ballistic Ventures is an early stage fund focused on the cybersecurity spaceRead more...
Quarry Ventures invests primarily in B2B SaaS, with a focus on repeat founders
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.
Danny Wen is co-founder and Managing Director of Quarry Ventures.
Wen has invested in more than 40 companies, such as GOAT, Patreon, Boom, Alt, Shef and Rad AI. He also currently serves at the Head of Strategic Go-To-Market for Findem, a recruiting technology company.
He was previously a partner at UP2398, an early-stage evergreen fund started by Pierre Omidyar, the founder of eBay. A Y Combinator alum, Wen was the co-founder and CEO of Graft, a Y Combinator-backed mobile customization company that was distributed in Apple Stores worldwide and eventually acquired by Inseego. He also co-founded and held the CEO role for Crowdmade, a multi-million dollar revenue marketplace for content creators.
VatorNews: Tell me about Quarry Ventures. Where do you sit in the venture ecosystem? What's your philosophy behind investing?
Danny Wen: Quarry Ventures is primarily an early stage fund, investing in seed to Series B. I came together with my partner, Bob Ghoorah, who himself came up with Marc Andreessen and Ben Horowitz; he formed LoudCloud, which became Opsware. We have very complementary networks, in terms of how he came up with Marc and Ben, and then me having gone through YC in the summer of 2013. So, we are part of interesting diasporas and communities, and we decided to come together to invest in the early stage. We've primarily focused on seed to Series B, so check size is anywhere from as small as half a million to $2 million at seed, and then we've written checks as big as north of $10 million.
VN: What was the need that you saw in the market? What was the opening that you saw for Quarry?
DW: I actually started full time professionally investing over at a firm called UP2398, which was started by Pierre Omidyar, the founder of eBay. So, we were primarily investing in seed there. The need for Quarry really spawned from, as a former founder, what I actually wanted in terms of a financial partner, and wanting to deliver those set of values. It's really being more hands on, being more of a counsel type of approach with founders, because, at the end of the day, as investors, we're not building the company, it's the founder’s company. So, we want to be there to support different functions, where, as a former founder, I needed the most help. A lot of firms do many things, from supporting with hiring and so forth, but I really think that the key thing is asking thoughtful and provocative questions in terms of the state of the business today, but also really just delivering on the go-to-market side. As an early stage company, that's what you need, you need a pipeline. If you're a B2B SaaS company you need partners and resources to help accelerate the business forward.
VN: That's so interesting that you had that perspective as a former founder yourself. You were saying, “This is what's lacking and here's what I didn't find, so I'm going to offer that to other entrepreneurs and founders. Here's what I didn't get, but I can give that to them.”
DW: Exactly. That's how I felt. For me, as a former founder, I've always wanted to try to build my own venture fund, and that's why we built Quarry as well.
VN: What do you like to invest in? What are your categories of interest? What's the opportunity that you see in those spaces?
DW: Our current portfolio is primarily B2B focused, just given my partner's background having built and scaled Opsware. We have made a couple of consumer investments like Shef and Patreon, so we tend to like consumer marketplaces, but we also like B2B SaaS companies.
I would say we're a generalist fund but in terms of our thesis, and at least in terms of how I've been investing in the early stage, I've been primarily focused on backing repeat founders; that was an insight I gained having been an early stage founder, having gone through YC, and then having invested through Pierre Omidyar's fund. I started to track a lot of founders who saw scale, some traction, some level of success, and whether they made it big, or they didn't, that was something I really gravitated towards too. I feel like those types of founders tend to know how to not make the same mistakes. Building a company is hard, so when they do it again, there's definitely some bigger mission involved. I can name many examples in the portfolio and I would say the core early stage portfolio has consisted mostly of repeat founders, whether they built a great, enduring business or not, or they've seen scale. I can name many examples, like Findem; Hari and Raghu, the co-founders, I met them super early on, basically, day zero. They had built a company called Instart Logic that raised over $200 million in funding, they got it to a decent size but it ultimately culminated into an acquisition to Akamai. So, they took their learnings and started applying it to Findem, which is why I've had the conviction since day one. They’re repeat founders, but also just watching them iterate from a product standpoint and then from a go-to-market standpoint.
