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Entrepreneur Ventures is a venture capital fund backed by Entrepreneur Media
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 Beckett, Jr. and Jonathan Hung are General Partners at Entrepreneur Ventures.
In his 20+ year career as a founder and operator, Beckett has raised $100 million from both private and institutional investors and has helped start seven companies – four venture-backed and three bootstrapped. Among these, he exited three, while two did not work out, and one had to be wound down and bankrupted.
Beckett started his first company at age 19 in the e-commerce space, selling OEM and aftermarket parts and accessories. This experience then led him to start three additional e-commerce companies. Of the four companies, two would exit and two are still operating successfully today with large market share. With a passion for venture growth, Danny moved his family to California, spent 15+ years back and forth to the Midwest, including time in L.A., San Diego and the Silicon Valley as a founder and operator raising capital from top investors, including Sequoia, Founders Fund, Obvious Ventures, SOMA Capital, BAM Ventures, ID Ventures, and Studio VC, to name a few.
Hung is a successful venture capitalist and entrepreneur. He has evolved from his role as a prolific angel investor with over 100 pre-seed and pre-IPO investments under his belt to becoming the Managing Partner for Entrepreneur Ventures and Head of Consumer/Partner for Trousdale Ventures. He provides intuitive business mentorship based on his experience running the U.S. and China offices as President of United Overseas Textile Corporation and work as a Financial Adviser at Morgan Stanley and UBS. He believes every company deserves genuine mentorship despite its size or niche.
Hung rounds out his time as a Managing Member of his family office fund, J Heart Ventures. HHe leverages prestigious degrees from renowned institutions, such as the University of Southern California (BSc Business Administration), London School of Economics (M.Sc. History of International Relations), Massachusetts Institute of Technology (MIT) (M.Eng. Supply Chain and Logistics), and The Wharton School at the University of Pennsylvania (MBA).
VatorNews: Let’s start with the high level of the firm at Entrepreneur Ventures and what you guys are all about. What is your philosophy, your methodology, and where do you fit into the venture ecosystem?
Danny Beckett, Jr.: I met Ryan Shea, CEO of Entrepreneur Media, about 15 years ago. At the time, I raced dirt bikes professionally and that led me to move from Michigan to California because we couldn't ride in the winter when it got cold. And so, that was how I got to know the landscape and started building my network when I was young. When I moved back after retiring from racing, I did some entrepreneurial things here in the Midwest. I'm from Michigan and, from a venture standpoint, it was really hard because it wasn't a major capital market; this was about 20 years ago. Because of that, I moved back to California a second time and that was when I met Ryan Shea. At that time, Ryan’s dad was still running the company and we talked about how, ‘hey, we're at the table, we see a lot of cool companies – wouldn’t it be cool someday if we had a fund?’ Later on, about six years ago, I started building a relationship with the President, Bill Shaw, and so that vision became Bill's baby, a little passion project at Entrepreneur. We talked to him for about six years back and forth, and we'd get on a call every so often and say, ‘hey, this would be cool,’ or, ‘I met this cool company, but we don't have a fund to invest in,’ and Bill would say, ‘I don't know how to go about that.’ But about a year ago, I began making some calls and my first call was to Jonathan, who I knew had the true venture background and experience. Jonathan said, ‘yeah, this sounds great. I'm in a good place in my life, let's do it.’
From there, it really morphed into the question you're asking is, how do we differentiate ourselves? We're a media company, first and foremost, we've been around for 46 years. We're at the table, but we're not investing. So, let's put together an early stage, pre-seed fund so we can invest as early as day-one and actually get started making bets on these founders. From there, we'll double down on the winners. We then discussed, ‘how do we let our LPs into the winners, and put SPVs or angels in?’ So, we started Entrepreneur Venture Partners, which allows us to construct SPVs, invest in the winners and invite our LPs and accredited angels in. Because of this, we like to say, ‘we're a media company, a fund and an accredited angel network.’ This is what differentiates us and, ultimately, we’re becoming an ecosystem to source, win and support great founders really early.
VN: Let's talk about where you're investing, what spaces you're looking at, where you see opportunities, and what the opportunities are in those spaces.
JH: You're always going to see trends, but we're not just following trends. We love investing in CPG products, consumer tech companies, B2B SaaS, and frontier tech. Those sectors make sense because of who we are – a pre-seed fund that's running $25,000 to $50,000 checks really early – but also our access and abilities through the Entrepreneur Media network to help our portfolio companies access a network of customers that they wouldn’t access otherwise.
