# VC10X - Mastering the Art of Successful Exits - Giuseppe Stuto, Managing Partner, 186 Ventures

An episode of [VC10X - Investing, Venture Capital, Asset Management, Family Office, Wealth Management](https://invisiblenetwork.ai/podcast/1632806986), 22 Aug 2023, 37 min.

Audio: https://anchor.fm/s/a453ddd4/podcast/play/74925373/https%3A%2F%2Fd3ctxlq1ktw2nl.cloudfront.net%2Fstaging%2F2023-7-22%2Fba4d110d-9b40-9f5f-3161-86c5883f7e7c.mp3

I'm excited to announce the release of our latest episode featuring Giuseppe Stuto, a Managing Partner at 186 Ventures. In this episode, Giuseppe shares valuable insights on how founders should evaluate acquisition offers, tips for building through the downturn, contrarian investments, and his biggest learnings from investing over the years. Here are some of the key topics we discussed: 1. The importance of long-term goals: Giuseppe emphasizes that 186 Ventures never invests in seed companies with a short-term exit horizon. They are in it for the big outcomes and believe in the potential of founders who have a long-term vision. 2. 186 Ventures' investment philosophy: Giuseppe explains how 186 Ventures is a $37 million pre-seed and seed-stage VC fund that invests across consumer, enterprise and disruptive tech. They focus on areas like embedded financial infrastructure, developer tooling, AI-enabled automation, and more. 3. Navigating the downturn: Giuseppe shares valuable advice for founders on how to build through challenging times. He emphasizes the need for focus, making deep cuts once instead of multiple times, and the importance of speed in the market. 4. Standout features of 186 Ventures: Giuseppe discusses how 186 Ventures differentiates itself from other VC firms. Their team's experience as founders and operators of high-growth tech businesses, their exclusive focus on seed investments, and their commitment to providing consistent value to their portfolio companies set them apart. 5. Managing risk and portfolio concentration: Giuseppe explains their approach to managing risk within the portfolio. They aim for 25 to 30 companies, ensuring enough concentration to actively support and nurture each investment. These are just a few of the insightful topics covered in the episode. Giuseppe's experience and expertise in the venture capital industry make this episode a must-listen for anyone interested in startups and early-stage investments. You can listen to the full episode on our website or your favorite podcast platform or on Youtube. Follow Giuseppe on X (Twitter) - https://twitter.com/gstuto Write to 186 Ventures - hello@186ventures.com Hosted by Prashant Choubey - https://www.linkedin.com/in/choubeysahab/ Thank you for your continued support, and I hope you enjoy this episode as much as I enjoyed recording it.

## Transcript

[0:00] And so for us, one thing we we don't compromise on is why are
[0:03] the founders doing this? You know, if we find a company
[0:07] can have the best metrics in the world, to your point.
[0:11] But if we find the founder, you know, motivation for starting
[0:14] the company is sell it within three years, that's a complete
[0:17] deal breaker. And we have never and will never
[0:21] invest in a seed company where you know there's a shortterm
[0:24] exit horizon. The reason why is because we are
[0:27] in it for those very large outcomes.
[0:29] Hey everyone, this is Prashant and I'll be your host for the
[0:31] VC10X podcast. And today we have.
[0:34] GSA pay studo. With us, Giuseppe is a managing
[0:37] partner at 186 Ventures, a pre seed and.
[0:40] Each stage VC fund investing across consumer, enterprise and
[0:44] disruptive tech. In this episode we talk about
[0:46] what they're building. At 186 Ventures, Yusep is
[0:49] successful. Exit as a founder.
[0:51] How founder should evaluate acquisition offers, tips for
[0:55] building through the downturn, concrete investments they have
[0:59] made at 186 Ventures. His biggest learning investing
[1:02] over the years and so much more. So without wasting any time,
[1:05] let's tie straight in. Hey Joseph, so good to have you
[1:19] on the BC10X podcast. How are you doing?
[1:22] I'm doing great, Prashant. Thank you for having me.
[1:25] Yeah, it's a pleasure having you here with me today.
[1:28] And to start things off, can we first have your story and how
[1:31] you started investing? Yeah, sure.
[1:34] So my story starts at least my technology world journey started
[1:41] all the way back when I was an undergrad here in Boston which
[1:45] is where our firm is based in the USI taught myself at a
[1:52] program at a young age and then just started to work on various
[1:57] web and mobile projects going into my graduation.
[2:01] So now we're going into 2011. And then shortly after my
[2:04] undergrad is when I founded my first software company.
