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Lee Schneider: It’s the Cult Tech Podcast, I’m Lee Schneider. Joining us today is Rob Vickery, co-founder of Stage Venture Partners. Stage is a seed fund based in Los Angeles that invests in software startups with creative technology. Hey, Rob, welcome to the podcast.
Rob Vickery: Hi, how are you?
Lee: I’m doing very well, excited to do this. You guys are risk takers among risk takers, you invest in new platforms. Define that a little bit [00:00:30] for me, what would you call a new platform?
Rob: Yeah, so being in the seed stage, that means we’re investing in companies that have typically got like a minimum, some sort of a minimum viable product and maybe just the very early stages of traction. Now what that typically means are that some of these companies, they fall into two buckets. The first bucket is that they might be in what we call the frontier technology space, which are things that probably will live in [00:01:00] two or three years in the future. That frontier things are things like machine learning, computer vision, which is something we’re really interested in, autonomous vehicles, drones.
Then we’ve got the other side, the other bucket, which is companies that are building technology that could have been built maybe a few years ago, but are solving old problems with existing tech stacks. We like both of those sectors. The risk is equivalent, perhaps a little bit less on the second bucket but that’s what we’re looking for.
Lee: Let’s give some examples, WhereFor Business is a software package, right, that integrates corporate companies’ travel policy with their employees. How does that work?
Rob: Yes. I mean, WhereFor was was built to enhance and to challenge the existing corporate software for corporate travel and that is run by two, I won’t mention their names because I don’t think that’s appropriate, but [00:02:00] run by two large multinational conglomerates, one of which is owned by a Fortune 100 listed company. In our due diligence on this company, the main question we always want to find out about is obviously the competition. These companies are…the calls we had show that these companies are hated, not disliked, it’s hated. There’s like seven or eight steps to make the booking and then it’s a real pain in the butt to get your money back and claim your expenses.
WhereFor just basically built a platform, built off actually an original consumer platform that was a 500 Startups graduate. And that platform was focused upon helping consumers just tell WhereFor where you are and it’ll tell you where you could go on your budget. So you’re in LAX, you want to go somewhere, you’ve got $600. It will give you a flight, a hotel, and you can book it immediately. WhereFor Consumer achieved a million downloads, a million users in under five days of launch.
From there onwards, they started to get approached by large corporates and one of those, I can’t mention its name, but it’s one of the largest companies in the world, invited them to develop a corporate package, which still kind of embodies the same principles which is, I’ve got a meeting in Seattle, here is my corporate policy which is already built into the software which says, “This is the maximum price of the flight, this is the maximum nightly rate for a hotel.” And it basically gives you the best offering of hotel and accommodation and flights in accordance with your travel policy and in accordance to the location and the time that you have to be there, so it’s remarkable.
Lee: As an investor in a company like this, you can see it’s fixing a problem, a real problem that’s broken and it also started out, as you said, a million users in a very short time, enormous traction. Does that make this [00:04:00] kind of company easier to invest in and is this a model or paradigm? Does it give you any lessons learned or it just looks good and you go for it?
Rob: I mean, there’s not one tried and tested process or acid test, right, before you make an investment. What we liked about it is that it disrupted an industry that is not run by other founder led companies and that’s something that we take really seriously. So if you’re going up against a company that is listed on the stock exchange and has a CEO and the founder is long gone and retired, there’s not the same drive that you get than if you’re going up against Jeff Bezos or Mark Zuckerberg. These are guys who run these companies really well and execute to their own vision. So that’s really important thing and WhereFor wasn’t going into that. They didn’t have those barriers to entry.
I think the fact that some of the consumer traction was important but it wasn’t everything, there clearly was the competitive landscape. As I mentioned before, it’s the quality of the founder and how he managed to generate so many inbound [00:05:00] corporate travel pipeline inquiries that we really liked. There’s a clear pathway to revenue. That’s kind of it, is it? It was a perfect storm of opportunities but I know a lot of VCs say this but it is key, it does come down to the founder at this early stage.