In terms of Danny and me being operators, we've been through it, we know what it takes. I like to joke and say, ‘we're high school counselors. We're just trying to get you to college and to that next level of funding, so we make sure that you can pass your SATs and get that GPA high enough to go move forward.’ So, we feel those are the best categories for us. It's not cancer research, not robotics, because we're not writing a big enough check. But it's all about getting that traction really early.
VN: You said you invest in consumer and B2B, so which one are you more focused on? Or are you more 50/50?
JH: It's 50/50 because there's no true trend of, ‘we have to do half consumer, half B2B.’ Instead, it's really what the market dictates. Our goal is to always raise this $10 million size fund, and we don't want to go bigger than that because it's about investing really early with small check sizes to cover more opportunities.
VN: What are the specific verticals that you're looking for? You said you're not doing healthcare, for example, but where are you investing?
JH: For me and Danny, it's looking at opportunities that make sense. With CPG, you know it's a winner or not after 18 to 24 months because you should see the traction, and whether it's growing. But with B2B we ask, ‘what part of the equation are you looking to find opportunities in?’ Because when you look at a B2B business, it's not about trying to get as much revenue right away, it's about serving a need that a tech company can grow and expand right away, and then we source the extra money to help grow into that need.
I also love SaaS companies – the multiples on those make perfect sense. Like CPG, if I see a company that's tripling year-over-year in the next first three years, that means it's a hit, so let's find the next round of great investors to help them. At the same time, like Danny said regarding our angel network, it's all about having great mentors and people with a great experience in those specific sectors to help them grow. We don't just want people who work at Google or Unilever in our network, we want all of the above. I just met a person today, she started her career in pet food and pet care and that’s perfect. If I ever need to go to somebody and look at a company that does pet DNA stuff or tech with pets, she's the one I’d go to.
VN: If you had to define the macro trend that you're betting on, what would that be? How would you describe that?
JH: The macro trend is there's always great companies that come out of times of recession or change. We're at a great inflection point right now. I joke with people, I'm over the age of 36 and, if you're under the age of 36, you've never seen a bear market. I was in a bear market, the Great Recession, as a financial advisor in 2008 to 2010. We lost money, it was no joke and the economy almost blew up. So, the macro trend is that in great times of struggle, you're going to see great companies emerge. Like when you look at 2008, what are the two big ones? It's Airbnb and Uber. Absolutely. So, those are great times for those companies to grow and build. Look, Uber's about to join the S&P 500, they finally got to two quarters of profitability in order to be accepted in the S&P 500. That took a while, nearly 15 years. So, the macro is here.
Yes, there's AI, crypto, NFTs and all these things you hear about, but because the world is so much smaller than it once was, especially with all these things you see with AI, you're going to find companies that are going to be life-changing, and we want to be the ones that write that first check and get it on the ground floor. Whether it's going to be the next Facebook or Google, that's one side: data. We'll see how it is going forward because when there's constant change, with Fortune 500 companies letting people go, people are just excited about new opportunities. Even Apple with $3 trillion, I don't think it's going to $6 trillion over the course of the next five to 10 years. Those people are going to move on and do other great things. So, that's what we think is really important – the macro trend is that there is change going to be happening right now. Whether it happens with the election, whether it happens with China and the US or China and Russia; all these things are here for us to see great companies getting built out.
VN: It’s really interesting you say that, because a few years ago, you would see these companies, like the example I always give is a company that was called Yo, and it was just like an app and all it did was say “Yo” and it raised like $10 million. It was an example of things being way out of control, there was way too much money going into companies that don't actually do anything. And those companies can't raise funding now.
DB: They're not real businesses, that's what's happening too. When you have tough times like this, it forces everyone to reflect, reorganize and restructure. And right now, if it's not a real company, they're not raising money. But when markets are great, we're throwing money at stupid concepts like that because they can scale a user base. People downloaded it because they could hit a button that said, ‘Yo,’ but those aren't scalable businesses. Those are trendy, fickle things that get wiped out when tough times come.
VN: Let's talk a bit about your fund, I believe it's a $10 million dollar fund, and you also mentioned how much you're going to be investing in each company. So, how many investments does that come out to be per year on average?