[2:07] So we built FAM which is a multi party video infrastructure
[2:11] company, but that had a consumer facing component that
[2:14] effectively brought group FaceTime to the world for the
[2:19] first time on the iOS before it was natively supported by any of
[2:25] the smartphone operating systems or devices.
[2:29] We built that user base to about 7 million active users before we
[2:34] sold the company to DraftKings in Q2 of 2018.
[2:40] On there, I served roles in the product and strategy teams
[2:43] leading up to the IPO. And I would say during my time
[2:47] at DraftKings is where my good friend and I, we started to
[2:52] Angel invest together in early 2019.
[2:55] And the thought process was very simple.
[2:57] We had an organic inbound of very high quality technology
[3:02] entrepreneurs that were coming to us for advice and that were
[3:05] being referred to us for advice. So we kind of just said you know
[3:10] instead of just advising these companies why, why don't we
[3:12] invest in them. So we started to write personal
[3:16] checks under the brand of 186 ventures.
[3:20] Fast forward a few years, I left DraftKings full, you know from a
[3:25] fulltime basis and then went to one of our early Angel portfolio
[3:29] companies as their Chief Operating Officer.
[3:31] And during this time we continue to Angel invest and then come
[3:35] summer of 2021 after about 32 technology Angel investments we
[3:40] decided to institutionalize our investment platform.
[3:44] So one of these ventures raised its first fund in fall of 2021.
[3:50] Today we're at $37 million pre seed seed fund investing fairly
[3:55] agnostically across software, although there are a handful of
[3:58] themes that we spend more time on than others on you know at
[4:03] any given point. But absolutely, that's a great
[4:06] story and I'd like to learn like what's the thinking and the
[4:10] rationale behind the name 186 Ventures?
[4:13] Sure. So 186,000 miles per second is
[4:18] the constant rate of light and we chose that.
[4:22] And one thing, it is a cliche for sure, and I would argue that
[4:26] most VC firms probably name themselves just in a need of
[4:34] needing a unique name, which is kind of what we were looking
[4:37] for. You wouldn't believe how many
[4:38] different names or words are over to used to label VC firms,
[4:43] but for us it's really true to our mission and purpose.
[4:47] We genuinely believe that we move faster than most, not just
[4:52] in terms of making a decision, but in everything we do.
[4:54] You know, when we tell a founder that we're going to help them
[4:57] get in touch with, let's say, regional banks will do it
[5:01] probably within 48 hours, right? And I think it's really
[5:04] important to be able to do that in a market that's so saturated
[5:08] with many great VCs on a relative basis, it's important
[5:12] to stand out. So we try to do that by, you
[5:15] know, behaving at the speed of light and everything we do.
[5:18] That's great and like. The market for VC names is
[5:22] certainly a very competitive one because hosting this podcast, I
[5:25] know that I've hosted multiple guests with the same first name
[5:31] of their VC firm. Like they have the same first
[5:33] name of the VC firm and. Right.
[5:34] And one of them has ventures ahead of them and another one is
[5:39] capital and maybe someone is Capital Partners.
[5:43] So it's like definitely very competitive out there for sure.
[5:49] Yeah, and like. So you talked about like you
[5:52] were a founder yourself before, right?
[5:54] Yes. And and you have had, I believe
[5:57] a successful exit right there. So like what like can you like
[6:02] walk us through that journey of having a startup and then
[6:06] getting a successful exit? If you look at it in hindsight,
[6:10] what factors do you think contributed most in in like
[6:14] having that successful outcome? Sure.
[6:17] Well, the bottom line up front and this is irrespective of
[6:21] industry, it's building something of value whether it be
[6:24] the technology itself, the product, the relationship with
[6:29] customers, the user base in some cases the actual know how
[6:37] depending on what type of technology you're building.
[6:40] So you know I think that it's always a combination of those
[6:44] things. And then depending on the
[6:47] investment thesis on behalf of the acquiring company, you know
[6:53] the IT may vary, right, it may index more in the technology or
[6:57] the customers that that come that startup may have captured
[7:02] and have a relation, has a relationship with and so on.
[7:05] For us, I mean it was not a very straightforward journey at all,
[7:10] which is you know how it is for most startups.
[7:13] When we first started the company, we were building a
[7:19] basic web application that helped younger audiences,
[7:22] particularly high school students share high school
[7:25] sports student news. And then we we found that that
[7:29] was an effective way to spin up micro communities of high school
[7:32] students. Then thereafter college students
[7:34] leveraging Twitter's network graph and we built a web wrapper
[7:39] around that. And then what we found after, I
[7:42] mean I think we, we built up an audience of about 1/2 a million
[7:46] high school students and we built up a you know, a brand
[7:50] ambassador base of about the memory search, correct, 11,000
[7:56] high school students or 22,000 high school students across
[8:00] 11,000 of the nation's high school.