Lee: I would think so. Let’s look at an idea that’s almost the opposite, something that you’re way out in front of, VNTANA, which is a company for holograph experiences. Is this more difficult? Do you find yourself in meetings, working hard to get people on board to invest in the future?
Rob: The beauty is that with a Venture Fund, all investment decisions lie with myself or my co-founder. We don’t need to get the approval from anybody else and that’s kind of how most VC funds work. But when it comes to us thinking about that and thinking about the frontier, and holograms is interesting because hologram technology, believe it or not, has been around for over 100 years. It started off, kind of before the cinematic graph with Pepper’s Ghost, which is the first of the holograph. So yeah, that market actually has had a long time to work itself out and particularly things around the Tupac hologram at Coachella, and things like that. That showed that you can do really cool things but it was very expensive to do.
So what I liked about VNTANA was that they had taken this technology, done it at a fraction of the price and made it repeatable, which is the real key thing with holograms, is creating a repeatable solution. Otherwise, if you don’t have that, you’re having to put up and take down all this hologram technology to do another performance. That’s what we loved [00:06:30] about them. So VNTANA is a good example but I think, thinking about things like in the future like space travel right, and if you’re thinking about SpaceX and how they’re looking to make space travel affordable to the kind of mass market, not everyone but to people who have a decent job, we are curious about that.
We are curious that that’s probably 10 years out, which is difficult for a VC to do because our return cycles and our investment cycles are typically 10 years. But we’re interested in thinking about the application layer [00:07:00] of technologies like that. So what technologies need to exist for SpaceX to start doing consumer flights? What technologies need to exist for mass transit autonomous vehicles? So that might mean the technology in the traffic lights that are telling the autonomous bus to turn left or right or it might mean a new way for people to book that travel. So yeah, it’s definitely more difficult, it’s just as much fun if not slightly more because [00:07:30] you are feeling like you’re in a science fiction novel. That’s how this business works.
Lee: That’s interesting. What you’re talking about there, I think, is the support. I don’t want to call it infrastructure but sort of the, let’s call it the ecosystem of the future. Specific forward looking things like autonomous cars or holographs or anything like that, needs a place to live, it needs a growth medium, it needs an ecosystem and you’re looking at ideas like that. Do I have that right?
Rob: Yeah, absolutely. For us to invest into an autonomous vehicle, a hardware company or a car manufacturer, that’s difficult. It’s a very expensive business to run and it’s best left to the private equity funds and to the car manufacturers. The little things, when you think about capsize, that’s a very old technology but that’s a wonderful example of something that materialized because more and more people were buying cars and driving at night. So yeah, there are, the application layer and ecosystem is really important to us.
Lee: This is a hard question to ask because it’s kind of a dumb question, but I want to ask it anyway. It’s very hard to know, this isn’t a race, right? I mean, everyone wants to ask the question, what’s going to be the next big thing, what will take off next? And that is a very linear view of the future, like something’s going to get out ahead and we see so often that it’s more spiral and circle-ly and, you know, to continue the geometric metaphors. Given that, do you see any particular technology like autonomous driving cars and vehicles or what would it be if you look ahead and specifically advising investors? What would you say, “Take a look at these verticals, take a look at these areas because I think these are movers.”
Rob: The two areas that we find fascinating on a frontier are computer vision. Computer vision is basically taking your cell phone camera or the camera that’s facing you at the ATM [00:09:30] or the camera on your MacBook Pro and interpreting what it’s seeing and creating opportunities, markets, communication with consumers. That there is really cool and it’s really hard to do.
There are two ways for autonomous vehicles to navigate. LiDAR is one of them, which is a small version of radar, sonar, which is a spinning disk that you’ve often seen on the top of the autonomous vehicles driving around San Francisco. But computer vision completely revolutionized that space and negate the need for those things and basically have a bunch of cameras positioned all around your vehicle that is reading and detecting what it’s seeing and making the car react and behave to those different risks, whether that is someone stepping out on the street or a traffic light changing color or, you know, road works.
