Replay — Getting Smart on a New Market, Parts 1 & 2 (Charles Hudson)

This episode of TFR is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners $150 just to take a demo. We've never had an offer quite like this. Claim your $150 before this offer is gone at our partner link ramp.com partners tfr and this episode of TFR is brought to you by the American Arbitration association where smart startups and investors turn to for fast, efficient and cost effective dispute resolution. Visit ADR.org TFR to learn more. Welcome back to TFR. From time to time we like to feature some of the greatest hits of all time. Today is one of those days as we dig deep into the archive and replay one of the most popular episodes. We hope you enjoy it as much as folks did the first time around. Here it is.

Welcome to the podcast about venture capital where investors and founders alike can learn how VCs make decisions and reach conviction.

Your host is Nick Moran and this is the full Ratchet.

Today, Charles Hudson joins us from San Francisco. Charles is Managing Partner of Precursor Ventures, a pre seed venture capital firm focused on investing in B2B and B2C software companies. Prior to forming Precursor, Charles was a partner at Softech vc where he still currently serves as Venture partner. And Charles has one of the more interesting backgrounds of anyone I've met, including founding Bionic Panda games, working in new biz dev for Google, and even spending time working in the Strategic Venture Capital group for the CIA. Charles, welcome to the show.

Thank you so much for having me, Nick. It's really a pleasure.

Absolutely. So today we're talking about developing a point of view on a new market. But before we jump into that, can you walk us through your background and also how you became involved in startup investing?

Yeah, So I am originally from Detroit, Michigan. I moved out to California to go to school at Stanford where I studied economics and Spanish, which as I'm sure you can imagine is the ideal background for becoming a technology venture capitalist. But.

I happened to go to school at a time when we were at the middle to tail end of kind of the Internet 1.0 boom of the late 90s and so took an internship at a company called Excite at home that is sadly no longer with us. Had a great time working there and as I got ready to graduate from college and go take what I thought would be a much more traditional job in either finance or consulting, my manager at Excite pulled me aside and said, hey, my husband is starting this venture capital firm. I think you should go talk to him about it. The one catch is that he's investing money on behalf of the CIA. And so once I got over my shock that the Central Intelligence Agency would have an interest in venture capital and that I would know somebody who was connected to the Central Intelligence Agency, I explored the role. And it just turned out to be one of those things where when I looked at all of the jobs that were on my plate, that was the one that I said this feels very much like a once in a lifetime kind of opportunity. And so decided to take the plunge and ended up working at In Q Tel for just under four years. It gave me a lot of exposure to the world of venture capital and it gave me a lot of exposure to the unique technology needs of the CIA. And it kind of for me, sparked a real deep interest in venture capital as a career, but also made me acutely aware of, of kind of the limitations of what you can do in VC as a brand new college grad with limited operating experience.

So what was the team like there at the CIA? And were the responsibilities very different working in government than in a private VC capacity?

Yeah, you know, I would say that this might be kind of not as exciting of the answer as some of the audience would like to hear. But honestly, in Q Tel I think had the same tension that all corporate or strategic venture capital groups have, which is how much of our activity and time should be spent doing things that directly serve our kind of client or sponsors core mission in today's problems versus how much of our time should be spent addressing future things that are on the horizon that'll be problems in the future, but are not problems today. And I was really impressed by the folks in the government that I met and sort of their ability to kind of hold in their mind on the one hand, hey, here's the things that we really need to address in the next couple of quarters and years and here's the areas where we want exploratory investments made so that we understand the state of the art in terms of technology. So I think when I talk to my friends who've worked at other strategic venture capital groups, the nature of the problem was different for us at In Q Tel, but the dynamic tension was similar. Got it.

And when did you make the decision to transition into soft tech and also subsequently, how did you decide to branch out and launch precursor?

