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- [00:00]
A
Foreign. Looks like we're live. So we've got Doug from Coleg Capital. Excited to have you here. Excited to actually make it happen today. I know we had a little bit of kerfuffle. You know, I think it's always fun to talk about New York, you know, local law 11. There's always just stuff going on. So anyways, you know, how are things going, Doug?
- [00:27]
B
Things are great. You know, it's certainly been an interesting couple months, couple years in venture, but that's what keeps us engaged, is the interesting environment that we've got to contend with. So it's been challenging, it's been interesting and, you know, it's been, you know, a journey to get. To get through it. But couldn't be happier to be involved.
- [00:48]
A
Yeah, no. Well, excited to just dive deep on a couple hot topics, you know, but why don't we start with your, your career, your background, what did you study and how did you make your way into where you are now? And then we'll take it. Take it to whatever direction we want to take it to.
- [01:06]
B
So, May 8, 1991, I was born. But no. So, you know, in college I was a bit of a scatterbrain. I took a bunch of credits a semester. I studied, you know, everything from astrophysics to finance to classical history, ultimately narrowed it down to classical history and a finance major. Had some shadow miners in there as well. And a data science background. Went to a fantastic school in Washington University in St. Louis. Met a bunch of really interesting people. There was a teal fellowship and subsequently a Y combinator company that got started in my dorm room. I got involved with the university in commercializing some of the latent IP that they had in the medical school at Barnes Jewish Hospital. In the genomic space. A lot of that background kind of led the school and particularly the scandalarious entrepreneurship center to offer me an opportunity to launch and lead an accelerator up in Chicago. But fortunately or unfortunately, by that point I'd already made a commitment to join a little company called BlackRock. But BlackRock did give me an option. So I either was given the opportunity to start my career in New York or go to San Francisco. I'm a lifelong New Yorker, so I was obviously applying to go home, but it was confronted with an opportunity that I didn't think I'd ever have. And I knew that if I'd gone straight home, I never would have lived anywhere else ever in my life. So I took the jump. And it was well worth it because I got to integrate myself a little More than I already was into the scene of entrepreneurship and startups, everything from big tech to little companies. I made, you know, one further commitment to myself, which is that if I was going to go to California, San Francisco and work at a big finance company, I wasn't going to just hang out with people at that company or people that were in finance. So I ran a 24 bedroom co living community out there. Yeah, just. Just for fun.
- [03:06]
A
Was it like a cult or something?
- [03:09]
B
You know, to start with, but we got a little bit on that. So I was originally going to move out there with somebody that moved back to New York in the middle of me making plans to move out. And so I got hooked up with a company, actually that was in the Thiel Fellowship called Campus. And it was originally one of their houses and they went out of business relatively quickly. And then everybody that was living there had to look at each other and kind of be like, do we want to keep this going? Do we not? We did. I took the reins and ran it for the entire time that I lived in SF. So. So really from, I guess 2015 to 2019, when I left, the best of my knowledge, the community still exists.
- [03:47]
A
Wow.
- [03:48]
B
Yeah, so it was, that was fun. But it let me kind of have a more curated and eclectic group of friends. You know, it was everybody from, you know, obviously me, boring finance, to people starting companies, people working in big tech, Kleiner Perkins designer, you know, like a whole slew of people across the city. And then obviously you get the compounding effects of living and knowing all those, those guys. So that helps me a lot.
- [04:12]
A
Yeah.
- [04:14]
B
But I guess back to the professional side of things, I was in multi asset team at BlackRock. Really interesting stuff on the side and sort of at nights and largely because I was fortuitous enough to have a lot of the people on my team quit my first bonus day. So like literally the, I guess the next four people that were more senior to me on the team was. It was a relatively small team too, so it was cataclysmic. So I got a lot of work that was shuffled my way, ultimately a lot of responsibility, and I automated a lot of those jobs out. So I got trusted pretty quickly with both changing the way that things were done and then also, you know, systematizing, making things scientific, making things automatic, which ultimately led to predictive portfolio modeling, which led to predictive and scientific portfolio management, etc. Etc. So I was able to do a lot more than, you know, I otherwise would have been at blackrock, because they were me and it was fantastic. But you get to a point where, you know, you're building something and you're learning new things, and then all of a sudden you're maintaining stuff and you're an old hand. And I didn't really want to be there. Very early in my career, I had the prior experience with entrepreneurship. San Francisco, the Bay Area was going on around me. I had an idea to start a company, but I really loved being an investor. So I reached out to a couple of my friends that had started companies that had raised venture capital. I was put into contact with a few different firms, and one of the first ones, and the last one that I was put in contact with was Holy Capital. And Victoria, the manager partner, was a solo GP at the time, and she painted an incredible picture. It was a small first fund. I would have the opportunity to do virtually everything from day one. You know, I was associate on the investment committee when I first joined.
- [06:00]
A
Yeah.