DB: We're writing about 8 to 10 checks a month – $25k to $50k checks. We will write a smaller check if it's for something we're curious about and the founders aren’t proven, but the idea is interesting. Let's just write a small check, and then pay attention for a shorter period of time and then we could come in again if they shock us. We at least have a seat at the table, even if it’s smaller than the average $50,000. But, our total investments come out to be around 96 or so a year if we're doing that, 8 to 10 plus or minus. We've made 24 investments so far, so we're off to the races and we've got a really cool portfolio that's being constructed. Like John said, we have some cool consumer tech companies, a lot of really great CPG companies, some interesting B2B frontier ones, a few opportunistic deals. So the portfolio construction is coming together nicely. We're seeing a lot of amazing deals given the media and our network that we have, and we're excited.
VN: Obviously you're investing very early on in these companies, you might even be one of, if not the first check for these companies. So, because you're so early in their lifecycle, at that point is there any traction that they would actually need or is it too early for that? Are these companies actually going to have numbers or are you investing before they would have any customers or revenue?
DB: Not necessarily. We will do pre-product and pre-revenue but, in those cases, the founder has to be proven. If they've got a brand new idea, then you better have done something in the past. If the founder has no track record, we want to see a functional MVP and, typically, at least a first cohort if it's a tech company – or that they're in some doors, generating revenue or they have a real product to market if it's a CPG product. But we know it's early to really have anything that we can scale; they most likely don’t know their CAC, their LTV, their numbers are still really early so we can't completely bet on just the numbers. We're really betting on the founder and the team that's been constructed. We also love to see founders that have true expertise: if they worked at a CPG company and now they're out starting their own, or they worked at Stripe or some consumer tech company and now they're out doing their own thing, which says they've got a lot of good experience, good relationships and a good network that they can pull on. And it's not just them going into a brand-new space that they don't know anything about, which is just too risky for us to bet on. But, since it’s most definitely early, not a lot of numbers, we really are digging into the founder, his or her expertise and the team that they're constructing.
If it’s a CPG, we tell them to send us some product and we feed it to our friends and family to make sure that it's good, that people are really going to buy it. I mean, I've got a whole fridge full of stuff right now. Sometime my kids are like, ‘this sucks,’ and others times my kids are like, ‘this tastes great!’ We care about that because if your kids and your family and friends say, ‘this sucks,’ then you should read into that a little bit, too.
VN: That’s funny, because I guess it's very easy if it's a CPG. You just eat it.
DB: We laugh all the time because it’s nice to be in CPG, as you get some real stuff that you get to try and play with. In consumer tech or B2B, you might not even fit the ideal customer profile, so it may not even make sense. In many cases you don't even know the product well enough, you're truly betting on the founder and that they've that they know enough about the market, the customer and the problem.
VN: When it is a consumer or a B2B product and you feel like maybe you're not the target audience for that, do you even have a network of people that you can then show it to and say, ‘is this a good product or not?’ And who is in your network?
DB: Really, that's leaning into our LPs. I've been thinking a lot about this lately since I don't think a lot of VCs do this well enough. We have a lot of CPG LPs and we'll go to them and say, ‘you guys have sold and bought a bunch of amazing CPG companies, what are your thoughts on this?’ Or, ‘we know you've sold some consumer tech companies and you have a lot of experience, can you give us your feedback on this?’ So, there's the LP side. Then there's also the accredited angel network side, where we'll go out and share this with our network there too, and say, ‘what are thoughts and feedback on this?’ Then, we can use that as part of our due diligence process by taking in that feedback and using that as part of our investment process. So, it's definitely leaning into our LPs and our accredited network, along with our own market research that our team will do in order to dig in, understand the customer better, understand the market and the product on its own.
VN: Obviously it's always tough because you're trying to determine that this company is 10 years from now going to have a market and you're basically betting on whether or not that's going to be the case. In CPG, specially, because that's a very different space than a lot of others, how are you doing due diligence there? How do you determine whether or not that market is going to exist?
JH: You see it because it's the same buyers. I don't care if you know the CEO of Walmart, that doesn't matter, you need to know the buyer and what the general merchandising manager wants to do. And new trends are hot? That's so much more important than getting a C-level executive to sign off on your product, because they don't walk the store. With CPG, it really is a hits-based business, because you don't get to see multiples on tech. I've been an investor since 2012 and one of my companies got 15-times on their revenue when they exited to Dropbox, you're not going to see that for a CPG company. One of my other investments is Olipop, and they’re doing great at over $200 million – that's the number you have to hit, but they're not going to get bought at 15-times $200 million, it's impossible. You're looking at 3x to 5x, best case. So, they aren't in a hurry to sell to Coca-Cola or Pepsi, they want to get to $500 million or $600 million, because once they do that, then it's an even bigger multiple and they're in the unicorn stage. So, that's what it is. But you see it right away. Sometimes with B2B businesses you have to let them build and spend maybe $1 million dollars to see if they even have the right tech, because they have to hire the engineers or go and have a sales team developed.