Yeah, so to transition into SofTech I had started. I'd been the head of Biz Dev at a games company that was acquired by Zynga. This is Sort of call it circa 2009, 2010. I also had built a media business with a friend that was focused on free to play games. And in both cases I was reaching the point where the company getting acquired by Zynga kind of freed me up. I ended up selling that conference and events company. And I went from a really intense time when I'd had sort of two jobs around the clock, to a period of time where I had a chance to step back. And I'd made some angel investments and had some advisory roles in a handful of companies and realized that I liked investing and was continuing to write new checks. But as I looked at my own sort of time allocation, I said the best way to be an investor, given what I want to do, would actually be to find a way to become a full time investor. And so decided to really focus on moving back into a full time venture career. I had been approached as I was sort of going through this thinking, had been approached by a number of other firms that were thinking about adding people to the team and sort of. I had known Jeff for a really long time, going back actually to my in Q Tel days, because In Q Tel and Reuters, where he was at the time, had very similar investment mandates. And so after a long talk, we decided we would give it a shot and work together and had a great time working at softech for almost five years. But softech has had tremendous success investing in a bunch of really amazing companies, some of which, like Fitbit, have managed to go all the way and go public. And we had the ability to raise larger and larger funds. And as we raised larger funds, the investment strategy changed and we went from being kind of first money in investor to the investor that would come in once you had some level of traction or proof around your model. And I think that that's a good use of the time and talent of the team at SofTech. But I just kind of yearned for the days of old when we were first money in, when we were investing smaller sums of money in companies that were early, earlier in their life cycle. And I felt like there was a market opportunity to create a firm that would focus exclusively on those kinds of investments, as many of our peers and my friends had the success that enabled them to grow their fun size and move upstream.

Well, great. Well, congratulations on launching Precursor. Can you tell us a little bit more about your venture partner role? Because I know that you're solicited as venture partner at softech and a lot of folks have pinged me about what these roles like EIR and Venture Partner mean and just like to hear from your standpoint what your duties are or what your responsibilities are as a venture partner.

Sure. So I think venture partner means something different at every firm. I think when I talked to the folks at SofTech, it felt to me that there's still companies where I was the principal relationship that that company had with the firm. It didn't feel great to ask those people to build new relationships with my colleagues at softech. It also didn't feel right to saddle my colleagues with new relationships that would compete with their time and attention for things that they wanted to sponsor. And so I told Jeff and the team that I'm happy to continue to serve as the point person for these companies going forward until they kind of raise the next round or outgrow the sort of soft tech stage of involvement. So I'm not making any new investments on behalf of the firm, just supporting a handful of companies that I'd invested in prior to leaving.

Got it. And I've seen in your bio that Precursor is focusing on B2B and B2C software companies. Is that the extent of it or is there sort of specific sectors or areas similar to what you focused on back at SofTech? Yeah.

So here's the way I would think about it. My original thesis was I was going to focus principally, if not exclusively, on software investing. And then people started bringing me really interesting hardware opportunities. And when I'd been at softech, you know, hardware wasn't something I did largely because, you know, Jeff was a seed stage investor in Fitbit, in Coin, in August, in six sensor labs, in Halo, Neural, in a bunch of really interesting hardware companies. And within our partnership, Jeff just knew far more than I did about hardware. And so naturally, our hardware entrepreneurs who approached the firm would gravitate toward working with Jeff because he was our subject matter expert. So I'd never really had much of an opportunity to dive into hardware on my own. And ironically, the first investment I made out of the fund was a hardware company. Now, I can't tell you which one it is because they still haven't announced what they're doing, but it really opened my eyes to the opportunities in and around hardware. And it's been awesome for me to get a chance to kind of develop my own set of theses and best practices in and around hardware. So that wasn't something that was going to be a key part of the fund. But I've made two hardware investments in the fund, and we'll probably make a third later this Quarter.

This makes a lot of sense with you starting your own firm, you know, with today's topic and in light of that topic, developing a viewpoint on new areas. Can you start off by mentioning how you decide to study a new emerging market and maybe mention a few of the markets that you've developed a point of view on over the years?