- [06:01]
B
And that's, that's exactly what I wanted. And she, she gave me the opportunity to, you know, hit the ground as hard as I wanted to and grow from there. And I. I haven't really looked back. So it was a. It's a relatively straight but bendy road to venture capital. But now that I'm here, I'm not going anywhere.
- [06:18]
A
Yeah. So I got a couple things to nerd on. So, you know, I. I think I told you when we chatted a while back, I have a. A doctorate in modeling and simulation. So we're gonna definitely talk about modeling and nerd out on that. But I want to get back to the cult, you know, so the community base. So I want to tell you. So like a couple years ago, not a couple years, like, like a decade ago, I was. I was going to San Francisco and they had this thing called the Hacker Hostel. And I could have, you know, I think I went to one of these large tech events. It was like a VC tech event. I think it was like a, you know, some type of marketing slash demo day thing. And I really wanted to go, so I booked a ticket. I was gonna get a hotel. But they had this thing called the Hacker Hostel, and it was like half the price, and it was literally like a door. It was a hostel, essentially. But I met so many interesting people there. There was actually founders and, and people from, like, from overseas that kind of wanted to maybe do an experiential thing in. In the. In the Valley. And maybe they just wanted to try to build something and see if it works out. But it was really interesting I mean, I stayed there. They had, they had signs saying, look, you know, if you, if you use any of these dishes, make sure you clean it. So they definitely had almost like a. I don't know what you call it. It's, it's a. Starts with a C. But it's, it's when you got like a commune. Yeah. It was essentially almost like a commune of people that like, you know, with the society, they kind of have their own social responsibility. And then I also think about like WeWork, you know, WeWork did try, obviously they tried, we grow and then they also tried we, we live. So why do you think, I mean, aside from all the other issues that WeWork had, business model, most importantly, like what. Why do you think there isn't another company that just focus on that? Because I think it makes sense. I think there's a lot of loneliness and there's a lot of, there's a lot of people, especially in New York. Like, I know when I was in my 20s, I, you know, my family wasn't really here, so I had kind of a small group of friends that I hung out with, but I still didn't feel like they were my family. But like, I feel like if you have kind of an extended cult like community of like support people that like, maybe you can do friends giving together, maybe that is a value. But I haven't seen a membership model really hit product market fit.
- [08:41]
B
I think that's the reason that ours worked. There was no membership.
- [08:44]
A
Yeah.
- [08:45]
B
So getting away from those two C words, you know, cult commune, what we were was really a community. Sure. And I ran it like a co op.
- [08:52]
A
Got it.
- [08:54]
B
And you know, there are a lot of, I think not trying to make money out of it was the real kicker. I wasn't the only one doing this. There was a whole city of awesome empty house, like not empty, but like new, newly least vacated houses on the part of, you know, co living companies that had gone belly up. And there were a lot of them at one point and a lot of them failed because people were not as forthright with their community members or people did try and get a deal out of it. So I made the rents equal to your square footage, right?
- [09:28]
A
Yeah.
- [09:29]
B
So there was, and there was window modifiers or whatever. It was very fair, it was very transparent. I paid my fair freight. So that was step one. You know, I also set up a buffer fund. So a lot of those other communities, you know, it was month by month and you've got variable costs, so you've got, you know, in the winter in San Francisco, you got a lot of space heaters running around and that makes, you know, your electric go way up. Water is pretty expensive in SF2. So I, I basically flattened that all out. I had the founding members of the community all hey. In. It was some function of what their overall rent was. Basically I got $6,000, which was enough for the three most expensive people to literally just put their keys on the table and disappear for three months.
- [10:15]
A
So you had shares. I guess. So what you did is you had a certain amount of shares, it was a certain price. And then people, when they lived, it.
- [10:23]
B
Wasn'T, it wasn't a price, you know, it was just the rent was what the rent was. But we, we, it was run in a way where there were no surprises.
- [10:30]
A
Yeah.
- [10:30]
B
Where everything worked, the lights stayed on, no one had to worry. You know, I, and one of the things that probably helps me in venture capital a lot is, you know, I, I can mode switch pretty easily. I can be, you know, your friend. But you know, I'm also your landlord. Right. Those are two very different Personas. And nobody ever. Red light. Right. So there was, it was a community that had strict rules, you know, to maintain the integrity of the community.
- [10:56]
A
Yeah.
