Interview the VCs — Chris Kantrowitz 6/6

Chris Kantrowitz and I talk about fundraising from both sides of the table: why founders should interview VCs, why authenticity beats a rehearsed pitch, and why the right investor is someone you want beside you when the dark times arrive.

Then we get into impact funds, family-office money, AngelList carry fights, and the instant-decision investing style Chris admires in Paige Craig. We end with Chris moving Bicycle Day Ventures beyond psychedelics and into fungal technologies, starting with dissolvable ear tubes that could open a path to new cartilage.

Transcript

Pablos: Any questions for me?

Chris: How much money do you want to give me?

Pablos: How much do you need?

Chris: I'll let you do 20 million.

Pablos: We'll help get 20 million. You want that much money?

Chris: No. I think the raise will probably be like 3.5.

Pablos: That's how much you're going to raise?

Chris: I think that's it. That's probably even all the way through to building the first bits of our skilled up manufacturing facility. That's it, 3.5.

Pablos: Good. I love it. That should be doable. Now's a good time to raise money.

Chris: Is it?

Pablos: Yeah. Everybody thinks it's a shitty time, but it's actually a good thing.

Chris: I've never had a problem raising money. I feel like it's only hard to raise money if your fucking idea sucks. And you can't take no for an answer. You hear all the stories. The stories are all over the place. The other day some founder was like, oh, I went to this VC and they passed. Do not change your pitch.

Pablos: The time you spent telling the story about getting rejected, you could have pitched somebody else. Just keep going.

Chris: Because the thing is, if you're going to take VC money, you want to find someone that wants what you are. They're out there. You just have to find them.

Pablos: Of all the investors, you only need a few. Just go find them.

Chris: It's funny because I've been doing this for so long. I was looking at my phone thing. I think I have like 250 VCs in my thing. I looked through and I remember almost all of them. I was trying to classify them into different buckets. If I was a new founder and I didn't have that list to look at and the memory of it all, I'd have to go unpack and find all those people. For this company, there were maybe four that I thought would be like this.

Pablos: Good match.

Chris: That's probably the right ratio.

Pablos: There's a lot more to the timing than that, where people are out with their funds and stuff.

Chris: You're getting married, and you're on a ride together. And there will be dark times.

Pablos: There always is.

Chris: A lot of VCs say that they're founder-friendly, blah, blah, blah. It's almost like a funny joke to say that.

Pablos: Have I been founder-friendly?

Chris: Yeah, you have great taco parties. But I think that I always interview the VCs. When I'm in meetings with them, I grill them. They can grill me too. But I think it's really good to do it two way. Don't be afraid to ask hard questions of VCs.

Frankly, they might find it refreshing. I've definitely had funny VC meetings where I've done things in them that I think they were like, what the hell was that? But it also made them memorable for both of us. I always go into VC meetings to have fun. I'm never serious. I'm always myself. Sometimes it works, sometimes it doesn't, but that's what you want. I would say, if you want to find at least the one moment to be the most authentic, it's: do it in your VC meeting, because you really want the VC to see who you really are.

Founders are weird. They know that. Don't be afraid to be your truest self because when that comes out, they always say that in the earliest stages of a company, they're not really betting on the company, they're betting on the founder. If you show up acting like every other founder, you've literally just gotten a no.

Pablos: It's like you memorized the answers from the test because you watched a bunch of videos on YouTube. That's not going to work.

Chris: Also don't research the VC and try to get in their head. What you want to do is just go in and let them feel like they get to be their best self. Make the meeting fun. Be audacious, but be smart. And let them see who you are as a person, because that's more than your deck and more than your performance. Obviously you have to have that. Show them who you really are.

I have some friends. One of them sold two companies for a gazillion dollars and started a fund in San Francisco 20 years ago that beat everyone on returns. His partner in this new fund made the highest-return investment at Benchmark ever. You couldn't have two more bankable people. It took them years to raise like $25 million. How is that possible? I know why. When you go around pitching 30% return, when you're basically pitching the same thing with a different story, the people sitting on the other side of the table are like, cool. Am I going to get these returns from this climate fund or that climate fund? It's almost like there's nothing special about it.

What I've noticed is that, especially with Mutual, when we were talking to climate funds, the questions I was being asked were almost no different from the questions I would have been asked if I was a SaaS company. Are you trying to help figure out the climate problem, or are you trying to get returns to your investors? Funds obviously have to have returns, but if you're already going in on this safe place concept of I've got to make the right bet and really de-risk it, you just sound like everybody else.