Sure. So I think I tend to lean hard on my academic training and I think one of the best things I learned in college as an economist is really just how to pick apart a market and think about all of the things that make for good markets and all of the things that can make for bad markets. I actually spend a lot of my time trying to figure out what is this market going to look like at scale. That's usually what I start off with. And a lot of times I think a lot of people get fixated on market size. Is this going to be a market that could be $10 billion in the next 10 years? I actually tend to focus on market structure first because I think market structure is to me as important as market size. And here's what I mean by that. I oftentimes will think about businesses and say at scale. Is this a winner take all market? Is that where it's trending? Are there network effects? Are there sort of benefits to, particularly with marketplace based businesses? Are there structural reasons why everybody, consumers and service providers in this industry should be on one common platform and is that kind of the outcome maximizing thing for everybody? And I think when you look at some things like transportation and delivery services, you could make an argument that consumers and suppliers, from an economic standpoint are best served if everybody were on one platform because they'd have the most liquidity, lowest search costs, lowest transaction cost for both sides. Now, there's other arguments why as a service provider, I might not want to be completely beholden on only one channel, and as a consumer, I might not want a monopolistic provider of any service that I depend on. But there's some markets where you realize, wow, the steady state is probably like one large winner. And if that's the case, that really influences the way that I think about the companies and their strategies and it influences who I look for.

And I could give you some examples of companies without getting too specific. One of the companies that I sort of helped Softech invest in when I was back at the firm was a company called Shippo that provides a shipping API. And there's a lot of really interesting properties about the way that they've architected their system that Create tremendous benefits for the network of people who are on their platform, such that as they acquire more people using the platform, it becomes more valuable for everybody who's already on it. So I think those are kind of for me, like the holy grail kind of businesses where, you know, the steady state is that the market leader will get a disproportionate share of the outcome and that you feel like you found a team whose viewpoint on how the market will develop resonates with mine. And I think that they're uniquely qualified and situated to go after it. That doesn't always happen. So I usually start with market structure. The next thing I usually go into is like, well, what are the, what are the, like fundamental.

Gross margin business economics of the service that they're trying to provide? Again, at scale. So I always ask myself, like, what does this business look like at scale? Like, what do I think they can charge their customer? What do I think the core inputs of the business are going to be? And to me this is like multiply, add, subtract, divide kind of math. This is not, you know, whip out Excel and build a 10 tab model. It's kind of, can you pencil out a story that makes sense where you believe that the business has kind of core drivers that are going to make it long term viable and sustainable? And then there's this sort of other macro question that I always ask myself. And it goes back to a blog post that Michael Arrington wrote many years ago about swimming upstream. And this one's kind of hard to explain to founders. Is.

Is the thing that they're building, is the world bending in the direction that these founders want to go? Because there's plenty of legacy markets that aren't going away.

But they're probably not going to grow and be interesting in the future. And so I'll give you an example. I met probably.

Eight or nine companies that were working on valet parking in urban areas, kind of like an Uber like model. And in many cases I told the companies, I'm like, I believe everything about your business except for the arc of, except for the arc of history. I think urban car ownership, whether you believe in self driving autonomous cars, whether you believe in, you know, increased penetration for Lyft and Uber making the average ride cheaper. I said, I just, I'm kind of bearish on long term earnings, urban car ownership, and I'm bearish on the role that sort of self that, you know, human driven automobiles will play in urban landscapes in the future. And against that backdrop, it's really hard for me to bet against the future, and that's a highly subjective thing to tell someone. Same thing is true. I've met companies that are building really interesting cloud based business telephony systems and I just asked myself like, well, what's the future of the office desktop phone? To me it's like, it's not great.

Just given the trends that I see around mobility and services like Skype, it makes me somewhat bearish. The idea of having a way to contact a person in a business context on all of their devices makes sense to me. But that might not be a phone number and it might not have the same economics or the same structure of traditional landline telephony. And so for me, that is the future heading in this direction piece is really, really, really critically important. And so I do a lot of my thinking on new markets kind of from the bottoms up. And I always ask myself like, well, what would I have to believe about the world for this market to be really interesting and large?