[8:01] So we ate, we're at about 1/3 of the United States's high
[8:05] schools, which is pretty, pretty good penetration, especially in,
[8:09] in we're talking 20/14/2015. What we found though from a
[8:14] product standpoint was that most of our users wanted to share
[8:17] graphics information, so graphical information, so image
[8:20] based. Then we found video based.
[8:23] Then we created a synchronous video broadcasting application
[8:27] and we found that most of our users were actually just hanging
[8:30] out with each other. So we decided to bring.
[8:33] It was mainly my cofounders idea was bring a standalone product
[8:37] that would allow these students or these users, excuse me young
[8:40] users, to be able to hang out with each other in a group
[8:43] FaceTime setting a private one. So it was a very windy journey
[8:47] in terms of you know why, you know we, we were approached by
[8:51] various suitors throughout the journey.
[8:55] Most of them were consumer companies.
[8:57] There were a couple of companies that were B2B because they found
[9:00] just the technology itself to be particularly interesting for
[9:03] their use case. But we were approached by many
[9:06] consumer companies that wanted to leverage group video
[9:11] technology for their experience, whether it be for their paid
[9:14] products or whether it be to stand up a standalone video and
[9:20] media experience. And I would say DraftKings fit
[9:23] that bucket, which is the company that acquired us and
[9:28] there were a few others, but I think it was a combination of
[9:31] the technology that people know how and so on.
[9:34] Right, absolutely. And when you are like approached
[9:37] by these potential acquirers? You as a founder, what are you
[9:41] thinking about at that time? Because it's always lucrative
[9:44] that there is an offer for acquisition from a potential
[9:47] company. So how are you like evaluating
[9:49] whether to take that offer or like keep pushing, like keep
[9:53] being on that journey and then like, like selling when the
[9:57] right acquirer comes, right? Yeah, for sure.
[10:00] You know, there's many inputs that go into that.
[10:05] You know, I think specific to us, you know, it was going
[10:08] through my mind was, you know, I think you know, what do we think
[10:10] the longevity of the company and user bases, how is the team
[10:15] doing, right. You know, I'm only one team
[10:17] member, but obviously there's a lot of motivations, a lot of
[10:24] personalities around the table and and kind of where everyone
[10:27] is in their respective lives because we we were at it for
[10:30] five years, right? And I would argue some of the
[10:33] best companies and startups take 10 plus years to build, but five
[10:36] years is a pretty long time when you're really grinding it out
[10:40] every single week. And so you know what was going
[10:44] to run was where, how are we feeling about things mentally,
[10:47] right. We were still very, very
[10:50] bullish. And as you know following 2018
[10:53] you saw how group video continued to be such an
[10:55] important technology, especially during the pandemic.
[11:00] And I would say now if we pull the conversation more high level
[11:03] because I think it'll be very useful to for for kind of people
[11:06] from various industries. It's really trying to be
[11:11] practical with where you where your goals are as founders, not
[11:15] even just, you know your own personal goals, but goals
[11:19] related to why you started to build the business relative to
[11:25] to the milestones that are effectively illustrate success
[11:30] criteria for you as a founder and as a business owner.
[11:34] Because then they were talking, you know, we call them startups,
[11:36] but they are businesses we're talking about.
[11:39] Businesses are assets that generate revenue for various
[11:43] stakeholders, whether it be, you know, their own employees,
[11:47] whether it be for customers, whatever, right, and
[11:51] shareholders themselves. And so you have to think, all
[11:55] right, how do I maximize shareholder value?
[11:58] And that's really the most important question because
[12:01] ultimately even as a shareholder of your own business, you do
[12:04] have a fiduciary duty to think in that lens.
[12:06] And so you have to think about, you know, do you think you can
[12:09] compete, do you think you have a lot of longevity?
[12:11] Those are, I would say, the objective variables.
[12:14] Subjective variables are what do you want to do as people, right?
[12:18] You know, if the entire team is burnt out, well then you
[12:21] probably should think about moving on because it won't end
[12:24] well for the business after some point a period of time.
[12:28] But it's a combination of things.
[12:30] Yeah, absolutely. Great insights there.
[12:32] And now let's like try to shift focus on 186 Ventures, the thing
[12:36] that you're doing now. So what's your focus at 186
[12:41] Ventures? Can you walk us through your
[12:43] investment thesis? Sure.