Maybe you should try changing your KPI to an impact fund. The KPI is the impact that we do. That'll free you to make bets that you probably wouldn't make. I always tell them the story about you because there's very few people out there like Pablo, which is sad because innovation needs risk takers. Almost every story of a founder whose company has become monster, whatever it is, there's always a point in time where it's existential. In the beginning, more than anything, especially for super nerdy people, how the fuck are they going to find a VC? They need to be found. There's actually this guy, his name is Paige Craig.

Pablos: I've never met him.

Chris: I think he made his money in Iraq. I don't know if the story's totally right, but I think he had a contract to deliver water to the troops or something. But he was on the ground there. Wild stuff. He'd be a great one for your show. I remember in the early days of South By as a tech thing. The earliest day when Instagram just got launched, back in that era, he'd meet a founder with a cool idea and literally just whip his checkbook out of his pocket, write a check, hand them the check and be like, send me the term. He didn't even ask them what the terms were. That guy smoked it.

Of course. I'm sure being in a war zone, you get really good at judging people. It's like that thing going back to the part you can't process.

Pablos: That's intuition.

Chris: When you're surrounded by death and destruction, you meet someone like that. That's why I go back to: just be yourself. For sure the entire decision tree for Page was like a minute and a half. The pitch, right on the spot, on the street. There's your check. It wasn't like, let's go get a coffee and sit down. I have a lot of questions for you. It was like, that sounds cool, bang. I wish there were more people out there like you.

Pablos: I want to understand because, not always, but in a lot of cases, our founders are under-network. You don't really have that problem. But I'm trying to be able to bring folks to them. And for me to do that, I want to really understand what they're doing. I need to know technically why it's going to work. I need to be able to represent that technology.

Chris: Because he was investing his own money, basically.

Pablos: That's right. And I'm investing other people's money. I couldn't write a check before I have the terms.

Chris: But if you were rich like him, you would.

Pablos: Maybe. Once we sell Quorum Earth for billion dollars, then I can do that.

Chris: Did you just put a timeline on me?

Pablos: You had one all the time.

Chris: Take it back. Careful.

Pablos: I didn't say what the timeline is.

Chris: Okay, fair enough.

Pablos: But we've got to do it while I'm still on this planet.

Chris: Me too. I think I'm older than you.

Pablos: No, you're not. Nope. I'm older than you. Born in 71.

Chris: I'm 74. Real close.

Pablos: You're like my little brother.

Chris: We're on a similar timeline.

Pablos: I think there's definitely a lot of cases where I make a decision about the person early or the technology early, but I need to dig in and understand it. I want to learn. And the truth is most investors after me don't do that, can't do that, wouldn't make sense for them to do that.

Chris: You do the work they can't do.

Pablos: And that's my job. I'm trying to deliver technically sound startups to the greater deep tech investor ecosystem.

Chris: I go back to my thing to all VCs: everyone goes to the same family office. The same story, everyone goes to the same people.

Pablos: I don't know how they do it. We're so differentiated. I show up with a story about you and a bunch of other bizarre, incredible-sounding technologies. Everything we do is so highly differentiated. And even then, I lose people. I don't know how these other funds would do it.

Chris: My fund was different. And clearly a family office is interested in climate, which is why they're seeing you. They probably have a lot more money to spend on not-ROI money because they're like, okay, I've got a bucket of money that I need to return on. I'm going to be very cautious about that because this money has to return.

I'm pretty sure that if you're a family office that's investing in climate VC, there's money in a different bucket. I'm not pitching you for a charity, and we're not trying to lose money, but we're going for a different thesis around what the return is. And by the way, if our KPI hits, that means those companies are profitable and making money because they're hitting the KPI that we were looking for. But we're going after things not thinking through the lens of 30% return. We're thinking greenhouse gas reduction or remediation, whatever it is. I think you'll get a very different response curve from people.

Pablos: I don't know. I haven't tried to figure it out. I always figured the philanthropic bucket should get aimed at us. We're meaningfully going after solving the problems that those philanthropies are supposed to be doing. I don't know how to bridge that. How do you aim that money at venture if there's a tax issue or something?

Chris: I have someone to test it with for you.

Pablos: Let's do that. Because I think we could easily show that the things we do peg the charts on everything that a climate investor would be wanting to go after. I think you're spot on. Hopefully there's a move afoot here. One of the things we're seeing the last few years is venture has gotten much more democratized.