And I'm sure you got to take timing into consideration on that to some degree, because a lot of the services that we've come to know and love are certainly going to be gone in some matter of time. But we could be talking one decade or we could be talking multiple decades.

Yeah, and I think timing to me is I always ask myself kind of the same set of questions whenever I meet a founding team. I don't usually ask them explicitly, but they're running through my head. One is, hey, why this team? What is it about this collection of individuals that makes them special and unique in terms of their worldview? Why this market? You know, why are they building what they want to build? The most important thing, why now? I always ask people, why not do this two years ago, why not do it two years from today? Why now? Because for most startups, if you miss your window by two years, either way, either you're going to be late to market and someone else is going to have figured out things and made progress, or you're going to be too early. And so I think that timing piece is really important. And for me, oftentimes the timing piece is really subjective. It's like, when do people feel sufficiently comfortable with their cell phones to do things that you didn't think they'd be willing to do? Or when is cell phone penetration high enough? Like, what's the threshold, Mark?

Right.

So I think you have to kind of take all of these things into account and it doesn't mean that you'll get it right every single time. But for me, it gives me a framework to try to break these problems down. And when I meet businesses and tell them, like, here's a perfect example, I'll give you, like a real world example. I met a really interesting company last week that's building infrastructure for mobile games companies. Really smart group of guys, really good market time. They had your classic TAM slide. Look at all of the money that's spent on mobile games. Look at how big some of these mobile games companies are. And what I told the founders, I said, but listen, when I look at the app store charts, there's five to 10 companies that are probably the majority. More than 50% of the dollars and accounts and revenue is going to a relatively small number of players. So if you don't have those players as customers, I'm not sure that rolling everybody else up creates a terribly interesting business, despite the fact that there's a lot of money in games. And they're like, well, we had never thought about it that way. I'm like, well, that's the way I think about the market you're in. You have revenue traffic, attention is concentrated in a really small number of players. And if you don't have them on board, you maybe don't have a business.

Good point.

And so it takes. The problem is you sometimes have to see three or four companies.

In the same market space with different strategies to build your own thesis about around what will work.

And so part of it is iterative, I think. I usually start off with a basic thesis and then I'll meet three or four companies. And a thesis is just that, it's like a set of beliefs. And sometimes I'll meet companies and they'll say, hey, you might have believed that A, B and C was true. We thought so too. But here's what we're actually learning from our customers. And we've tested that thesis. We came in with the same point of view. And it turns out that in practice that's actually not what people want to do. They want to do something very different.

Interesting. Do you also look sort of vertically through the supply chain or the supply stack and figure out which level is going to exert the most control over a market?

I do, and I think.

I do. And I spent a lot of time thinking about that very point. Because the other thing is that most of the companies that I see, there is somebody else who's in an adjacent market who could probably in theory do what they're doing.

And the question is like, well, why? It's that kind of classic, like well, why can't Google do this? Well, the answer is because Google has lots of other priorities, but it's not a resource issue.

Right?

And a lot of questions, instead of asking people like well, why couldn't so and so do this? I'm like, well, why aren't they doing this? Like if it's so obvious, like what, what is it about their strategy that precludes them from doing this? And sometimes it's just a question of they haven't gotten around to it yet. In other cases, there's business model reasons, there's strategic concerns, there's partnerships, there's capabilities in the company that preclude them from being successful in these extension areas. A lot of what I'm testing for in that is I'm trying to figure out how well does the founder understand the landscape that he or she's playing in and the relative strengths and weaknesses and tendencies of the companies against which they're going to compete.

So going back into these three points that you made that you kind of study when looking at a new area, number one, I had market structure. Number two, I had sort of the economics of the market and if they make sense and number three was sort of the relevance of the product or service long term and if it's going to be a value contributor in the long term. So the three main areas that you study when looking at a new market included number one, the market structure, number two, the economics, and number three, the long term relevance. Can you provide some more thoughts on what you're analyzing with number one, the market structure piece?