[12:45] So we're pre seed seed fund, we write on average quarter million
[12:49] to million and a half dollars in our initial checks.
[12:53] We invest in software and we're more stage focused than any
[12:58] particular industry. Areas though where we spend most
[13:00] of our time include embedded financial infrastructure,
[13:04] developer tooling, AI enabled automation at the application
[13:10] layer, not so much at the infrastructure layer, your
[13:13] typical vertical B2B SAS and then we opportunistically will
[13:18] spend time on consumer focused applications.
[13:22] But the enterprise and AI component really touches on so
[13:25] many different industries like property, technology and so on.
[13:29] That's our focus pretty much. Yeah, that's great.
[13:33] And like while you're evaluating these deals like are you trying
[13:37] to look for yourself in the founders that are pitching you.
[13:40] So we typically, it's a good question and really it depends
[13:44] on the industry of course, because depending on the
[13:46] industry we believe you want to weigh certain things more than
[13:51] others, right. So if you're like for example,
[13:53] if you're bringing a financial infrastructure or financial
[13:57] services infrastructure company to the market, you probably want
[14:00] to index on who is doing this because there's a lot of risk
[14:03] and regulatory know how required and it's one of those industries
[14:06] where bringing some level of the qualified subject matter
[14:12] expertise is quite important. But I think in general there's
[14:17] four pillars we we like to look at.
[14:20] The first being the team subject matter expertise and so on their
[14:23] motivations as human beings for why they're doing it. 2nd is the
[14:28] market. You know given out early we come
[14:29] in and just given the the model of our fund being a venture
[14:33] model, we need to know that the market can be big enough if
[14:38] there's a winner on our hands. So we like to look at the total
[14:41] addressable market and whether it's big enough to fit our
[14:44] investment criteria. Then the business model, you
[14:49] know one thing that we pride ourselves on early on, we think
[14:54] about you know how is the team and how is the product, if there
[14:58] is a product approaching and set up to build something
[15:03] sustainable and what I mean by that is unit economics.
[15:06] Now by no means am I saying that we don't, I don't think we've
[15:10] ever invested maybe one company of the 19 or 18 that we've done
[15:14] so far and fund one is has had profit, right.
[15:18] But it is important to understand that it is viable one
[15:22] day to have profit especially in today's market.
[15:25] So we look at unit economics and just the general business model.
[15:28] Now the team's thinking about it.
[15:30] And lastly, the landscape. You know, we invest in companies
[15:34] that are going into what's typically called a red ocean,
[15:38] right, whereas so saturated with competitors.
[15:41] Then we also invest sometimes in blue ocean markets where there's
[15:43] very little to no competitors. And it all depends, right.
[15:47] I think it could be a good and a bad thing depending on the
[15:50] approach. Those are the four pillars at
[15:51] which we assess pretty much any any of the companies that come
[15:55] our way. Yeah, that's great.
[15:57] Thanks for sharing that. And now like as we know like we
[16:01] are all in a downturn as per like even the venture capital
[16:05] industry is concerned. And so we can say that it these
[16:09] are not like very easy times for a startup to for a startup to
[16:12] operate like there are difficulties, you need to take
[16:14] care of your runway, right and all those things.
[16:17] So I know that you have a blog post on the topic how to build a
[16:20] company through a downturn, right.
[16:23] So can you. Like, give us some insights from
[16:27] that blog post or on your own right, What would be advice for
[16:31] founders, how to navigate the downturn that we're in right
[16:35] now? Sure.
[16:38] I would say there's so many different things and learnings
[16:42] even from that article that you referenced and more.
[16:44] But I think some of the big things is keep it simple, right?
[16:50] In a downturn, focus is very important and you need to really
[16:53] force yourself, as much as you like to think that there's a lot
[16:58] of different goals that you need to focus on.
[17:01] There's usually one or two things in a good and bad market.
[17:05] There's only one or two things that really matter to the
[17:07] business you're building. And it's very important to make
[17:10] that clear to yourself and to your team members in a downturn
[17:15] because noise can be a killer. Resource management is
[17:18] definitely important. I, you know, I think even from
[17:21] experience, you know, you gotta make sure you cut deep once, not
[17:25] multiple times. There's so many companies that
[17:28] over the course of, you know, let's say 12 months and you
[17:32] know, they cut multiple times versus just one time.
[17:36] And if you think about it, and as a founder and executive, you
[17:39] need to think in this way, what does the end result look like?
[17:43] If you know the end result looks like where you need to cut your
[17:45] berm to X, you should just take the path of least resistance and
[17:49] least friction to that. So just do it right away.