- [10:57]
B
Loose rules, so that we could all have fun. And then, you know, a management structure that was transparent, made sense and nobody ever complained about. Right. So. Yeah. And then the other thing is, you know, when you, I don't want to spend too much time on this, but when you, when you run a house like that, there are two directions that it could go. You could be a hostel, right. Where people go, or you could be, you know, a real community. And we didn't let people move in, didn't commit really to a year of staying there. And I think over half the house was there for more, more than three years. You know, going to your larger point about why does no one do this? Your churn's 100% so. And your, your old members don't get you new members by the time you're 30, you don't really want to be living in a co living situation if you get a curious significant other, you know, if you just want a smaller group, it is a lot sometimes. So your, your retention for these things is pretty low. And yeah, you have cohorts and I guess you could like have people recommend. But the real sweep is people graduate college, people look for housing, you are there, you grab them. But your old people, you know, they're not in college anymore, their friends are not going to want to fill a spot. So, yeah, there's not a lot of virality, for lack of a better concept in that. And I think it'd be a challenging business to run. It's also a real estate business. Nobody ever tried to run that. That was my biggest contention with the way that a lot of those companies were run. They were trying to be SaaS companies, they were trying to have membership models, they were trying to have ARR when they should have been buying houses that they were renting out and looking at cap rates and things like that. And so the way that the businesses were run was massive expansion, venture model for some reason, when they could have built ultimately massive businesses if they'd gone about it the right way. Certainly San Francisco, the house that I was living in, I think it was purchased the year before that. We moved in for something about three times less than what it was worth the year that I moved up. Obviously, asset prices are volatile right now, but there was a way to do it that made sense that had stable cash flow that, that you could have done. But again, like, as a business model that I personally would have wanted to take up as somebody that was literally running one, certainly wasn't that.
- [13:11]
A
Yeah. I mean, and there's also just, you know, there's a cap in terms of capacity. Right. Unless you want to just run multiple, you know, if you want to be a conglomerate running multiple coworking spaces, I mean, that, that is a, that is a model at some point, if you wanted to take your career that way. So then, so you've, you've handed, you know, not to go deeper on this, but. So you've handed that off to somebody and it's just kind of running on its own.
- [13:33]
B
The guy, literally, he was living in the house and he not only took my role as president, but he also. My room.
- [13:41]
A
Okay.
- [13:43]
B
Yeah, he fully took the crown. Yeah.
- [13:45]
A
Well, you know, I think there could be some parallels with just community and like, how to build the right community. So whether you're trying to build a community of, you know, co investing, VCs, or, you know, most importantly, LPs, what are some of the things that you learned in terms of like, building the right community? Because aside from co working, it sounded like you had some other benefits to what you built. Right. It sounds like there was some type of aligned mission. It sounds like a lot of those people come from, like a tech background where they all built, you know, what was the criteria? Were they all trying to build something or investing in something or.
- [14:20]
B
Criteria was that we needed different people Right. So I didn't want just one of one thing. We had everybody from artists to accountants. Right. And everything in between. So it was. And the selection wasn't. Was open too. So anybody getting. It was almost like a. Like an election. Right. You had a bunch of people come in, come through. Everybody met everybody, and then there was a vote, literally on who would get to live in the house. And every person that lived there had to vote. So there was a group selection as well. So nobody was overly dissatisfied. And ultimately, you know, as you got down the voting, it became a unanimous decision. So everybody had agency. Yeah. I mean, it was. It was living together as work. Like working together people, you know, there. If you. You had an accountant. Right. You had a startup founder who had never, you know.
- [15:07]
A
Yeah.
- [15:07]
B
Put a financial model together ever. And like, you know, that. That obviously had synergies. People were designers, people were tech company founders. Certainly when I was looking to get into venture, you know, I interrogated all the. All the guys that had raised venture funding from people like, what should I be thinking about this? Who should I want to work for? What are your favorite qualities in a vc? Do you think I would be a good fit? Things like that. So it was really and hopefully still is just an incredible community of eclectic expertise and peers that are united by a shared passion for learning more about other people, first and foremost, and sharing what they know with the community and that. It was pervasive through the whole time. It was really fun. And we really never had any problems. No huge fights, like, like date each other in the house, which wasn't, you know, overly encouraged on my part.
- [15:57]
A
Yeah.
- [15:57]
B
Woke up totally fine. I couldn't believe that. But everyone was really an adult and it was great. Yeah, we had friends, living friends, miss all that. All that stuff. So it was genuinely fun too. So it was great.
- [16:10]
A
So to play on that. Yeah, so to play on that. Look, I met Victoria at a couple of these events. You know, we're all in New York, right. So we, you know, it's a small. It's a small. And you know, I've seen her at a couple of these events. So what. What would you recommend as an emerging manager to do to kind of build an engaged LP community or build like some type of GPLP community? Victoria has given me feedback about some of the things that she's been to. So, like, what are like the shitty ones? And then like, how. How would you recommend an emerging manager? And I'll tell you, like, the ones that are. Are really bad, I think are the ones that are like falsely advertised. Right. So it's like an LPGP event and then it's all just GPS and brokers maybe, but that's something I've noticed. So I think kind of like targeting that curated community definitely sticks with your reputation, but like, we'd love to hear your thoughts on, you know, advice.
- [17:06]
B
Yeah, I mean, I think generally if you are paying for something, something that is a red flag as an emerging manager. As an emerging manager, you should be able to raise that first fund within your own network. As you expand beyond that, you know, fund two, then you can really start digging in, trying to expand, institutionalizing a little bit. But if you don't have a network of resourced people that believe in you.