You know, there's some markets where there's one really really big incumbent who has a lot of strengths and if there's a company that's. So if you have a, if you have a company that's really, really good at selling to the highest high end of the market and providing in a B2B context really great customer service. They've got like the high end sales reps, they're really good at direct selling to the biggest of big accounts, but they're terrible at the low end. There's probably an opportunity to disrupt them there or at least compete with them because so much of that company is oriented towards serving their high end customers. I think what's more difficult is like markets where it's really fragmented, usually that tells me something about the nature of the buyer. I look at a market like CRM, I think most people think, oh well, Salesforce controls the whole market. Last I checked, Salesforce is somewhere between 17 and 20% of the CRM market, right?

Yeah.

So like four out of five people are not using Salesforce, they're using something else. They're using Microsoft Dynamics or they're using Base or they're using High Rise Basecamp, they're using something else. And the fact that CRM is really, really fragmented tells me that it's really hard to build a standardized product in that space that meets the needs of all customers.

Got it.

So if someone comes and tells me, hey, we're going to build this next gen CRM system, there's all these businesses out there, we think we can get them all. The reality is that turns out that being Viva Systems and doing a really interesting thing on top of Salesforce for one market that's highly specialized to their needs could produce a monster company. And it probably will produce more value than many of the broad based approaches to tackling CRM.

So is there a component on sort of the degree of homogeneity of the needs of the customer base?

Absolutely, absolutely. And to me, market structure kind of, for me, it's a quick way to get into that. Like, for example, there's some hardware categories that I've seen where there's a legacy incumbent provider that has 70%, 80% market share in some category. They have a strong patent portfolio, but they're not innovative. And so in those cases they go, okay, so really there's one big dog company in this space because of who they are. We should assume that they'll be litigious. And we should assume that if we get a modicum of success, they're going to throw the weight of their patent portfolio after us. And odds are that they're probably not the most technologically adept or technologically innovative company against whom we're going to compete. So when we're going to market, we should know that at some point we're going to get sued and that we need to resource the company in such a way that a lawsuit doesn't tank us while we work on building an innovative product. Like, I'm sure the folks at Nest were not stunned when Honeywell sued them.

Right.

They're smart people. And so I think knowing, knowing that you have one really big entrenched player with a lot of market share if you compete with that company. Like, I don't like competing with large high share incumbents in their home markets. Oftentimes, like, I wouldn't want to compete with Google and Search. I wouldn't have wanted to compete with Microsoft and productivity apps or operating systems back in the 90s. Like competing with an incumbent that has high market share in their core market, you're going to get their best punch. They're gonna have their best people working on defending the core. And so that's the other thing. The reason I look at market structure is. Cause sometimes I say, gosh, we're gonna compete with that company kind of on their home turf, so we really better have a differentiated approach and go to market relative to what they have. Otherwise we're gonna get the full brunt of all of their. Their marketing efforts and strategy efforts and things like that.

Yeah. On that note, when you look at an Airbnb or an Uber, clearly they're disrupting existing markets at the same time they're creating markets. Is it the difference in go to market strategy of an Airbnb or an Uber that they're totally going after the market in a fundamentally different way than sort of the incumbent players in the taxi cab market, for instance, or the hotel market?

I think the hardest businesses to. This is sort of. I hope this answers your question. But it's something I think about a lot. I think businesses that are fundamentally about taking share away from an existing activity are actually kind of easy to understand. Mm. Because you can just say, like, if Airbnb were just a cheaper hotel, you could say, okay, well, like, they're really going to take hotel rates from 250 bucks a night to 150 bucks a night. That will maybe slightly increase demand. But maybe demand for hotel rooms is not elastic. Maybe it's just a function of, you know, how many conventions and companies you have in your city. So maybe even slashing rates in half doesn't fundamentally change demand for hotel rooms. The harder businesses, the value are ones where you're actually creating a new experience.