I was at AWS re:Invent and it was just like, ‘Oh, you have to go to these conferences. CES is around the corner, you have to go talk and see market trends. Like what are these HR divisions doing? What are these CTOs looking for right now for their teams? That just takes time to build. But whereas, look, I can get a marketing budget, go on Facebook or Google and see right away if anyone's going to buy this product. It's just a little different.
VN: We talked a bit about the investing market and how it is right now. I'd really love to know about valuations. We do a lot of work around healthcare and obviously 2020 to 2022 was huge for healthcare, and then we saw it all crash. And I feel like that has been the case with tech in general, just much lower valuations. How does that affect how you invest versus maybe three or four years ago, when valuations were so high?
JH: From my perspective, it's the same because we're pre-seed investors. We like to see anything under $20 million, ideally under $10 million, in valuation. You probably have a product, you probably have a team, you probably have some idea of what you want to do, but there's no product market fit. You don't have $1 million ARR, you don't have $100,000 monthly recurring revenue if you’re a SaaS business and that's okay. It's really about how we're betting on the team itself and, for $50,000, or $25,000, I'm willing to take that bet. For example, we're dating right now: you don't get married on the first date. Maybe there are some crazy people out there who might, but I don't get married on the first date. So, let us date for 18 to 24 months and see if we want to get married, because getting married means we're going to write a bigger check from our outside network, but Entrepreneur Ventures is all about that first check to get that opportunity to see if it's a match. If it's not a match, that's okay, but we're going to do everything we can to see, because you have to do the diligence, you have to do the work and put in the effort.
DB: Again, if it's a serial founder and we’re coming in this early, it's because they're able to raise at a higher valuation because they've got such a track record. But, the majority of folks that are first-time founders or even if, again, they're a 10-year engineer at Google and they're leaving, and they have a network, even then those valuations are coming way down today. Before, they could have raised at way higher valuations, but they realized, given the market, they're not able to raise those crazy rates, which has helped and is good.
What’s big right now is whole capital efficiency, with all the tools and no code. You can do a lot more with a lot less today; you don't have to raise the same amount of capital that you needed to before, so you can take a little bit of a lower valuation and leverage the tools to get you to that same point.
VN: It almost felt like a few years ago, it was like a badge of honor for these companies, in a certain sense. Like they could raise such huge amounts of money at such high valuations very early on and it was like a status thing. But then it seemed to come back to bite them in a certain sense because they couldn't live up to those expectations and when it came to the next round, they'd have to have a down round. That seems to no longer be the case and it's probably good for those companies to take the lower valuation.
JH: Also, everyone thought they were an investor, everyone thought they could be a venture capitalist, and that's not the case. Just because you have some money doesn't mean you know how to be a VC, you have to put in the work and effort and be an operator. I would say, yes, there's a lot of companies that are failing right now but there's also a lot of VCs who are never going to raise another round.
VN: That's really interesting for us because I've heard a lot of that, it’s like you’re separating the wheat from the chaff, in the startup scene. But it sounds like you're saying the same thing in the VC market too. That's partially why we started doing this column in the first place, because we saw all those early stage venture capital firms starting to pop up and we were like, ‘let's talk to them, let's hear their story.’ And those firms, you're saying, many of them are no longer going to be around.
JH: I use this perfect example: I don't want acting experience, I'm either an actor or I'm not. I don't need VC experience, I'm either a venture capitalist or I'm not. Those are the funds that are going to last the test of time. We want to become a name brand, just like Sequoia or NEA, but we want to do it in the pre-seed space. We are the premier, eminent, VC, pre-seed investors, that's what we want to do, because we have such a great brand. For me to start an Entrepreneur, the media company, it will take multiple millions of dollars and multiple years. I mean, it's impossible. That's the advantage we have.