That’s the kind of stuff that I think is really cool, it’s also really hard to do. It’s about picking through and finding the people that can do that and there are very few people on this planet that have the mathematical chops to be able to work that stuff out. Finding those individuals are really important to us and making sure that they’re able to build a sustainable business off the back of it, is really key. And that’s where the challenge with science projects and businesses come in. I love science projects but they’re not always necessarily built to create a sustainable, repeatable business.
Lee: So true and they have to work. I remember trying downloading something called Google Goggles which is a machine, it’s a computer vision app and it could identify the Mona Lisa, it was great at that and maybe a Budweiser logo or something like that but then it wasn’t so smart. So these things have to work. My question in there is, how far out do you think we are from having computer vision just be part of the software suite that we use every day?
Rob: I would say anywhere from three to five years, maybe less and again, at what level that is, I don’t know. I think the most obvious one as I mentioned many times on this is the autonomous vehicles and drones. I think that’s where it’s going to do really well but it’s going to be a regulated space. The government bodies and safety bodies and all these other kind of entities are going to have to work out what to do with this.
Lee: Yeah, clearly.
Rob: The technology might exist sooner than it being allowed to exist in the world but I think consumer demand will drive that at a faster pace than you might think.
Lee: Yeah, I think that’s highly likely. People love the idea of it, it’s just getting it to work consistently.
Rob: Yeah. When you think [00:12:00] about it, people will not stop using their cell phones in their car, no matter how big the fine or the issues of doing it, people just don’t want to do that. It’s annoying because it causes lots of crashes and I don’t agree with it myself, that’s an opportunity for an entrepreneur.
Lee: An argument, yeah, for autonomous driving vehicles.
Rob: And also timing, if all vehicles are driving 130 miles an hour, we could get to the Bay Area in a far shorter space of time than we could do now and that’s the ultimate aim. When every vehicle is autonomous, it allows efficiencies that we’ve never thought of to exist and it almost kind of like…I like Hyperloop and I like what Elon is doing with that but if all your cars are driving at that rate, you don’t really need the Hyperloop which requires massive amounts of money and infrastructure to build, when instead you’ve got maybe a two and a half hour trip to the Bay Area and you’re able to watch a movie, go to sleep, do your emails, conference calls, all these kind of things and [inaudible 00:12:31] behind the wheel concentrating.
Lee: I think also if I were in a car going 130 miles an hour, I’d like to be in some kind of gel pack, maybe some bubble wrap.
Rob: Absolutely. yeah.
Lee: So let’s go wide angle for a moment and address for the startup founders listening today, what is your best advice for them when they are in pursuit of…I mean, you’re an interesting blend because you’re doing early stage yet VC. Are there a lot of people like you out there and what should startup founders, when they’re getting their [00:13:30] ducks in a row, what do they need to do before they even walk into the office?
Rob: To answer your first question, yeah, there are seed funds. Typically here in Los Angeles, there are some great seed funds here. A lot of them are very focused upon B2C and some media type startups which are great, some of them aren’t but some of them are. We are interested in that market but there are very few business seed funds and while we look at anything we think is really cool, we find that’s been our sweet spot for a while. So we are quite unique in that space here.
In terms of what to do before you go into these meetings, I mean, we see many dozens of pitches per week from entrepreneurs and the ones that we really like are ones that answer kind of three questions. We like people to tell us why you, why are you the only person that can do this? What makes you uniquely able to do this? What have you done in your past that really makes you to be the, one of the 10 people in this world that can build this business and build it well? That’s really, really important and that’s also really [00:14:30] hard to work out, that’s really key.
The second question that we often ask is, why now? Why is now the only time that your company should be or could be built? There are two typical answers to that. One is that, well, the technology didn’t exist and we’ve worked it out. We’ve built the algorithm, we’ve done something that nobody else could do and we like that and the other one that we like is just that this is something that has not been looked at before. This is a space that has been run, as I said before, by large corporates that have just stuck to the same old tried and tested ways and then there’s this new upstart that comes in and says, “That’s just a terrible idea. Let’s do this with two clicks instead of ten.”