That people haven't had. Right. And what you're doing is you're creating something that didn't exist. And so, like, I have plenty of friends, you know where they are, Airbnb homes, where they would have never considered the prospect of getting a hotel for sure because they have a family of. There's 10 of them going away for the weekend. And rather than rent five, the idea of renting five hotel rooms never occurred to them because renting a house is much cheaper. Or I took Lyft to my office today, and I used Lyft probably more times in a week than I used taxi cabs in San Francisco in a month, because the experience unlocks demand supply patterns that were probably apparent before, but not easily accessible. And those businesses usually end up being the biggest failures and the biggest successes, unfortunately, because you're really betting that people will start doing something that they haven't been able to do before.

Yeah. And on that note, how do you think about these sort of nascent markets or these companies that are creating brand new markets in the context of your structure and your approach on developing a point of view on a new area?

Yeah. So I think. Here's one thing I think about. I think in venture, the hardest thing is that venture capitalists, we're pretty social animals, we all like to think that we're doing smart, interesting things. Sometimes you'll make an investment in a category and it looks foolish for a really long time.

And I think it's very hard in venture to have conviction around a category or an idea and to just sit with that when your peers and the press are telling you that it's dumb. Listen, I was at Y Combinator demo day when Cruise presented, and a lot of people said, there is no way I'm getting in a car driven by some technology created by a startup. No way am I putting my life in their hands. Literally.

Sure.

And that's turned out to be probably, from an IRR standpoint, one of Y Combinator's best investments ever, if not the best. Right. And there's a lot of good reasons to think it was foolish to believe that. I remember when I was at Google and when we heard about Dropbox, when I worked at Google back In the early 2000s, we said, there is no way a little scrappy startup company can do a better job of providing cloud storage than we can. It's a technical problem that requires scale and expertise. There is no way that this. And, you know, I think it's pretty clear that Dropbox has really given it a go. And to do these things, it really requires a certain level of patience and depth of conviction that you're right. And sometimes you won't be right. Sometimes you'll just be really, really wrong. And I think not everybody can. Can sit with that.

It's an interesting sort of area to be in in general, because the general public is, is going to essentially think most of what you're doing is ridiculous. And then even within your peer set in vc, people are going to think categories are, are ridiculous.

I mean, the number of people I know who saw the original Airbnb pitch and just said, no one's ever going to do this, I think they were actually right. It turns out that the thing that's really propelled Airbnb is not exactly renting out someone's couch or renting out an air mattress on someone's floor, the product that's propelled them is not the same as the product that they pitched.

Right?

And so I think that's the other thing in venture, I come into every conversation with the basic belief as a vc, there's a good reason to say no to every single startup that comes into my office.

I could manufacture a pretty easy, obvious reason to pass. And so the real question is, like, why do you say yes? And like, what's your own internal discipline and rationale for getting to yes?

So what is that answer? How do you get at a yes based on the way that you're approaching this? You're looking at the economics, you're looking at market structure, you're looking at the relevance and the timing. What are some of the things that really jump out to you on a recurring basis on reasons why you're saying yes?

The way I think about it is I really stack rank things. For me, it's team, market, product. I know a lot of my VC peers are very obsessed with product. I'm not. I think I'm almost embarrassed to say that, Nick, that I'm not. The theory to me is I always ask myself, what are the hardest things to change in a startup? I think the hardest thing to change in a startup is people.