DB: It'd be like an entrepreneur who never started anything, had never done anything, trying to teach me how to start a company. That's what a lot of the VC game is, and they talk about value-add, but what value can they add? They've never done it, they don't know how to build a sales team, who to hire, how to advise you on a VP of sales, what customer success truly is or amount of money you should spend on paid ads. So, they're truly betting on macro trends, the research. Yes, research is great, but there's a lot of instinct here. You have to have been through it, done some of it, and then leverage those instincts that are developed over time. You can go out and leverage your dad's network or your Ivy League network and put a fund together, but that doesn't mean you're going to get the fund II and fund III and fund IV, and be able to, like Jonathan said, build a Sequoia and other firms that are well respected. They did that on hard work in the trenches, no different than a founder. We're a founder just doing something different, we're on the investing side. We're out there fighting every day; Jonathan and I get 10 or 20 calls a day, just a different way.
VN: Did you see a gap in the venture market? I know a lot of the bigger firms, even the ones that started out in the early stage, started drifting maybe a little bit toward some of the later stages. So, did you see that there was a gap in that very early stage for a firm like yours to come in and start funding those companies?
JH: I personally think so. Because I started my career as an angel investor, I have around 100 different portfolio companies as an angel, I’m an LP in 29 different funds, personally, and I've seen it all. This is the first time ever, and fortunately I'm working with Danny, that I'm raising capital. I've never had outside LP capital, it's only been my personal money or my network. I also work at Truesdale Ventures as a venture partner. It's always been our money investing and we're taking the hits with people. I always talk about OPM, or other people's money; I used to be a financial planner, and when I'm trading or buying Apple, I don't even look at the share price. It’s like, ‘that's what you have to do, you're buying Apple.’ But if it's my money, that’s a little different, let's see if it's going up or down. Is it turning green or red?’
My perspective is that, really, what we see is that it's not just about money. Everyone has money, it's about getting that traction. When I talk to my portfolio companies, they're asking me for introductions and, because we have such a wide variety of portfolio companies from my past experience and the current one, they can work with each other. This isn't a zero-sum game, this is the ability to help each other. ‘The buyer for Walmart or Costco, would you mind making an introduction?’ It helps grow the ecosystem. I always tell people, ‘we're making the pie bigger.’ Some people think, ‘I need to own 10% of a company or I won't invest.’ I've seen that game and it doesn't work, because it's all about getting to the exit. People don't even talk about this, which I always think is a shame: it's not about your relationship with your portfolio companies and founders, it's also about your LPs. And you see that now, you have to keep them happy, whether it's institutional or high net worth, they care. It's not just an overall return that matters, it's the communication you provide them, because they have great things, incentives themselves that keep their businesses running and, as an individual, what makes them excited that they could provide, that we need to tap into? That's why we’re creating the Entrepreneur Venture Partners. That's going to be our secret sauce, besides just the media company.
DB: It truly is an ecosystem. It's a community where you should be facilitating those connections and introductions and creating that connective tissue, where it starts to take a life of its own in many ways. Where this person meets this person and so on, they start to add value to each other. But that has to be facilitated, and that's what John, me and our team are doing. We have to encourage our team too and say, ‘guys, make sure you're making introductions and helping out and adding value where we can,’ because, again, we're making a lot of bets and people surprise you all the time. We don't really know exactly who's going to win. It could be so and so just surprises us and because we made the right connection, they knew how to pick up the ball and run with it and now, all of a sudden, they're doing really well. But it's that additional work and that additional time and effort to see those kinds of things happen.
JH: It's a whole idea that if you're hanging out with five millionaires, you're probably going to be the sixth millionaire.
VN: Talk about your pitch to LPs. You said it was the first time you've taken LP money in your career so obviously, you had to go to them and say, ‘here's why I'd be the right person to give your money away to these companies.’ And you have to differentiate yourself, obviously, so what was your pitch to them to say that you would be the right partner for them?
JH: It's just that we have the experience and time. I remember being a financial advisor when I was 24 years old: I had my Series 7 and Series 66, did that mean I was ready to invest other people's money at the time? No, because that was just a sales game. It was just about getting enough assets under management, getting enough commission, to justify my role at a Morgan Stanley or UBS where I used to work. But now it's a little different because I put my money and time into this. Before this, I was running my father's contract manufacturing business, an amazing business where he sold to Costco, Burlington Coat Factory and Amazon. I gained the understanding of how to run a corporate business but from a real, day-to-day way of a small medium business, because it's not just working at Google or a Fortune 500 company that makes wealth. It's all about these amazing opportunities you see along the way, creating amazing things. We meet people, like a guy who founded a brewery and is going to be our LP. It's an amazing company. Or someone who has a lawn care company or someone who owns 500 Subways – these are people who have power and influence and we love the idea of finding investors that are not here just to look for an overall return, but also see how they can help the community. So, my pitch to investors has always been, ‘I don't think it's just about a dollar amount to you, it's what that represents. Because when I used to be a financial advisor, the best advice I ever got was this: ‘your clients don't see money, it's just a dollar sign. They see it as their amazing trip to Europe, or funding a grandchild’s education. It's what it means to them. Once I find their weakness or what makes them tick, that's what's exciting to me, because then I can connect the dots with the portfolio companies that we have.