So it doesn’t have to be brand new technology. That is often helpful, but it can be just people, as I said at the beginning, was people building new, using technology to solve old problems. So, why now is really important. Then the third one which I think, we always have to ask this question. Well, not always but a large part of the time. I would like entrepreneurs to pose that question to us and it always impresses us when they do and that question is, why you? In terms of us as a fund, why is Stage Venture Fund is the best [00:15:30] investor for you and that’s something we’re always considering, is how can we be the best investor on the cap table?
That comes down to, what do you need from us? By being VCs, we tend to have a pretty strong network in all sorts of different areas with some really big people at big companies that can help companies grow. It might be that we’ve got experience in our past and our career certain sectors, like I’ve worked in the entertainment industry and I’ve worked in banking and I’ve done all sorts of things. My co-founder ran a hedge fund and works a lot with consumer packaged goods companies. We’ve got all these unique skills that I think can help someone grow and then look at our portfolio. Who else have we invest in? Ask us what we’ve done for those companies to help them grow. That’s what we encourage people to do.
I think some other bits of advice that I think people should consider is a lot of people with early stage companies, the entrepreneurs come to us with a five-year revenue plan. I’m going to tell you right now, it’s probably a work of fiction because you have no idea how your business will perform five years down the line. What I’m really interested in is the use of proceeds. So let’s say you’re raising [00:16:30] a million bucks. How are you going to spend that? How long is that going to last you? With that money, what milestones are you going to achieve? That’s really, really key.
Go back to capital raising and use of proceeds, make sure you ask for enough. We get so many people coming to us saying, “Yeah, we’re raising $500,000 and it’s going to last us six months.” The question I always say to people is, “Do you like raising money? Because you’re going to have three months of leeway to build your business, then you’re going to have to get back out on the fundraising trail and you’ve only got three months of data to be able to prove that you’ve gone beyond the valuation that you set for your last round of capital raising, which is very difficult to do.”
So I like people to raise more. I think you should be raising enough money for 12 to 18 months of runway minimum and within that, you have some very clear milestones in terms of revenue generation, in terms of product road map, in terms of hiring, that will get you to X. And don’t forget, VCs want to see significant returns on our investment. So how are you going to deliver that?
Lee: That’s all really good advice. I particularly like the idea of asking for enough money because that runway is a pretty terrifying place, especially when you’re at the end of it. I work in a co-working space and I’ve seen companies cycle in and out of here, practically monthly, and the biggest prescription for health is enough money and many of them just don’t have that. They just throw everything to the wind and hope they can do it in six months and of course it doesn’t take six months.
Rob: Yeah, no, completely. The another thing that people should always consider is most VCs, I think, at least we do, we want to see two co-founders. We want to see someone who is the CEO and the kind of the strategy and the sales and the attractor of key talent for the company as a co-founder, and then we want to see a strong technical co-founder. There are opportunities and times where dead shops exist and they do really good work but ultimately, we’re really excited to meet a great technical co-founder who has been there since the early days and is able to growth hack the heck out of that business. We want somebody who is doing this day and night and is perfect this business and that’s what we do quite like to see.
A lot of entrepreneurs come to us saying, “We’ve been [00:18:30] building this thing for two or three years and we’re now ready to get it to launch.” I’m like, “You should have launched it two years ago.” You don’t have to get out there with a perfect product. Get it out there, get some data, get some performance information, get some traction, get an audience, if you’re building a B2C platform. Get out there as soon as possible, don’t sit on it and keep perfecting it because no one’s going to thank you for it. By the time you’ve done that, somebody might have come in and built a better product than you or the market need has decreased.
Lee: I can do a lot of things that are background stuff, research, [00:19:00] thinking, things that the clients don’t see. Guess what, if the client doesn’t see it, it doesn’t exist most of the time. You need to do forward facing things and test markets and that makes a lot of sense.
Let me ask you one more question. There are a lot of newer angels poised to enter the space of investing, particularly through equity crowdfunding, some online, some angel investor groups. There’s a bunch of people I think that would like to get in and maybe could get in but don’t know if they’ve got what it takes as far as the evaluative skills. So what advice would you give to a newer angel, let’s call them a micro angel, if they’re looking at investing in new companies?