I think the next hardest thing to do is to change the market in which you play. Because when you change the market context, the team might not make sense in context of the new market. And I think products can and do change actually quite often. And honestly, founders are better, good founders are better at finding product market fit than VCs are. I can assure you, if I put the Snapchat UI UX in front of 100 VCs, 99 of them would have said this is a completely unusable product and no one will ever use it. So I try to stay out of the product lane because I think that's for consumers and end customers to decide, not for me. But the reason I stack them that way is that it's very easy to fall in love with people. And I know I have a tendency to do this. And the reason I use that market check is because if I invested purely in people and the quality of people and their energy and enthusiasm and their creativity, I'd make a lot of investments in companies that. Look, some of them would start out, you know, building something, realize that they're in the wrong market, pivot, find success, and turn out to be heroes. That's actually not the normal state of affairs. For startups, the normal state of affairs that I've experienced is you pick the market that you're in, you try to build the product. The first product doesn't quite hit the mark, but you stay in your same core market and you iterate within that frame. And it's only when you become convinced that the core market you're in is no good that you start thinking more broadly about other places you could direct the team's energy. Right. By then, as a seed investor, you've spent most of the money and it might be too late to do anything about it. So I use that market piece as a check. If I get really excited about people, I'll then ask myself, wait a minute, wait a minute. Hold on. Press pause. What about the market and the specific opportunity they're going after? Is that exciting, too? If the answer to that is no, then I've told people, I really like you and your team. I have deep reservations about the market that you're going after, and I can't move forward based on those reservations. And usually one of two things happens. I'm completely wrong, and there's a great market there, and they go on and they're successful. Three things happen. Two, they get in there, they pivot, they find something more interesting, and I never get a chance to reinvest because they find that.

It wasn't as interesting as they. The new thing that they're doing is interesting, and they have momentum to continue with that. Or third, and by far most common. Three quarters later, they come back to me and say, you know, we went down that hole. And turns out that for reasons either the same or different from what you identified, it wasn't a great market. And so we're doing something different now. And I've just made peace with the fact that I'm willing to miss out on opportunities where I don't get comfortable with the core market opportunity that people are going after. And if it turns out to be bigger than I think or different than I think, or they pivot into something that I didn't anticipate, I will lose those. And that's okay.

You mentioned earlier that you prioritize market structure over Tammy.

And TAM is typically a function of price and volume. If the product is this fuzzy thing that's maybe less important than the team and the market, how do you assess the tam, especially in a nascent market that doesn't yet exist?

That's so hard. I wish I could tell you I have a really grand theory, but I guess I start with I start with one of the big questions. It's like, are people already spending money against this problem today? And there's some problems where the answer is yes. And then I always ask myself, to the extent that the answer is yes, how does the way and amount of money that people are spending against this today map to what the company plans to do? Because there's some companies where, you know, their plan is to radically reduce costs by a factor of 10. And they'll show me, hey, it's a billion dollar market today. I'm like, okay, so you're trying to take it to 100 million then. And I think sometimes founders don't always connect the dots between the reason that TAM is high is because the competitor's solution is more expensive and that you replacing them will actually shrink the tam. Yeah, but I also look at not just like, is there money being spent? But are the leading companies healthy, good gross margin businesses? So like the TAM for grocery stores is enormous. The gross margins for running a grocery store, unless it's whole foods, are like not amazing.

Interesting.

And so versus the tam. I mean, look, workday, Salesforce, Marketo, Oracle, we're talking about 70% gross margin businesses. Pretty good businesses to be in at scale and big tams. So I'm always trying to ask myself like, if this company is successful, what does the world look like when they're successful? Is it a lot more? Are they going to fundamentally bring a bunch of new consumers to the market? And like this is about non consumption. And so the current TAM isn't that relevant because their whole belief is that they're going to bring in some new people who have been on the sidelines of the market? Or is it that they're going to reallocate sort of some of the gross margin that's kept by the surplus that's kept by the producer and reallocate it to the consumer? Because I think all of those things, if you kind of pull on those threads long enough, you eventually get to an answer. Right, right. And my TAM answers are usually this feels like it's going to be a really big market because I can envision a lot of people paying a reasonable price for this product in the future. Not so much. I think it's going to be $250 million in revenue in the next five and seven years.

Right, right.

You mentioned this episode of TFR is brought to you by adr. A business dispute doesn't need to become a legal and reputational crisis. Smart investors and startups add arbitration language to their term Sheets for fast, efficient and cost effective dispute resolution. The American Arbitration association has arbitrators that understand your business, bringing industry expertise and experience with startups, tech and finance. Visit ADR.org TFR to learn how arbitration helps leaders keep their focus on growth, not legal battles. Now back to the episode earlier that you prioritize market structure over Tammy.