VN: You said you're a generalist fund, so I guess that means you don't have a specific vertical that you invest in? Or are there verticals that you find really interesting right now that you want to invest in?
DW: We're definitely generalists; we've been pretty opportunistic in terms of where we do invest, and we tend to gravitate towards repeat founders, first and foremost and then we'll decide if we think the vertical is something we want to participate in.
There are a couple areas that I tend to look at: one is automation, and Findem is a great example of that. We are automating different parts of the talent function from sourcing to using our technology solution that we built to introduce automation and workflows across pre-applicant funnels, in terms of how the talent team sources candidates today. So, really eliminating the need for people to build manual pipelines in terms of recruiting where we can actually deliver that through automation and software and data.
VN: In terms of the repeat founder thing, getting back to that for a second, is that because you're doing B2B SaaS, which is much more relationship-oriented than a consumer business would be? You just put an app out and people either use it or they don't, but in B2B SaaS, you need to have those relationships, you need to have those contracts with those companies. Does that also factor into your repeat founder philosophy, that they are more likely to have those relationships and be able to get those initial customers?
DW: It's more than just the relationships. Relationships help, but it's also knowing how to build the machinery, which is different parts of the organization, and different functions from business development to marketing to having a solid go-to-market team of account executives, and then also having customer success support that on the back end. So, really understanding how to build that machinery, and having done that before, is something I've seen that repeat founders know how to do right away. They've done it before, they've scaled it. A great example is Jon Lee from DataJoy. I mean, he built Copper.com, which was G-Suite CRM, and now he's building a rev ops company, where he knows how to build machinery end to end. Same with Findem too; They did this with Instart, they're basically building something repeatable here, it's a different product, it's a different market, different set of economic buyers, but they know how to build that foundation.
VN: If you had to define the macro trend that you're betting on, what would that be?
DW: That's a great question, especially in this current environment. In terms of the investing ecosystem, we've seen a lot of froth over the last couple years. That's dialed back in terms of the growth sector, but early stage is still somewhat insulated. You're still seeing expensive rounds out there, but the best founders and the best companies are building in certain sectors, like automation; there's another company that I backed called AIM and they're building autonomous excavators. So, these are spaces and trends I'm seeing and these are areas that I'm willing to make bets on still. Another company I made a big bet on is called RadAI and they're building AI in the radiology space to reduce radiologists burnout, helping them augment their workflows through a series of products. So, these are areas I'm looking at, specifically.
Also, going back to your earlier question about repeat founders, it's not just repeat founders, but it's also potentially founder market fit, that's something we look at as well. Have you built a company in a similar space before? Do you know consumer? Do you know B2B SaaS? What have you done in your career that really stands out that, in terms of hard skills or soft skills, would apply to the company and the space you're building?
VN: We know RadAI. We have a healthcare podcast that we do and we had Jeff Chang on a few months ago.
DW: Jeff and Doktor are great examples. I backed their last company, which they saw a little bit of traction with, but I was one of their first calls when they started RadAI.
VN: It's funny, because you're not even the first person I've spoken to recently who has mentioned Jeff; I talked to Dan Engel from Santa Barbara Venture Partners and he also brought up Jeff and RadAI. So he's asked to come up a lot on these conversations.
DW: Jeff is incredible. He was the youngest doctor in the history of the United States, and has a certain pedigree, but also has the knowledge to practice radiology, but also has a background in some computer science and machine learning. So, it just was a natural fit in terms of what he built.
VN: What's the size of your current fund? How many investments do you make in a year?
DW: Today, we've deployed north of $30 million in the last little over 12 months or so. We like to invest in about eight to 10 companies per year.
VN: Talk to me about traction, because you mentioned your fairly broad range from seed to Series B and, as you said, you invest between $500,000 to $10 million. So, obviously, Series B companies are definitely going to need traction, you need some numbers, but probably not so much at seed. What do you want to see from companies along that spectrum to make you want to invest? Do you have specific numbers at those different points?