- [17:34]
A
It'S going to be at least for your first close, I would say.
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B
Right. It's going to be really hard.
- [17:38]
A
Yeah.
- [17:38]
B
And then hopefully they can recommend you to other people and so on and so on. At the. This is probably the most challenging time to raise a venture fund, at least in the last decade, maybe ever. So I think everybody needs to go to the map right now and do everything that they possibly can to get those dollars in and get your message out there. And hopefully you are one of the funds that has a thesis that resonates and you are able to raise. Not everyone will, but in that case, getting out there is very important too. As long as you go to an event and you meet one person, it's not really a waste of time, unless there was an opportunity cost where there was another event that you could have gone to where you met to. So it's really sort of an optimization function on how much time do you have to waste to get to one good connection. And that connection could be not necessarily somebody that's going to invest in your fund. You know, you could go to one of these events and meet another GP and they've got an interesting deal that you're working on, that they're working on. You can spin up an SPV for that. You know, if you, if you've managed money before, a lot of people are doing SPVs, that SPV could be something that you invite prospective LPs into. They could get excited, they could get more comfortable investing in you, working with you, seeing how, how you go about an investment process. And that can get you across the line too. And it's also a fantastic deal. I mean, at the end of the day, the least interesting part of any VC's job, hopefully is capital raising. I mean, that's not what we're excited to do when we wake up every morning, it's something that we obviously have to do. But at the end of the day we want to invest in the great companies of the future and cultivate those investments and shepherd those founders into creating the best possible versions of their companies. But yeah, I've said a lot.
- [19:26]
A
Yeah, no, I mean I think that's good feedback. And to your point, I think just building kind of that LP ecosystem of your own is definitely table stakes. And as much as it's not as interesting and it sucks to do, it's the core that capital is what really just drives your ability to do everything right. So I mean you have to. And I mean you're doing business development with different Personas, right? You're doing business development with your founders to kind of convince them to come into your round. And then you're also building an engaged LP community. So I think that's definitely good feedback. And then. So why don't we switch gears and go back to blackrock? So you talked about predictive portfolio modeling on the multi asset side. What kind of assets were you interested in? And you know, what were you.
- [20:21]
B
So I mean generally one of the largest issues facing fund managers, particularly large fund managers, index fund managers today is a depressing, not just depressed fee environment when you are essentially selling the same exact thing as your peers. You know, there's one way to differentiate yourself, it's quite easy and that is cut prices. Because you know, if you're selling an S&P 500 index fund, for instance, you know, whether it be an exchange traded fund, an ETF or a separately managed account for a large client, or a collective trust fund for a large group of institutional investors, that's first and foremost what they're going to care about. And you know, tracking error, all that stuff has gotten to a point where everybody's products are virtually indistinguishable from each other. From the perspective of exactly what that thing is trying to do to then if you were, you know, a very large institution, you've got the back end as well. You have what we used to talk about as the intrinsic value of those securities. And that is the value that you can get from securities financing activities, prime brokerage, securities lending, things like that. And there are ways that you can optimize your portfolio management strategies to weight your portfolios in a way that leverages the maximum return that you can get from private brokerage or securities lending while having virtually no impact on tracking error. And that does two things. So the securities lending revenue is obviously shared with the beneficial owners of the securities, the investors. But it's also one of the highest fee regimes still available to asset managers. You know, we're talking about even splitting the revenues like 50, 50 with clients. Yeah, so that is a, it was a very large focus and it allowed, to a certain extent, you know, it allows these businesses to continue doing what they're doing and allows them to offer, you know, the low management fee. Because it does have to make sense. There are people in the background that are working on these things. It is complex. So if you're going to lower your front end fee, you have to make some cash on the back as well. And so we were quite focused on maximizing those returns. A lot of BlackRock's portfolios are not fully replicated. So you can think about that as an index fund of the S&P 500. I could switch to another index if you get bored, but that is fully replicated in its weight. So each security is held in the exact same weight as it is constituted in the S&P 500. When they do the print of the constituents of the index, you can do that. And that's called a fully replicated fund. Then there are non fully replicated funds that don't do that, but they still track the index to, to a reasonable degree to a tracking error that is lower than in many circumstances, or at least as low as what you would get with a fully replicated fund. And if you do have a fully replicated fund, there's still going to be some tracking error because you have to go in and out of positions when there is a rebalancing of the index, which happens relatively frequently. And then there's also a little bit of distortion that you get from value activity like dividends. So there's always a little bit of error. And you, you can, you can, you can do things to maximize everybody's returns while still doing exactly what you said.
- [23:37]
A
And for that role, what are some of the skill sets? I guess, is it really just being an expert in R and, and just being really good at just Excel automation?