Rob: I started off as an angel and so did my co-founder. We had a lot of success as angels and had a number of exits and that made us think about doing this on a grander scale and writing bigger checks. Angels are a very important part of the tech ecosystem. The challenge that they [00:20:00] face is that, the terms of a seed round and an angel round even, have changed a lot over the last couple of years. A seed round now can be \$1 million to \$2.5-3 million. That requires VC funds with large pools of capital to be able to do that. Angel rounds have also increased in ticket value. I think if you’re an angel you need to be prepared to write $50,000 to $100,000 checks and you need to be able to cushion that with the fact that you’re not going to be diversified.
By going out and investing in one company, you are placing a lot of focus on that so therefore, invest in stuff that you really like and that you think you can help because these are the early stage guys, they’re going to need your help to do these things. Definitely focus on things that are close to your heart but be aware that you’re not going to be diversified and you will be taking some risk. So that’s why we created a venture fund so that we can invest across 25 companies as opposed to five and just hope for the best. I think that’s something really important to bear in mind. If you want to do this and you believe in it, I could not recommend a more interesting asset class to invest in. But just be aware of the risks that that poses.
I like things like the Pasadena Angels and the Tech Coast angel groups, they’re great. A lot of the members are really smart ex-CEOs who have learned a lot through their career and they wanting to get involved with tech startups at the cult phase, I think that’s really cool. But again, these are people that can afford to lose the money. You shouldn’t write a check unless you think that you can afford to lose it. Then I think also [00:21:30] angels should consider about their network and almost behave like a VC which is, “Okay, great, I can write you a \$50,000 check.” By the way, my friend is the head of content at Lionsgate or my friend runs marketing at Nestle. Think about it like how you can help companies grow because I’ve seen some companies that have had angel investors before, they wrote them a check three years ago and they’ve never heard from them since.
The most fun part of being an angel investor and being a VC, is helping their portfolios grow and getting involved with them after you’ve written the check and they will appreciate that more than you think as well, the startups themselves. So I think about those questions very carefully.
You mentioned about crowdfunding and equity crowdfunding, that is, again, has a useful place in the ecosystem, that exists to support the companies on Kickstarter or Indiegogo, people who are often building products like toys or video games or stuff like that. They’re vital for those types of platforms. It’s very hard for VCs to invest in content of individual video game titles, for example, because it’s a very hit-driven business. Hit-driven businesses don’t work well when going through the VC due diligence process.
Kickstarter offers a very great opportunity for that. If you can get equity on these deals, then great and I would look at things like Crowdfunder and other equity based crowdfunding platforms. If you’re just really looking at Kickstarter, then you’re doing this to get a free t-shirt or to be listed as a producer on the movie or to be first to play the video game, have a character created in your likeness. There’s all that kind of stuff but that requires a smaller check.
The thing that makes me slightly concerned about the current funding space is when they start to get involved with companies that should be raising money for VCs. Because as I’ve said many times throughout this interview, a good investor is someone that gets involved. If you’ve got a bunch of anonymous individuals, a dentist in Idaho and a doctor in Washington, D.C. and a bunch of other people in Florida, these are people that you don’t necessarily know who they are. It’s not as easy to be able to leverage their experience, their network to be able to help your business grow. So be very careful when taking that money and make sure you’re taking it from the right people in accordance with the strategy of your business.
Lee: Yeah, that also makes a lot of sense [00:23:30] to bring this full circle. It kind of comes back to the idea of support, ecosystems, the type of technologies that will support big technology movements. That’s not a one hit wonder, that’s not a one off and that’s certainly not a one trick pony. These are big ideas moving culture, moving technology, that VCs are looking at and saying, “Okay, let’s build the infrastructure around that.”
Rob, thanks so much for joining me today on the podcast.
Rob: You’re welcome. Thanks for having me.
Lee: I’m Lee Schneider, Communications Director at Red Cup, and this has been the Cult Tech Podcast.