Chris: I started a fund in 2015. No one even talked to me because I was trying to get people to donate money to stuff. If no one's going to do that, why don't I start a fund? I launched it in 2015, and I remember it was at the math conference, and there were people that were just like, this guy has lost his marbles. But I was like, dude, I just started a thing. I'm raising money for these companies. I did it on my own. I have no partners.

I just actually got a fat check today from one of them. I hated doing it because I hate talking to people about taking their money and making money. But in this case my whole goal was to help kick-start an industry that didn't exist, that I feel is fundamentally important for the survival of this planet. A billionaire has a huge fund in the Bay Area, and I remember someone introduced me to him. He got on the phone with me, and he was like, oh, you're charging 20%. I don't do that. You knock it down to 10. You can't invest. No. You're rich. You're nickel-and-diming me.

I was like, I'm sorry, you can't invest. What's funny is that I didn't realize it, because with AngelList, it's all links. Right before the deal closed, he put money in.

Pablos: Wow, good.

Chris: And now he's a bud. Then I'm just doing a raise for this company, Mycomedica. It's the last raise for them before they go ballistic. Some guy hit me up on AngelList, and he was like, hey, I want to invest in your thing, but I think the carry's too high.

Pablos: 20%?

Chris: He's like, if you can knock the carry down, this will be a start of a new relationship. I just responded back: the best way to not start a relationship with me is to negotiate with me on carry. You can't invest.

Pablos: Everybody's playing a different game.

Chris: It goes back to the thing: if you're going for impact, suddenly it's also the mindset for investors too. Are you nickel-and-diming me because all you care about is money, or are you here because you want your money to actually do something?

Pablos: Small funds, you shouldn't be trying to cut them down on the carry.

Chris: Only carry if you're making a profit.

Pablos: To Sequoia, negotiate a slightly lower rate for putting in $6 billion instead of $5 billion.

Chris: Yeah, sure.

Pablos: But that's not what we're talking about.

Chris: That's what always got me so pissed. This carry only matters if you're making money. Why are you nickel-and-diming me off profits that you wouldn't have had anyway? KPI, baby. I've decided I'm so bored with psychedelics at this point. I've always looked: everything I've done, to me there's four stages. The first stage, it's the minus one to zero. It's such a crazy idea that it's so interesting to you, and you're not really thinking about it. But then in the process of doing it, you bring it to zero. And then you zero to one it.

Zero to one is like, the next group of people that come in are people that are like, wow, this is crazy, make it happen, I believe in this. Then this next stage of people are like, okay, the one-to-two people have kind of made it into a thing. It feels like there's something here. Then there's the third wave of people that are like, okay, this is really new, I can help build this. And then there's wave four, which is like, it's now making money and there's money to be made, and everyone just jumps in.

I've seen this in my whole life of doing tech: banner ads, crypto, mobile games. Psychedelics is definitely there now, where I go to these conferences and I'm like, I have nothing to offer here. You've gone way too deep on it, to a point where I'm like, that's stuff I don't even want you to do. Actually, remember that fungi thing that you told me about on Friday?

I went to it. I was sitting there. I saw these companies that were insane. And I was like, wait a minute. I know a fuck ton about this shit. And I want to be an investor like you, which is: just go for it. I was like, fuck it. I'm now changing my entire thesis of my fund to fungal technologies.

Pablos: Okay, cool.

Chris: And I did some research. There is one fund in Europe that does this. I think I'm the only one in the US. Right then and there, there was a woman who has this really cool company. They're starting with the ear tubes. They're made of plastic.

Pablos: Sometimes they don't come out.

Chris: But they're making these out of fungi. And what's cool about it is there's a thing you can put on them, like a vinegary thing, that will dissolve them. When they're done, you just vinegar them. They're done. The same technology can be used to make cartilage and all this kind of stuff. I saw her pitch and I was like, I want to invest in your company. How long does it take to make a decision? I'm like, I already did. Did you have to talk to anybody? I'm like, I am the fund. They're going to be my first one. I just kicked it off today. Super cool. Now I'm going to do fungal investing.

Pablos: I love it. We'll spread the word on the show.

Chris: I'll send it to you. It's the first one in the US. There's one in Europe.

Pablos: Fungal Fund. Fung Fund.

Chris: I was gonna change the name. I was like, no, I kinda like my Bicycle Day Ventures.

Pablos: What's it called?

Chris: Bicycle Day Ventures.

Pablos: Bicycle Day?

Chris: I gotta go.

Pablos: We'll let you go. Thanks. This is awesome.

Transcript

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Thanks, we need good co-conspirators.