- [23:47]
B
When you're working for somebody like blackrock, you have one at the largest data sets possible to work with. So we were doing some pretty interesting stuff in the background.
- [23:55]
A
Did you, did you teach yourself that? Because I mean you, that's definitely a huge switch. So you just kind of picked it up and learned on your own.
- [24:02]
B
I'd always, you know, I learned Python in college. I knew data structures, I was always interested, but a lot of it was learn as you Go for sure. But I think to a certain extent all the best things are right. So it was, it kept me engaged for years. The coolest things ever that I worked on, certainly one of the most impactful things that I've ever worked on. And the firm recognized me. I, my first year for work I did as an analyst I got, it's called the BlackRock Principles Award for Innovation which was pretty cool. Nice. But yeah, that was, that was my former career.
- [24:40]
A
Yeah. No, I mean. So let's talk about the new career. Right. So let's talk a little more about know Coley Capital, what you guys are excited about and then you know, and then I want to you know, cover a couple topics on just being an emerging manager. So tell us about Coley, you know, what you guys are focused on, what are the hot trends that you're seeing?
- [24:57]
B
Sure. So just Coley generally. We're an early stage fund based out of New York. We've got our managing partner Victoria Grace and myself as the full time management team. We are lucky and unique enough to have a very, very like, not, not real, like truly actually engaged panel of venture partners who back us up and expand our expertise significantly. And then we also have a very unique panel of advisors made up primarily of our most successful portfolio CEOs who then give us even more supplementary expertise as we look at things. Victoria is a biomedical engineer by training, went to the dark side quite early, became an investment banker at Salman Brothers and then when private equity venture capital I, you know, I've got the data science, I've got traditional finance as well. And we're a general generalist fund and we do a lot of health care, we do a lot of B2B SaaS. We do certain hardware, you know, occasionally typically when there is like a more sensor fusion hardware kind of a bit to it, but largely generalist. And so we can look at anything that piques our interest or is exciting. But we don't, you know, look at it as, as layman for long. We, we bring in our venture partners, our advisors, one of our venture partners, one of them is the head of perioperative surgery at UPMC Medical System. It's a 40 hospital network. Right. So when we're looking at healthcare, get a lot of support there. We have another that was the head of ARPA E, which is the DARPA of the Energy Department under the Obama administration. So we have a lot of expertise that goes beyond our own core competencies that we can quickly, uniformly and very often draw in to support our diligence processes and then they, they help our portfolio companies as well. And that's Coley raising our third fund now. So that'll be relevant later in the conversation.
- [26:45]
A
Yeah. So with the, with the, the focus on like hardware, you know, what are some of the sectors that you, that you're excited about? Like can you double click on hardware and like what makes it, what makes it challenging?
- [27:01]
B
Most of the hardware that we've done has been in the medical space. So one of the most exciting companies I've ever packed is a company called Sonola Sense and that's a drug device combination therapy for oncology. Then you know, we've got some pseudo hardware also in the medical space. Most of it, most of it's honestly the medical hardware. We do have, you know, a couple companies that are working on software hardware, hardware combination sensor fusion. So we also have another medical device company called Syncidia that is an electric and acoustic monitoring probe for heart sensitivity. So you can pull off any of the metrics that you would need a variety of different large inefficient tools in the hospital setting to measure, you know, everything from ejection fraction to pap on a, you know, simple, disposable, efficient, cheap probe. So I guess a lot of the hardware has been AI driven advances on the medical side. And then we've also done heavy industries. So we were investors still are in a company called Hylian and they make sort of boosted electric drivetrains for Class 8 vehicles. Their new solution is called the Chrono generator and it's a fuel agnostic electric generating generator that can be plugged into a truck or it can be plugged into the grid or it can be put, you know, out in front of your factory. And it's a, this really incredible technology where you know, you take advantage of the existing infrastructure for a carbon neutral or carbon negative drivetrain or energy solution across a variety of heavy industries. I could go on with these, these point examples, but I think there are a couple things that have made hardware a bit more exciting lately. Hardware is certainly not the largest segment of our, of our investment portfolio, but there have been advances on the material side that have made it really interesting. And then there have been advances on the sensor side and there's a lot more now that you can do with relatively cheap off the shelf hardware when it's enabled by really powerful software that also has become, you know, more prevalent in the market. So I've used the word sensor fusion quite often and that's when you can take two different off the Shelf sensors, essentially, like, you know, a stethoscope and an ekg and you can take their distinct signals and combine the analysis of them to come up with a third or a supplementary analysis and metric. And that's exciting. And that couldn't be done before and that can't be done by you. Right. You can't like take a doctor and like give them a stethoscope and an EKG and then ask them to do that third thing. That's something that's being enabled really by AI and sensor fusion.