DB: I met with an LP today, actually, and he got super excited just about the LP events and meeting other LPs, because it's such a small percentage of their portfolio. And he's looking at how he has so much real estate and needs to start to diversify. He's younger, too, he's in his 30s now, managing the family office. So he said, ‘I've got to start to diversify and look at other things,’ but when he looks at Entrepreneur Ventures, he's said, ‘I love the media side, I see how you can help your portfolio get access, get to that product market fit faster than if a founder out on their own just took in capital, but doesn't have a network.’ The ability that we have to get them to a product market fit is much higher than even more money – even Sequoia writing a huge check to this person doesn't mean they're going to get to product market fit. So, the media side, people get super excited about, and how we're betting on a bunch of companies and they get to come in on the winners. They also get excited about the angel network, and being able to network themselves. Because again, they have other things in their portfolio that they're trying to do, and they want to network as well. They're running a business, so they look at the bigger ecosystem and what everyone's going to get out of it. There's something in this for everyone and we're seeing LPs really understand that, really value that and want to come alongside and be a part of it.
VN: What about the entrepreneur side? I think there is a vision that people have of venture capital and that it's a bunch of startups and founders coming in begging you for money. I feel like maybe that was the case at some point, but the really good companies have their pick of the litter of venture capital firms who are willing to fund them. So, what's your pitch to them? What's your value-add to them to say, ‘this is why you should take money from me.’
JH: I don't write checks bigger than $50,000, but I'm in some of the bigger deals out there that are hard to get into. I mean, I look at Dorsia, they raised $12 million at a $56 million post from Index Ventures, why would they take my $50,000? It’s because we have the Entrepreneur brand. This is a company that has 20 million unique U.S. visitors to their websites, 3.2 million readers and social followers up in the 15 millions. It's very powerful to say, ‘I have an email list that we could tap into to help you find people that make sense for your product or your enterprise.’ That's what's unique about us.
Also, you see these great venture partners that we're going to add to the ecosystem that can help you understand better what a particular company you're trying to sell into wants and what the direction should be. You're not a good founder if you don't pivot – there is no way you're doing the same thing you were a month ago or a week ago, because you're constantly trying to find that opportunity that makes sense and that you can drive towards because, once you find it, then you're going to get that access to capital, that marriage check, that everybody wants to pile in on. That's the key. So, let us give you that opportunity. It’s not that much, it's $50,000, we're not asking for a board seat and we don't want anything to stop you from growing, we’re very helpful for everybody. I also see other venture capitalists and funds investing in us. Why can't we be their LPs, why can't we be their scout fund? Because it's all about writing the next check. It's just as important as writing our first check.
DB: If you're going to raise $1 million bucks pre-seed, what do you need $1 million bucks for? Why don’t you raise $250,000 or $500,000, take less dilution, less stress and pressure, let us leverage our media network to help you get even further than you could have raised if you raised a half or $1 million. You don't need that big of a burn, keep your day job, do this on the side, raise a little less money. Let's get you to that capital efficiency, let's get you to some of those inflection points where then, once you have the numbers, you can raise money all day long. But if you take out too much capital too fast, and I've done this, I made these mistakes, you hire all these people, you don't have product market fit, and now you're focused on the wrong thing, doing too much. Before you know it, you're upside down and you're not on the right course. We've got a company right now that’s two people, and they're crushing it because they don't have a huge product team that they've got to get buy-in from, and it takes a month to get a feature built because it was in the backlog and they had to groom it and surface it. Two people meet and they say, ‘okay, we want to build this feature, let's build it.’
We used to see that way back when too; it was like this honor thing like, ‘oh, I raised a huge round of capital and now I'm going to hire all these people, because I've never hired people but that's what you're supposed to do, I think. So, I hired all these people, but now I've never managed people and I've got all these problems.’ Then, before you know it, the thing is upside down.
JH: I had a founder once tell me he was the ‘visionary of the company.’ I don't want you to be the visionary, I need to be the executioner. You have to execute. That's more important. You don't get to be Steve Jobs from the beginning.