[17:52] But ultimately, we as founders, I mean, I've been guilty of this
[17:55] in the past. You'll always find ways to
[17:58] convince yourself why you shouldn't cut all at once.
[18:01] But boy, I can't think of one example where in hindsight
[18:07] someone has said wow, I'm happy I did it in multiple cuts versus
[18:11] 1. So those are like private And
[18:13] then the third is financing, just don't underestimate the
[18:16] difficulty of the market and close money.
[18:19] I think there's a time in a place to optimize for valuation
[18:23] and dilution. Downturn is not.
[18:26] And if you think about it, speed is your best friend as a
[18:28] founder. And so speed to just getting
[18:31] your team the resources they need, speed to making sure you
[18:34] know you're financially sound is incredibly important.
[18:37] And you know you may not get the best terms in a downturn, but if
[18:41] you believe your company is going to make it long term,
[18:45] you're gonna probably do a financing when the market is
[18:47] great again. And then you'll be able to
[18:49] offset any of the, you know, whether it be tangible or even
[18:53] just metaphorical dilution you feel like you took as a founder.
[18:56] Those are the biggest things I would, I would probably home in
[18:59] on. Absolutely.
[19:00] That's great advice right there. And let's talk about the
[19:04] differentiating factor. So like we discussed earlier in
[19:07] the episode, there are so many VC firms out there.
[19:09] So how does How does 186 Ventures?
[19:12] Differentiate and stand apart from the other VC firms out
[19:15] there. Sure.
[19:17] So it's a combination of things. I think some of the things I
[19:21] want to talk about in in silos are also differentiating.
[19:25] But I would say almost an arguably the combination of
[19:29] these things if you really take the time to get to know us
[19:32] beyond what I'm just about to explain are truly
[19:34] differentiating One we you know we've been there as founders and
[19:38] operators of high growth tech businesses.
[19:40] So we are literally you know, former founders and people on
[19:44] the other side of the table who have talking to us.
[19:46] So that by definition you know brings a certain level of
[19:50] empathy that people who have not been in our shoes just cannot
[19:54] bring particularly at the early stage.
[19:57] Then I would say our focus on seed, we don't do anything but
[20:00] seed. So all we think about is seed.
[20:02] And what that means is the phase from incorporation from when
[20:06] you're literally you're seeing the the Delaware or whatever
[20:09] state you're filing your incorporation and all the way to
[20:12] generating a million in revenue, maybe 2 million in revenue.
[20:15] That is all we think about Now. Of course we, you know at times
[20:20] we'll think about well how's the macro doing, how are Series A
[20:23] investors thinking about things. But in terms of our bread and
[20:26] butter and where we focus, most of our attention is on that
[20:30] phase and that is particularly important especially as a
[20:34] founder when you're choosing to partner with a VC, especially if
[20:37] you're going to have a lead VC, it's important to understand you
[20:40] know what drives them as an investor and a partner and what
[20:44] what do they think about. And the odds are that you're
[20:47] probably going to get more precise advice if it's just
[20:51] someone who thinks about seed, not always, but I would say it's
[20:54] the case many times. Then it's just the way that we
[20:56] also have institutionalized and in keyword institutionalized
[21:00] various support mechanics. Now there's plenty of great seed
[21:04] VCs, smaller than us, maybe bigger than us that do a good
[21:08] job, you know in many different ways providing value.
[21:12] But the key is providing consistent value as your
[21:15] portfolio grows. And not every firm can say in my
[21:20] opinion for what I've observed, but on both sides as the founder
[21:22] and now on the VC side, seeing you know how the sausages made
[21:26] can say that they really have a consistent way of adding value
[21:30] in different ways, right. So what does this mean for us?
[21:34] We have various systems and process in place for how we can
[21:37] be proactive with what we call indirect value add and I think I
[21:42] wrote about this too. So there's another article
[21:44] everyone should check out which is how 186 differentiates and
[21:47] some of what some if not all of one of them I'm saying here can
[21:50] be found there in a more elaborate way.
[21:52] But we basically for example are very effective at helping our
[21:56] founders drum up you know follow on financing interest and not
[21:59] you know we're talking sizable follow on financing interest
[22:02] from Series A players at some of the best firms.
[22:06] And we do this because as a founder you're built, you know
[22:10] most of your time should probably not always they'll
[22:13] probably be spent with your team and customers because you're
[22:16] building a business. So we as VCs we have all these
[22:20] networks, these cap access the capital networks at the series
[22:24] A/B and C you know why not put it to work and we do that.