- [29:56]
A
Yeah, that's interesting. I mean, I think the sensor technology has gone a long way. What are your thoughts on just kind of the, like the humanoid robots, you know, that are coming out? There's a couple companies now that are innovating. I mean, one of the biggest things which I think is important is they have to be, they have to be weaker than a human. So I think the, the main thing is just being able to contain them and control them, so make sure they're harmless. But I just. What's your reaction to, what's your reaction to just augmented workforces and cyborgs and stuff like that? So.
- [30:40]
B
I will, I'll frame this in a bit of a different way. There are areas of automation that are very exciting and I think in the factory and the production line you've seen all the way from automated storage and retrieval systems which were invented in like the 60s or the 70s, through the very sophisticated arm based, you know, production lines that are in virtually every automotive or automotive adjacent or heavy industry sector today. There has been significant automation that has been pushing the line for a lot of industries for decades. That is nothing new. And you know, you look at companies like Amazon with their acquisition of Kiva in like 2012, right? They still have humans in their factories. And that's because there is a sensitivity and a dexterity issue that, you know, we just haven't gotten to the point where we can roboticize it away and it's getting smaller. But it doesn't to me look as though the humanoid robot is necessarily the right way forward. You know, I've been pitched humanoid robotics before. They are super cool. And you know, 20 years from now, 30 years from now, maybe you can rip and replace humans with straight up robots. But you know, there are a couple problems. And I think that the biggest problem for me with it is that it's not rethinking the paradigm. Right. Is the human form factor the optimal form factor?
- [32:13]
A
Yeah, that's a good point.
- [32:14]
B
Probably not, right? I mean like do you need legs or would tank treads do? So like, like there hasn't been like a significant enough rethinking of, you know, what the ideal flexible human replacement would be or whether there is even one, one thing, maybe, maybe it's not a factor. And so people are really trying to build to replace our anatomy when I think not necessarily point solutions, but maybe more bespoke solutions for problems might be a much easier to build and get out there and get to that much quicker, but also generally better.
- [32:53]
A
Well, I mean, look, I got an example, right? So it would be cool at some point. Like we're all, you know, a lot of us, when we get older, we deal with being in the sandwich generation, right. So we've got young kids that need care and then, you know that that's a cost and then, you know, we've got parents that need care. And a robot that can lift a full human, you know, in a more efficient way is going to be much more effective than a nurse, you know, I mean, so to your point, maybe there is a cooler form factor that's like a hand that scoops a human up and like takes them to where.
- [33:26]
B
They need to go. Why even that? I mean, like the human's probably getting around in a wheelchair. Why not make a wheelchair the thing that gets them around? Why do you need a robot companion? Yeah, it's, it's, that's.
- [33:38]
A
Maybe the robot, maybe the robot doesn't need to look like a human. Maybe it could be a dinosaur, you know, so some of the research that I did for my doctorate unveiled that people actually feel more comfortable talking to a doctor than a realistic looking human because the dinosaur that's animated is not going to judge you, you know, so maybe, maybe I think to your point, like the, the bias and like the cognitive bias, you know, could, could shoot us in the foot as well.
- [34:09]
B
Yeah. And I mean you, you said something funny, which is they have to be weaker than us. Yeah. Just in case they decide to take.
- [34:15]
A
Well, I mean, I think, you know, I think about Terminator. Right. So I mean people, I think if it's super strong and like the AI is so great that it learns to outsmart us and it, you know, I mean, essentially what happened to Terminator? That's why I think about that, you know.
- [34:31]
B
So, yeah, I mean, not to get too macabre about it, but like we're pretty, pretty frail. So I would have to be very weak to not be able to. No.
- [34:45]
A
Yeah. This is fun stuff. So. Okay, so let's talk about Emerging managers. Right. So I have seen several cohorts of emerging managers over time. Like a lot of them do look the same. So you know, what, what's your reaction to the differentiation? Like, how would you advise people to differentiate themselves? There's a lot of generalist funds, there's a lot of deep tech funds, there's a lot of AI funds. How can people, and you know, you've probably seen this happen. How do they, how do they differentiate their brand and just differentiate their strategy with ever so more picky LPs that are more sensitively looking at their asset allocation approach?