DW: That target has certainly moved, especially given current times and market volatility. There's definitely going to be a lot more scrutiny in terms of diligence and what you want to see in terms of unit economics, in terms of ARR, in terms of net dollar retention for B2B SaaS. As an early stage investor, going back to seed, I've definitely tracked and built a lot of relationships, starting from seed; so, naturally the investments that we make post-seed, meaning Series Series A, Series B, Series C, these are relationships with founders I've known and have watch operate for a long time. Those are the bets that we make, where I've had conviction, I've watched markets, I've watched them iterate product in terms of scale. So, that's how we've made later stage bets. In terms of seed, it's still more of the qualitative characteristics and traits that we talked about, like being a repeat founder. Have you built a similar company in the space before? Are you a domain expert?
VN: When I speak to early stage investors, obviously, the team is the most important thing. We've talked quite a bit already about the repeat founder aspect, but what are some of the other things that you look for in those entrepreneurs? What qualities or intangibles about that person make you want to invest in them?
DW: Some of the things I've asked for, in terms of early stage diligence, are updates they've sent to investors in terms of how they think, how they structure, state of the business, where they need help, how they need help. A couple other things I look for is, what teams have they built in the past? And what are some folks they've hired? That is a pretty telling signal, in terms of how they manage teams, how they scale teams, and how they hire because, ultimately, the people that join the company and the team are the lifeline of the company on a go forward basis in terms of actually propelling the company forward. So, those are some things I look at very specifically.
VN: I've heard that quite a bit from VCs, that their ability to recruit, and their ability to lead is really the most important thing. It sounds like you're reiterating that.
DW: Absolutely. That's very widely, commonly adopted and it's very true. At some point, when you reach scale, you can't do it all yourself, you have to delegate and trust the people that you bring onto your team to make the right decisions.
VN: When you're investing at seed, will you invest pre-product?
DW: Absolutely. I just made a bet in a company called Standard Fleet; I went to college with the founder, and this is pre-product. He's transitioning what he built in terms of consumer app into a more enterprise B2B product, but he's scaled a company before, and then sold it to Apple, so, naturally, I tend to make bets on founders there, if it's pre-product.
VN: When you invest in a company that does have a product, how do you vet that product?
DW: It's really usage. It’s, "give me your top five to 10 customers, and I want to see their adoption and usability. How much time are they spending on your product on a daily basis, or weekly or monthly basis?” That's a very telling sign in terms of stickiness and actual change management, being able to overcome that and be a core part of your workflow or daily life. That's a really telling signal in terms of early success.
VN: How do you vet the market? How do you make sure that there's a product market fit?
DW: Product market fit is very loosely used today. It's used as the seed, Series A and it's always up for interpretation, in my opinion. For me, I like to see early enterprise success if you're a B2B company; if you can actually get a couple of interesting lands and actually prove out expansion and usability org wide, and it doesn't have to be five, it could be one or two, in terms of enterprise traction, as early as Series A, that's also a really strong signal that you're not selling to just another startup or an early stage company, because naturally those companies will fail and churn. If you could sell them into the enterprise, that's a really strong signal for early success, especially if you can expand them quickly. So, not just the land but also the expand, because when you land a small deal, it's really considered an experiment within a large company setting, but if you can drive adoption, whether it's department wide, org wide, and really drive that ACD, then that means you have something truly special.
VN: When you look at retention, going back to the product a little bit, what are some of the numbers that you want to see there to make sure that this is a product that has that stickiness? How do you measure that?
DW: It depends on who you're selling to: I have a portfolio company called Jarvis and they sell to SMB, so mostly small and medium sized businesses. So, naturally, the turn will be higher, retention won't be as strong. For SMB and mid-market, you want to see anywhere from like 90 to 100% in terms of net dollar retention. And then Snowflake is the classic example of best net dollar retention; I mean, they're north of 160%, so for a company selling to enterprises, north of 110% to 120%, that's where you want to be.