[22:29] So we have a process where we routinely keep are what we call
[22:32] downstream investors, so people who invested the Series A stage
[22:35] and beyond a prize of our portfolio, what companies that
[22:39] you keep in touch with. And then we do it as a way of
[22:41] gathering data points on how they think about seed companies
[22:44] in a particular industry. And then that in turn enables us
[22:49] to give our founders informed advice, not just opinion, right.
[22:54] And that ends up being pretty differentiated and there's a
[22:58] couple of success stories already in our portfolio and
[23:01] we're able to do it consistently whether we have 1020 or 50
[23:05] portfolio companies. The process is designed to be
[23:08] able to continue with a certain amount of bandwidth put in which
[23:13] we were able to sustain. So it's A and we have many
[23:16] examples of other systems that we've institutionalized
[23:18] internally in a way that is a flywheel regardless of the
[23:22] number of portfolio companies that we're able, you know that
[23:24] we invest in. Yeah, absolutely.
[23:26] That's great value at All in all and a great differentiating
[23:29] factor. And now let's talk about
[23:31] portfolio construction, right. So how do you think about having
[23:34] the right components in place for the portfolio and managing
[23:38] risk within the portfolio? Sure.
[23:40] So I mean for us it's we try to keep it quite simple.
[23:46] I mean we certainly do have ownership aspirations if it is
[23:50] in the best interest of the company and we feel like we have
[23:53] a certain level of subject matter expertise in that area.
[23:56] We we think it is aligned for us to let's say own 5% of a
[24:01] business or more, but that not always has to be the case.
[24:04] But that's one mechanism for how we approach portfolio
[24:07] construction and and and manage risk right because there is the
[24:11] opportunity cost risk which if you don't own enough of a
[24:14] company and the market is not big enough and you really you
[24:18] know even a in a successful outcome you may not achieve the
[24:21] returns that you deem you know required to to to satisfy.
[24:26] You know why your Lps are investing in you And then you
[24:30] know other mechanisms staying within the range of our initial
[24:33] check sizes which is of quarter million to a million and a half
[24:36] dollars. We very rarely will invest
[24:39] outside of that range. And that's a way for us to make
[24:42] sure we're building an even portfolio across 25 to 30
[24:45] companies. That's the other point is we aim
[24:47] for 25 to 30 companies which we believe will require enough
[24:51] concentration to generate returns in our winners but then
[24:55] also for us to make sure that we don't have too much risk in
[24:58] anyone given company. Then we have a 7030 ish split
[25:03] where you know certain amount of our portfolio or our fund is
[25:08] reserved for the initial check. And then in a few of our winners
[25:13] and we try to make it clear to our companies that we we can.
[25:15] We don't have a large enough fund to invest in all of our
[25:17] winners and the follow on rounds.
[25:19] But in a few of our winners we do have some reserves where we
[25:23] we can invest in the follow on. So it's all of those items and
[25:27] then of course a lot of the controls we have in place such
[25:30] as portfolio reviews and making sure that we're just on a
[25:33] quarterly basis if not more frequent thinking about you know
[25:38] Okay are we building out this portfolio in in a responsible
[25:42] way. And the last and probably most
[25:45] important point honestly is time and cadence.
[25:49] So for example, we deploy over a third, we build our portfolio
[25:52] over a 36 month period of time and we do that because we don't
[25:56] want too much concentration in anyone given vintage.
[25:59] So we launched and all of 2021, imagine if we deployed half of
[26:03] which we did not do, but imagine if we deployed half of our fund
[26:06] in the 1st 12 months, we would be concentrated in some of the
[26:10] most overvalued, you know, early stage assets of our time.
[26:14] And thankfully we did it in where we still have you know
[26:17] most, the far majority of our funds will have been deployed in
[26:22] what I call normal prices thankfully because we've been
[26:24] sticking to that time horizon. Yeah, that's a great strategy
[26:27] All in all. And now let's talk about a deal
[26:31] breaker for you. Let's say everything looks
[26:33] great, like the numbers are great, the trajectories upwards.
[26:37] But what's something that despite all those things, you'd
[26:40] still not invest? Sure, that's a good question.
[26:45] I mean, I think motivation of the founders is very important.
[26:49] One thing that we've learned is there's so many great businesses
[26:52] out there, but it doesn't mean it's a good investment for us.
[26:56] Our style is the VC, the type of VC we try to be in our firm and
[27:00] our investment strategy. And so for us, one thing we we
[27:04] don't compromise on is why are the founders doing this.
[27:08] You know, if we find a company can have the best metrics in the
[27:11] world, to your point. But if we find the founder, you
[27:16] know, motivation for starting the company is sell it within
[27:18] three years, that's a complete deal breaker.