- [35:26]
B
Yeah, I think there are two ways you can do this, that you can do the marketing approach or you can do the LP management, LP assistance approach. We did the latter. So we don't do a ton of marketing. But I think a lot of emerging managers have taken advantage of the ease of getting the message out via social media. I think, you know, if I was to advise somebody on the quickest way to get to fund one from zero, it would be build a brand online, engage a community, run an angel syndicate, get to fund one. You've got an inbuilt crew of LPs, they know your voice, they know your thesis, they know how you think. And that's probably like, you know, if you've got a year or three to get there and you're good at it, that's probably the straightest, quickest line to get to where you're going. Assuming you don't built community of LPs, I think that's great, but that's not me. You know, what we've done at Coley Capital is we've cultivated a group of LPs from the beginning. From the start, it was always like this. And we have LPs that are corporates, we have LPs that are large family offices that have particular interests. And every time that we make an investment, we take the value that we can bring to that investment very seriously. We only invest in a maximum of 30 companies per fund. We frequently sit on boards. Whenever I lead a round, I'm on the board. If I'm not, I'm usually a board observer. We take the advisory role of VC very, very seriously. And you know, when we are evaluating an investment, we always make sure that there is an angle that the company can benefit from our LP base or our network, but primarily our LP base and our LPs love that they run businesses. And if I have an idea or a company that, you know, obviously they can ultimately become a customer or client of that that's good for every, everybody involved. They're an investor, that business is going to make money. But also it's got to be a solution that is going to make their lives easier, that is going to improve their margins. There's going to do something for them. It's a fantastic way to validate those ideas too because a lot of the times you have founders that have found a problem, but they're trying to put a cubic, you know, block in a triangular hole or whatever. Like it's just that the ROI isn't there for somebody. They've solved a problem that they had in their, in their prior life, but it's a problem that nobody that is going to be paying to solve is caring about really. And so having that relationship has been great at fostering both, you know, a back and forth and a frequent back and forth between us and our LPs and building that sense of trust and you know, I guess back to the last conversation community and you know, just, just keeping them involved every step of the way. I think you also have to be very like, you want to be transparent. You, you don't want to, you know, this is getting into the nitty gritty, but you want to be honest with your marks too, you know, you know, like, don't surprise people. Stupid. You know, if you feel like things are going the wrong way, tick the markdown. Just do that. You will. It is a conversation that you're going to have to have anyway, but it's a much better conversation to have as soon as you, you want to have engagement, right? We, A lot of most funds send out quarterly reporting. Some of them don't send out a quarterly letter. Right. You want to keep everybody engaged. You want to have a deal summary for every deal that you do. You want to make sure that your mind is an open book to the people that trusted you with their capital and are allowing you to shout. So if they have any questions, you answer them. I'm available every hour of every day. It doesn't matter, right? Like these for my portfolio companies. They can get to me my LPs. They want to know why I did something. I have already written it down. And every quarter they get an update from us. So there's never, it's not a black box. And I think that is appreciated and that is a reputation that you carry forward. You know, even if you're, you're killing it, right? And let's say you're killing it, but you don't have realized returns killing it. That's all floofy, right? Like you haven't actually made anybody money. Maybe things go south, but they'll remember transparent with them the whole time. Fortunately, that hasn't happened. But even if things go, you know, well, they'll also remember. I know what this person does when you ask them to recommend other LPs that are their friends or, you know, other, other corporates or other family offices, whatever. You know, they're not just going to have the generic, like, oh, like Doug and Victoria are great. They're going to say Doug and Victoria are great because this is a personal experience that I've had with them, et cetera, et cetera. It's not, you know, we're not sending out, you know, a boilerplate like intro that we want everybody to send. Everybody's got a story with us, they know us and they recommend us on that basis.
- [40:03]
A
Another thing I want to nerd out on for just a couple minutes and I'll let you go. Portfolio construction, so concentrated versus diversified, you know, can you just walk through, through, you know, maybe how you guys think about it and then how you would recommend people just getting started to kind of build out that minimum viable fund.
- [40:23]
B
Sure. So the numbers will tell you that the shotgun approach is technically the best one check one time in as many companies as you can get it into an index. Right. But if you do that, you don't deserve the management fee and probably not your performance fee. Right. So as venture capitalists, as private equity professionals, we are active managers. And so portfolio construction is quite important. The way that we do it is 30 companies per fund. We invest one and a quarter to two and a half percent as a first check. And then we have about, you know, depending on how that works out, about 70% of the fundamentals to, on the low side, 50% of the fund that we can double down on in our winners. That is a good strategy. It's a good strategy for a variety of reasons. The first is that you want to be relatively significant in your first check, but you also want to have the reputation out there of being able to support the company as time goes on. There are some very successful venture funds that have somehow managed to become successful just writing that first check. A lot of the references that you get to the next portfolio company are from the portfolio company that you supported in the past. And so being able to support them is very important. You have to take that into account when you do portfolio construction. From an emerging manager perspective, it becomes interesting. Fund one, you've never done this. Maybe people Kind of know who you are. Maybe you're a previous operator, maybe you're getting into this from the financial side of things. You're not going to be able to walk up to a prospect and be like, I want to buy 15% of your company for $2 million. That's. It's just not going to happen. So with your first fund, and if you don't really get a reputation for yourself, maybe even into your second fund, you're going to be an allocation taker, not somebody who demands a particular allocation. And so my advice to you and your first fund is not to get persnickety about that. If you get into a deal that you love but you can't lead it, you're probably not trying to lead deals anyway. But if you don't get the allocation that you want, it doesn't matter. Take what you can get, obviously, try to get as much as you can. But if you truly believe in the business, don't be too beholden to your portfolio model. You want to get in with your first fund. It's the best possible companies that you can get into because that is going to be the foundation, the bedrock of your future career in ventures. Not necessarily the construction, but the constituency of that. First, to show that you're not, you know, lying about your access, you can say, like, even when I was nobody, I still got into X company. Right? And that's quite important as well. So then when you get a little bit more of a reputation and you're getting invest like the invites from your current portfolio CEOs to the next big thing and they tell everybody how great you are, then you could say, I have, I really want to get to a lead check and I really want to take 10% of the company to whatever your standard is, right? Then you can get to that. My advice there is also to be flexible. I see a lot of people that let deals run away from them if they can't lead around or if they can't get exactly the allocation that they want. I don't think that's the right strategy. I think being flexible there open to, if not co leading, then just getting in is fine. I think one of the oddest metrics that I've been asked for in fundraising is the lead percentage, especially in as an emerging manager. Like how many of the rounds that you've done have you led? And ours is pretty good, right? But much higher. If I stuck my boots in the mud and didn't move, but it also wouldn't have been necessarily as good for the companies that I was investing in, because I'd be preventing raising money from another fantastic fund. And, you know, everything that Coley does and everything that I have, you know, done in, in the past is, you know, the more people, the more good people you have around the table, the better the outcome is going to be, whether that is inviting, you know, your associates to board meetings or whether that is taking money from more people than you otherwise would have. It's always better to broaden the tent and let people get under it. So that's a technically still portfolio construction.