VN: Let's talk about valuations. We were asking a few years ago if we were in a bubble, and I feel like the answer to that is that the bubbles popped. So, that's not really the question anymore. The question is more, what happens now?
DW: We definitely saw a lot of euphoria and froth in the market the last year and a half to two years, just given the acceleration of liquidity in the market. The early stage is still somewhat insulated, I'm still seeing deals done in the $20 to $30 million valuation marks, especially for that repeat founder who has done it before; they've scaled, they're building something compelling now for the next for the next company. In terms of the companies that raised at really high marks and valuations, now they have to figure out how to build and scale the company in terms of driving revenue towards more reasonable valuations, so they can grow to that valuation, if that makes sense. Some of them have raised a decent amount of cash, anywhere from $50 to north of $100 million. So, for a lot of these companies, they have enough runway to see how they can grow to that valuation over time.
VN: What I've heard from a lot of VCs I've talked to recently, there's a fear of the down round coming. Have you seen that yet? And, if not, when do you think that's coming?
DW: There's definitely been a lot of chatter in terms of secondary opportunities and really high discounts from the last primary round valuations. So, that is coming. They'll probably be in the next couple of quarters because it really depends on who was able to raise before this downturn happened, and who needs to raise now. The companies who are burning a lot of money, they don't have positive economics, they're not cash neutral, or burn neutral, those are the companies likely to raise and and be at the forefront of the so to speak down round.
VN: Were you advising your companies to try to raise as you were seeing this coming?
DW: We knew this was going to come. We talked about this a lot internally, it was just a matter of when; we couldn’t predict when it would happen. The companies that we've invested in there, they all have good cash positions, they're not burning a lot there, they've been conservative since day one. So, a lot of them are waiting for the next six to 12 months, maybe six to 18 months, before they come up for another raise. We've been telling companies to really focus on burn and to have enough runway for two to three years.
VN: Do you think that this is a good thing? Like you said, things got very frothy, companies were raising money they probably didn't deserve it. I don’t know if you remember Yo?
DW: I do not remember Yo.
VN: It was an app and all it did was say “yo,” and it raised money even though it didn't do anything else but that. I have no idea what happened to them afterwards but it was this ridiculous app and it raised way more money than it should have and you're just not going to see those kinds of deals anymore. So, in a certain sense, it's probably a good thing, to a certain degree, because things needed to level out a little bit.
DW: I think so. In terms of the pace of capital, and then companies raising money in the last two years, it was definitely not sustainable. It's always good to have a correction and to be at the start of the next cycle, because that's when the best companies are born. We've heard enough people talk about this in terms of Uber, Airbnb, Stripe; basically, they started during the last recession. So, we're going to see great things, positive things. The best companies are going to be built by resilient founders who will be able to survive and navigate out of this, and the ones who can adapt and iterate the best and the quickest.
VN: It looks like the economy in general is probably heading for another recession. So I guess we'll get our next crop of big companies.
DW: It's funny because I went through YC in the summer of 2013 and the valuations were like six to eight million for seed, and now they’re north of 20. So, it will be interesting to see if that dials back and scales back but there is still plenty of capital on the sidelines. The multistage firms, who have raised a lot for different kinds of verticals, or different stages, there's still plenty of cash on the sidelines for them to deploy. You've seen a lot of the growth firms come earlier, in terms of investing in seed and Series A and Series B, so there's still plenty of cash on the sidelines.
VN: I want to hear about your differentiation. I feel like a lot of firms go after the same limited partners, so you have to pitch yourself and say, “here's why I should deploy your capital.” So, what's your pitch? What's your differentiation?
DW: We used to get that question a lot and it was very hard to answer because a lot of these firms pitch the same thing: track record, access to deals network, and so forth. I was very authentic, very transparent, in terms of how I evaluated opportunities, just like the founders I wanted to back. I talk a lot about repeat founders, I stuck with that thesis and it naturally perpetuated across the portfolio.