[27:21] And we have never and will never invest in a seed company where
[27:25] you know there's a shortterm exit horizon.
[27:28] The reason why is because we are in it for those very large
[27:31] outcomes, right. That doesn't mean if let's say
[27:35] within three years, if someone offers the company, you know, $2
[27:38] billion outcome, sure, but that doesn't happen within three
[27:41] years, right? So, you know, for the returns
[27:44] that we typically look for in our early stage investments, you
[27:48] know that's a big deal breaker for us.
[27:50] There's other deal Breakers too. That's the biggest one,
[27:52] probably. Understood.
[27:54] Understood. Yeah.
[27:56] All right. And let's talk about changes in
[27:59] the industry, say if there is one change.
[28:02] That you would wish to see in the venture capital industry or
[28:05] the SATA ecosystem. What's that?
[28:08] Very. I love this question.
[28:11] It's actually what we're trying to do, you know, a big mission
[28:15] and purpose of why we're doing this.
[28:16] So many people ask you, why are you a VC, right.
[28:18] And that's my cofounders. Same question.
[28:20] You know, you were founder, you were an operator.
[28:22] Why don't you just keep doing that?
[28:24] Because what we're seeing in the market, if we take a step back,
[28:28] it's a great time to be building a company.
[28:29] It's actually the best time to be an entrepreneur because of
[28:32] the amount of funding on average to and relative to prior periods
[28:38] that has been allocated towards the early stage innovation
[28:41] economy. And why has that happened?
[28:43] Well, because people realized, especially over the last, you
[28:46] know, five years or so that the world's largest problems will
[28:50] and arguably be solved with some level of technology.
[28:53] So, well, wow, OK, that's the innovation economy.
[28:56] Now there's the Beauty and the Beast.
[28:58] The beauty is we have all this capital now allocated towards
[29:01] early stage. But now the Beast is we have not
[29:04] as an industry made sure that we have enough institutional
[29:07] support, know how to responsibly and effectively deploy this
[29:11] capital and partner with founders.
[29:13] That's where we come in. And some, many of the things we
[29:16] talked about here are how we elevate the standards of the VC
[29:19] industry at the early stage. In particular, there's some
[29:21] firms doing a great job of this. To be clear, we're not the only
[29:24] ones doing this. But This is why we're building
[29:27] 186. We want to elevate the standards
[29:31] on how VC's should partner with founders.
[29:34] It's no longer, you know, 10 years ago, even not even 20
[29:37] years ago, even 10 years ago, there weren't that many VC's.
[29:40] So I felt like, you know, the industry, I feel like the
[29:44] industry was able to get away with a certain level of standard
[29:48] and how they partner with founders.
[29:49] But now the tables have turned, even though we're in a downturn,
[29:52] fine. Valuation and terms may have
[29:54] changed, but in terms of what founders should expect from
[29:58] their VC partner, that has not changed.
[30:00] And I think that as an industry, inevitably I think things will
[30:05] elevate because you just won't last and compete if you don't.
[30:08] But that's what we hope to see. We hope to see change in terms
[30:11] of the seriousness and intensity at which VCs partner with
[30:16] founders, they're laying their lives on a line to an extent you
[30:20] should do in the sense of at least how you care and think
[30:24] about what they're building. So that's I would say that
[30:27] probably. Yeah, I absolutely love that
[30:29] answer. And now, is there a contrarian
[30:33] investment that you've made that you'd like to talk about
[30:36] something that most people, most VCs, would probably pass on?
[30:39] But you thought, okay, let's take a bet.
[30:42] Yeah, there's a few examples there, quite a few all you know
[30:50] use, there's two particular, but we'll use one from about a
[30:56] little over a year ago. We've made only one emerging
[30:58] market investment in our portfolio.
[31:00] It's in a company called Moni Africa and we it was contrarian
[31:06] for multiple reasons. One, we're a US based fund
[31:10] investing in a company based in Lagos, Nigeria.
[31:14] You know we've never built, we have experience in building and
[31:18] investing fin tech, but we've never built an emerging market
[31:20] fin tech. And then also to there there are
[31:25] quite a few of micro lending businesses in banking companies
[31:29] that have coming to the market. So why do we do it?
[31:32] Well, I think combination of the founders Femi and that but we
[31:35] met them, I mean they were so uniquely equipped given their
[31:40] former Fin Tech and World Bank experience to really fix
[31:44] merchant lending and merchant banking in Western Africa.