- [44:32]
A
Maybe, but I would say too like your access. I mean, there's two prongs that I can think about. It's like the tier one funds, hopefully that you're buddies with that you get those allocations to. And then obviously the pedigree of the deals or the quality of the deals that you have, those are two things that you could probably use in storytelling and get judged on when you're doing storytelling and just to kind of evolve a little more on storytelling. What have you learned in terms of what's effective and what's not? And I promise this is maybe the last question, but, like the layering of those stories. So you meet somebody at an LP event, you know, you meet them for like five seconds. You know, what do you lead with? You know, you don't obviously lead with your sub docs, but like, you know, hey, you know, this is who I am. You know, this is where I grew up. And then, you know, how have you seen those layers kind of effectively in communication, you know, break down to. To pipeline building? And how has that not been done correctly?
- [45:35]
B
Yeah, I think you don't want to try too hard.
- [45:38]
A
Yeah.
- [45:38]
B
You don't want to treat them as like somebody that's going to give you money. You, you want to lead with what you know the best. And what you know the best is what you did that day.
- [45:46]
A
Yeah.
- [45:47]
B
They're going to ask you what's going on. Right. Like, you're going to be wandering around maybe drinking hand, and you bump into them. Maybe you know who they are, Maybe it was intentional, maybe it's not. Treat them like a person first, obviously. And they're. They're there for a reason. If it's an LP event, you know, you're not there to talk about baseball. So they will come to you with the question because you will say, I'm a fund manager. And you can take it from there. Just tell them what, what is exciting that you did today, what's frustrating that you did today. Like, then they can really kind of get into your mind and it's natural for you. And don't let the conversation go on for too long. You don't want to be weird, but you just.
- [46:24]
A
I mean, I've had people come up to me and just get my contact info and then move on. I guess they were just too little.
- [46:29]
B
You want to be memorable. The other thing that I do is that I don't just get contact info.
- [46:33]
A
Yeah.
- [46:34]
B
I don't just LinkedIn request. What I find works really well is I literally have people put their numbers in my phone and then I text them my name.
- [46:41]
A
Yeah.
- [46:41]
B
So that's for like text.
- [46:43]
A
It's like dating, you know, getting their digits.
- [46:45]
B
Exactly. Because, like, you know, you get the LinkedIn, you get the email. Like, maybe they'll respond, maybe they won't. But like, if they see that you've like legitimately texted back and forth, they'll look at their phone, they'll be like, great to meet you. Right. It makes it way less weird to be like, hey, it was fantastic meeting you last night, two days ago, whatever. Would love to catch up over a coffee or a drink. You want to do that? So that, that's, that's my dance. It works pretty well. If you try too hard, you know, it the last. You want to really get comfortable in that, in that five to ten minute conversation before you even mention that you're raising a fund.
- [47:20]
A
Yeah.
- [47:20]
B
You're just, you know, a venture capitalist doing. Doing venture capital. Doing it really well. You want to, in the course of that conversation, hopefully. Because what you did today was that you give them a little bit of insight into how you think, how you go about the business of venture capital, investment strategy, what you're looking at, whatever. And you can do that, incidentally. Right. It's literally what you did today and it works well.
- [47:44]
A
Hey, Doug, this was a lot of fun. Appreciate you being generous with your time and flexible with your time. And I'll see you in a couple weeks and we'll hopefully meet in person and tell Victoria I said hello.
- [47:55]
B
Absolutely. Well, great speaking to you. Talk soon.
- [47:57]
A
Good time. It was fun. Take care.