In terms of LPs and value add, I primarily focused on family offices. It was incredibly hard to raise money from the institutional LPs because everybody was going to them. Hence the question, "how are you different?" Also, a lot of the bigger firms, multistage firms, these institutional groups already had exposure to this asset class, through the bigger firms. So, they look at you, and they ask, “what are you going to give me that's different?” So, what really resonated, and what really worked well for me, was going after family offices, and giving them access and then also talking to founders. “So and so was an executive or founder here, they built this company, they have this domain expertise, it's a good fit for you to talk to them, in terms of giving you advice on how to build this company.” So, that's how I went about it. It was more matching, and more strategic, to the companies I was looking at investing in. Again, I had built a pipeline of deals and opportunities that I wanted to invest in already ahead of time, so it was a matter of matching the right LPs to the right opportunity, if that makes sense.
VN: What about the entrepreneur? Obviously, the best entrepreneurs have a lot of options, they can take money from a lot of different places. So what's your pitch to them to say, “here's what I have for you that other firms don’t?”
DW: Again, a lot of the opportunities and deals I did were prior relationships, strong relationships, where I've had conviction in the founder before, they know me, they know what they're getting from me. For the ones that didn't know me, it was a lot more competitive, just given the competitive landscape today and how many funds exist out there chasing the same set of opportunities. So, naturally, it was very, very tough to win those deals. I definitely tried. Again, some of the early values I talked to you about were like, “hey, we have a set of these skills, experiences, and this is how we can help you.” Some didn't resonate, some resonated well but, naturally, you're going to miss because you can't win them all.
VN: Speaking of the companies that you did win, talk to me about maybe two or three of them. You mentioned a few earlier in the conversation, so you can talk about those, or you can talk about different ones. What was it about those companies that when you sat across from that founder made you want to invest in them?
DW: I love to talk about Findem, where I wrote the biggest check at this stage in my career, $10 million. I talked about how Hari and Raghu were highly technical founders who previously built Instart Logic together; they've spent 14 or 15 years of their career together, prior to starting Findem. We first met for the first time when I was over at UP2398, where we were one of the first checks, alongside with Wing Venture Capital. I still recall that moment I saw the demo, I'd never seen anything like that before in terms of an actual product. And, again, I was very green to the whole HR tech space and it made me curious, it made me want to dive deep. I won't name names, but a very well known investor at Sequoia early on told me to go very deep into a vertical and I chose HR tech and, more specifically, the talent acquisition space.
Going back to that first meeting with Hari and Raghu, I literally saw them demo this product I’d never seen before, they whiteboarded it, and they came up with this incredibly ambitious plan where I thought, “this is a huge market, if they can actually win a fraction of this market, this is going to be a huge company.” Even though it's a noisy space, it's a competitive, crowded space, that conviction early on really won them over and made them want to work with me further. We developed that relationship over the course of two years before they gave me the opportunity to co-lead the Series B. I had no financial incentive to help them, but I just wanted to go deeper and deeper with them and I spent time with them establishing product market fit, going to customers, talking to customers, and really understanding, what is the problem that these customers need help to be solved, and how Find em can insert into their workflow? What can Findem do differently than what other companies couldn't have done? So, I spent a lot of time with Hari, who's the co-founder and CEO, and we went from company to company, call to call, and we literally pitched. I sat on a bunch of calls with them and, over time, that's how I won over his trust.
Let's also talk about Invisible Commerce, which is a company building reverse logistics software. Ultimately, they want to build a new marketplace surrounded by like-new and open box items. So, the co-founders were the founders of Touch of Modern, a company in the men's e-commerce space that's focused on discovering new products. So, I've known them for quite some time and when I first got the call that they were building something very different, which is they were trying to build a headless ecommerce solution, I missed the opportunity and that initial seed round was done by Max Levchin and their firm, and I believe also Blaine Capital. I had missed the opportunity and, again, when you get the call and you miss it, it's not a satisfying feeling for an investor. So, it wasn't until later on, he called me back and he said, “Hey, look, we're going to pivot, this is not what we're going to do.” And he told me about this new concept, which is taking reverse logistics, but building that towards a marketplace, which is working with merchants, taking the returns, and then ingesting that and making that sellable into this new marketplace. Me, as a former founder, having built a consumer product company, this was a huge issue for me so, naturally, I jumped in and gravitated towards it right away and I actually wrote a pretty big check, just because I've built in that space, I've known them for a long time, I've seen them grow Touch of Modern to over $160 million in top line revenue. So, this checked every single box and we wanted to partner with each other, just given my conviction and my confidence in what they're building next.