DB: Go sell some shit! That's what you have to do for the first couple of years to find a product market fit. You're selling, it sucks and it's hard work, but you have to go sell and that's the majority of your job. Go sell and get the product market fit.
VN: List some of the companies that you've invested in, maybe two or three of them, and what it was about those companies and those founders, when they sat across from you, that made you want to invest in them?
JH: One of my companies is Boram, which started as a husband and wife team and it's all about postpartum depression. I'm going to experience this next year, my wife is pregnant, and while a woman can be healthy enough to get out of the hospital, that doesn't mean she’s ready. So, ‘why don't you check into a facility and have care there for 24 hours and get you ready for the first week?’ If we have big companies who are willing to pay for you to store your eggs, why wouldn't they pay for when the actual baby is there to help you transition for the first two months? So, it's a great facility, it has a great valuation, they have great people around the cap table as well. They're only in one location right now at the Thompson Central Park Hotel in New York. They need a little bit of extra money now and traction to show the average order value is getting higher and higher and there's a need for. We'd love to make introductions to our network, and also entrepreneurs going forward.
Another great company is CircleBack; they might need to change the name, we'll find out, because there is another company called CircleBack out there. They just got into the Y Combinator winter batch, so they're doing great and they’re a two person team and coded it themselves. Other AI tech companies do note taking, but they just do it in a way where I use it in every meeting I have. It helps me get better and better at my job. We got in before they got to Y Combinator because we're pre-seed, because we're entrepreneurs.
VN: That sounds like something I could use. I've been using Otter, but maybe it's better than that.
DB: It's actually really cool. Again, these were product guys, they worked at Stripe, they worked at Salesforce, they worked at Twitter. I mean, amazing product guys and they understand how to stay lean. There's two of them and they can move fast. They've worked in the bureaucracies of big companies, they didn't want the BS and that's why they're staying small, and they're beating these 20 major big-person teams because they can move so fast. But the strategy is more integrated: it integrates into Google Drive, Google Docs and Google Tasks, and all these different APIs. They're able to build all these APIs, so your action items, your notes and if you want that stuff in other locations without having to do it manually, it does it for you. And so, they're programming all the AI and all the integrations, and are able to move really quickly based on customer feedback to create all those integrations. That’s what makes it super, super unique.
VN: It sounds like you definitely like the agility of the early-stage companies, where it’s only a couple of people, very easy to make decisions before they get bogged down, and all the other stuff that comes along when the company continues to grow.
JH: At my core, I’m an angel investor, that’s what I love. I understand what it takes to run a fund. A lot of people out there think it’s science rather than art, but I like the beginning stages where it’s pre-seed because it's not science, it's not given. You need to take the time to understand a founder's motivation and see how they see the world differently. It's really great to be a futurist in a sense, because you see things that make sense. The idea might be great and maybe there's a lot of things that happen along the way, whether it's bad timing or you have founder issues, that's okay. But betting on a great idea in the beginning makes all the difference in getting that recognition, getting that like true understanding.
I know a bunch of firms and funds where they just write a check and maybe they get a quarterly update, but I don't like that. If I need to ask a question to one of my founders, I have their mobile number, they can text me and call me anytime and we’ll get in touch. It does not matter because it's all the same, it's not like, ‘oh, well, we're obligated to do more because we put $10 million here.’ No, it's the same amount across the table. And some people say, do you have enough bandwidth?’ Yes, we do, because it's not just me. I'm not just some guy who's just a solo GP, I'm here with Danny and we have a lot of great venture partners on the team, and a lot of great staff and people on the investment team with us, as well as entrepreneurs to help us. They give us a project manager to help think about things and talk about how an entrepreneur can be given the media push needed as well. That's huge. That's something that we can just build ourselves.
DB: I was an entrepreneur for 20 years, and it was all about me, me, me, me, me. And, honestly, when I had kids, it really changed that because it wasn't about me anymore, it was about my kids. My kids are into soccer right now, actually I've been a soccer coach for my little guy, and it’s about them, it's about others. I get to see them grow and their potential. It's the same thing that's really shaped me as a person to also be on the other side of the table for founders. I look at, what are all the mistakes, everything I did wrong and right and how can I apply that to these founders and help them not make the same mistakes? As long as they're coachable, that's a huge thing that we try to pick up on, if we can. But it's become my legacy, whether it's my kids that I'm pouring into and seeing their potential and watching them grow and develop, or I'm pouring into these founders and seeing the potential in them, and how do I support them, help them grow and develop and make those introductions. Honestly, I get far more out of seeing the founders today than I did even by myself, being a founder. I love that, honestly, it just brings so much more joy and I just feel happier when I come home to my family than actually being the founder myself.