[31:47] But then also what we spend a lot of time on is what hasn't
[31:51] worked. And in the past if you really
[31:53] think about it the reason why lending in Africa in part hasn't
[31:56] worked outside of there being you know not enough debt
[31:59] facility actually available to small and medium sized
[32:03] businesses. But just as important of a
[32:05] factor is the risk models has never worked and what we found
[32:10] was that this company was able to maintain at a profitable
[32:13] measure high enough margins, low enough default rates on all of
[32:16] their loans and they were able to do it by the term length.
[32:19] So they only do seven day loans. People may think well what what
[32:22] can people do with you know a seven day loan that doesn't make
[32:25] sense, it actually does. If you talk to merchants on the
[32:28] ground, which we did speak to some merchants, you find that
[32:32] Seven Days of capital can do a lot for a small to medium sized
[32:36] business in Western Africa. And so there's other reasons
[32:40] too. But you know we, we invested,
[32:43] they were doing about 40,000 in monthly gross revenue with
[32:48] fairly high margins and about a year later they were at about
[32:52] 1/2 a million in monthly gross revenue.
[32:55] So that one was a contrarian bet and so far it seems to be you
[32:59] know, playing out in our favor. Hopefully, you know, we
[33:03] anticipate that'll continue, but you know it's still early, so
[33:05] you never know. Yeah, absolutely.
[33:07] That's great. And now let's move on to my last
[33:11] main question before we move on to the rapid fire round.
[33:14] And this one is about what's your biggest learning investing
[33:19] in startups over the years? Or maybe something you wish you
[33:22] had learned earlier in this journey that you've learned now?
[33:26] Yeah, I would say spend a lot of time with two big two things I
[33:34] would say. One, learning is kind of always
[33:39] take a first principles approach to why a company is building
[33:42] something. Put your put yourself in the
[33:44] shoes of the customer and just do that immediately.
[33:47] Don't, don't pattern match at least an early stage, right.
[33:50] Don't. What's the business model?
[33:52] How big is the mark? Those things matter of course
[33:55] and they should guide you viscerally and subconsciously.
[33:58] But a lot of the upfront should be you spent on putting yourself
[34:03] as much as you can in the shoes of the customer and the founder
[34:07] because it really is eye opening and it enables you as an
[34:10] investor to identify pretty quickly on whether you should
[34:15] spend more time with them or not.
[34:16] Because that's the biggest thing learning I guess that we will
[34:18] segment into a second learning is identifying as quickly as
[34:22] possible which companies to spend time on is actually one of
[34:26] the most important things because for us at least, you
[34:29] know we we get over 1000 deals sent to us organically every
[34:34] year, right, well over and you know then it becomes well what
[34:40] do you spend time on because you only have so much time in a day.
[34:43] So identifying very quickly if you spend more time on that
[34:46] company is important and there's different ways to be able to do
[34:49] that. And then you know what I brought
[34:50] up earlier to don't compromise. Unfounded motivations.
[34:54] Just don't. It's just not worth it.
[34:56] You're partnering with that team for 5-10, maybe even more years.
[35:01] So, you know, don't compromise on things that are very
[35:05] important to you. Absolutely.
[35:07] Those are like great learnings right there.
[35:09] And now let's do the rapid fire on wherein I'll ask you 5 quick
[35:13] questions about the fund and you have to give five quick answers.
[35:16] Sounds good. All right, let's do it.
[35:19] All right. So the first one goes what are
[35:20] the sectors and regions you invest in?
[35:23] Yeah, sectors include software pre seed and seed and we'll
[35:29] embedded financial infrastructure, developer
[35:31] tooling, AI enabled on automation at the application
[35:35] layer, enterprise SAS, property tech and some consumer.
[35:40] What's the typical stage of investment?
[35:43] Precede seed? I mean, it really varies.
[35:46] Could be anywhere from a napkin idea with barely any
[35:50] incorporation documents all the way to 1,000,000 1/2 in revenue.
[35:53] Great. And what's the typical check
[35:55] size you put in quarter million to a million and a half dollars?
[35:58] Right. And what's the way where
[36:01] founders can reach you or pitch you?
[36:04] In case there's a directory so my Twitter Dms are open, so feel
[36:08] free to follow me there. At Gstudio Gstuto we also do
[36:16] have an open e-mail address hello@oneofthese6ventures.com
[36:21] that you can shoot an e-mail to as well.
[36:23] All right. I'll make sure to put all those
[36:24] links in the show notes below. Thanks so much for coming on,
[36:27] jsap. It was a pleasure hosting you
[36:30] and happy investing. Thank you so much Preshan.
[36:32] Appreciate it. Enjoying my time here.
[36:35] Thank you.

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