VN: Tell me about yourself and your background. What led you to become a venture capitalist? You said you were a founder, so what made you want to make that switch?
DW: I started building building apps early on at USC back in 2009 and 2010 as an undergrad. We had a deal that we did with T-Mobile at the time where we built this home replacement Android app and T-Mobile ended up co-launching it with their second generation Android headset handset, which was the myTouch 3G. So, I got a taste early on in college, and I wanted to keep pursuing that. The YC company I built, I built it for the wrong reasons; it wasn't a problem we were trying to solve, it was more of an interest that I had, which was around product design and actually manufacturing a product and having that sold in stores; we ended up getting into Apple retail stores worldwide. So, I got the advice at the time to do YC, I had met Michael Seibel pretty early on, and he convinced us to do it and that's how I got into YC. I really built a community there; I still keep in touch with a lot of the founders in my cohort from that time. But my biggest learning was, I built a company for the wrong reason, I wasn't really solving a problem or pain point. Number two, I am not a good CEO, and I never want to be CEO again. So, that's why I became an investor, because I could do all the things that I was good at, and support the management team, or support the founder or CEO or CTO, and really complement them. That's why I became an investor because I could go wide, but also go deep in certain areas if I needed to.
VN: What are some of the lessons that you've learned since becoming a VC? Maybe some of the things that possibly surprised you about being a venture capitalist, maybe some of the things you didn't expect.
DW: There's a lot of reflections and lessons here. The biggest thing for me that I am still having a challenge to overcome today is all the misses. I mean, the FOMO is real. Having conviction is something that's very important because you cannot let your partners and other people convince you otherwise about your conviction. When you have conviction, you just go for it, because otherwise you're going to kick yourself down the line, and that's what happened with me, in terms of a lot of the early deals and opportunities I was chasing. My biggest takeaway is conviction, and don't let other people convince you otherwise because, otherwise, you're going to miss the mess and when that company becomes a unicorn, which has happened many times to me, you're going to kick yourself.
VN: What is the part of the job that you really love the most? When you go to work every day as a venture capitalist, what really motivates you to do this?
DW: It's the exciting part of seeing something grow over time. We're making long term bets, it's not going to happen overnight, it's going to take a lot of work, it's not going to always be up and to the right, there's going to be a lot of obstacles and interesting paths, and quick decisions, very key decisions, you have to make during the process. Helping shepherd that, to the point where it becomes an enduring company, that's what really excites me. It's the mission in terms of some of the companies I’ve backed and what they're doing to really drive change or build something that's fundamentally different that will last. That's what excites me the most about this job. Being able to be part of the journey, whether we're a big part of the journey or a small part of the journey, that excites me as well, just being a part of the journey and the process, and enjoying that process.
VN: Is there anything else you want people to know about you, about your firm, about spaces you invest in? Anything you want to get across?
DW: I talked about writing a big check into Findem, and what we're doing is really different because we are consolidating the HR tech stack. A lot of our economic buyers and our customers want unity, they want to unify that workflow, and a lot of them have talked about moving off of the old world of recruiting, building manual pipelines, using LinkedIn, having all these different point solutions, which is incredibly fragmented. It's a really fragmented market. But what we're doing is really different where we're unifying that tech stack and we're driving outcomes, which is using automation to drive qualified, interested, diverse candidates. We try to meet the exact spec of each role and each requisition without having bias involved. So, that's what we're trying to solve and that was the last piece I wanted to mention.
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