VN: What are some of the lessons you’ve learned as a VC?
JH: The most important lesson I've learned is that you're not going to know everything. This isn't like we're shooting rockets into space like Elon Musk, we're not going to have six sigma confidence on a decision. If I can get to one sigma, which is like 70% accuracy, we're firing that rocket because the most important thing is giving the opportunity and the chance to see how that goes through. It's not about having everything perfect, it's just impossible, you have to bet on the idea and the founder early. That's why we like pre-seed investing because we know that 80% of our portfolio will, unfortunately, shut down or not work out in the first two years. But that's okay, that's the bet we made. It's the ability to help that 20%, those 40 companies, achieve the next round of financing. And, don't forget, we're here to help our LPS too. We're here to help them hunt down the best new thing, and the only way to do that is you must do a certain volume and you have to do it with a great team, because no one can do it by themselves. I would bet against you every time if that was the case.
DB: I haven't been a VC for a long time but, generally speaking, what I've learned is, number one, trust your gut. And, number two, surround yourself with incredible people and trust those people. John is the first person I call because I trust him, I know him and I know that he knows investing and he's been doing it a long time. If it's an AI company that we want to invest in, I'll pick up my phone and call my friend Nick who worked at Google and at Apple, and he's an amazing AI guy. We need to lean into our relationships and trust the work and all the time and energy those people have put into it. But you've also got to trust your gut and that comes with time, and it comes with failure. I failed a lot and anyone that's successful has made mistakes, has failed, and they learn from it and apply it to their next thing. So, I'm just honestly grateful for Jonathan, our team and the opportunity to work with Entrepreneur – and we're building something special. It’s not going to just be fund I and it's done, it's about fund 10 and beyond and what we can invest in some great companies that go on to change the world in unique and creative ways.
VN: What's the part of the job that you really love? When you do this, and you go to work every day, what really motivates you as a venture capitalist?
JH: Each day is not the same. I am also like an entrepreneur and a founder too, because this is not a nine to five job. This is not something where I can stop. You have to be there for your family and for your loved ones, of course, but being a venture capitalist, to me, means that you get to see amazing things all the time and there's firefights all the time that you have to help with because it's not that you are good at one thing only. When I ran my father's business, I was a COO, I was a CFO, I was the guy calling the port making sure things came in on time, and you can't learn this in school. They talk about the lie of academia, and I heard this when I was at MIT: a lot of people given A and B can solve for C, that's super easy, some people are great at test taking. Guess what, in the real world, nothing's given. You have no inputs, you have to figure out what the inputs are to get the right outputs for whatever you're doing.
DB: A lot of the same. My wife always says, ‘Danny loves the art of the deal,’ meaning that I'm very intellectually stimulated by understanding, looking at a lot of different problems. Each day is different; the dots are similar but there's also different, unique aspects. ‘We need to make an intro for this person over here, and this person needs help here, and this person needs help here, and we learned about this company, but it didn't do well, so what did we learn? How can we apply that to our next investment?’ Every day is truly different and it is a matter of connecting the dots and leveraging our experience and our network. And so, it's fun, it's stimulating, it's challenging and it's not the same. It's not like pushing a button and doing the same thing every day. That just becomes boring and mundane. Again, going all the way back, we get to add value, we get to feel good when we come home and see our families and lay our heads down. We feel like we're doing something good.
VN: Is there anything else? Any other aspect of the firm or about either one of you or anything that you want people to know that make sure that they get when they read this?
JH: Just reach out. I always tell people, ‘it's always no if you don't ask.’ If you don't ask for a better table then it's already, ‘no.’ Get to the ‘yes.’ You just have to take a chance. This is not something where you just go to school and you get the time to participate in it. There are no participation trophies for being a founder. You have to earn everything yourself. Just ask, take a chance.
DB: It's not just the coasts either. John lives in L.A., I'm here in the Midwest and Bill is in New York. Great entrepreneurs are everywhere, they're not just on the coasts. We may have to work a little bit harder to find them, but we are willing to put in the work and we're going to find them. But they have to do their part too and they do need to reach out to us at Pipeline@entrepreneur.vc.
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