And TAM is typically a function of price and volume. If the product is this fuzzy thing that's maybe less important than the team and the market, how do you assess the tam, especially in a nascent market that doesn't yet exist?

That's so hard. I wish I could tell you I have a really grand theorem, but I guess I start with, I start with one of the big questions. It's like, are people already spending money against this problem today? And there's some problems where the answer is yes. And then I always ask myself, to the extent that the answer is yes, how does the way and amount of money that people are spending against this today map to what the company plans to do? Because there's some companies where, you know, their plan is to radically reduce costs by a factor of 10 and they'll show me, hey, it's a billion dollar market today. I'm like, okay, so you're trying to take it to 100 million then. And I think sometimes founders don't always connect the dots between the reason that TAM is high is because the competitor's solution is more expensive and that you replacing them will actually shrink the tam. Yeah, but I also look at not just like is there money being spent, but are the leading companies healthy, good gross margin businesses. So like the TAM for grocery stores is enormous. The gross margins for running a grocery store, unless it's Whole Foods, are like not amazing.

Interesting.

And so versus the tam. I mean look, workday, Salesforce, Marketo, Oracle, we're talking about 70% gross margin businesses. Pretty good businesses to be in at scale and big tams. So I'm always trying to ask myself like, if this company is successful, what does the world look like when they're successful? Is it a lot more? Are they going to fundamentally bring a bunch of new consumers to the market? And like this is about non consumption and so the current TAM isn't that relevant because their whole belief is that they're going to bring in some new people who have been on the sidelines of the market or is it that they're going to reallocate sort of some of the gross margin that's kept by this, the surplus that's kept by the producer and reallocate it to the consumer. Because I think all of those things, if you kind of pull on those threads long enough, you eventually get to an answer. Right, right. And my TAM answers are usually, this feels like it's going to be a really big market because I can envision a lot of people paying a reasonable price for this product. In the future, not so much. I think it's going to be $250 million in revenue in the next five to seven years.

Right, right.

Yeah.

And I get that and I love the example of looking at established, healthy companies in the area and if they have attractive gross margin profiles. But what about a company like Slack? You know, prior to Slack, I know that when I worked in a corporate environment, we used Yahoo. Instant messenger for direct messaging and we used email for all other communication and both of those tools were free. So how do you look at that? A company that arguably is bringing significant value, but into a marketplace where the incumbents or the established technologies are free.

I think that's super hard. And so I'll say two things about that. One, I think one of the hardest things to do as an investor is to put aside previous experiences and approach a problem with fresh eyes. And I think if you'd said no to every other enterprise messaging company out there except for Slack, you probably are feeling pretty good about yourself because Slack has been. And maybe I'd say, you know, Hipchat is part of Atlassian, has done really well, but for the most part, like being skeptical on that space was right. But I think if you ask yourself like, well, what would it take? What would it probably take to get enterprises to pay for this one? It'd have to be a product that you could get into the hands of developers and consumers easily. So it has to have low cost distribution, the price per user has to be pretty cheap, and there has to be some compelling reason why you as a company would upgrade to a paid version. And I think for most companies it's kind of security audit logging, like those things matter. And conveniently or diabolically for Slack, however you want to think about it, the more people you have in your company using the product, the more value the security and enterprise features have for you. And so I'm not entirely sure what it is about Slack that made people so ready for the product. You could argue, hey, it was things like yammer and chatter before that had kind of gotten people used to the idea of this lightweight corporate communication. We could maybe go all the way back to aim in those instant messaging Products which by and large are not well supported anymore, and that maybe had those products continued to be supported or the companies behind those products continued to invest in them. Mm. But I think you could trace the behavior patterns all the way back to there. And maybe the time was just right. In a post yammer post, Slack post, Facebook post, Twitter world, people said, hey, this is the way I communicate in my personal life. Why not have in a world where email just feels like completely oppressive, maybe this was just the right time to have an enterprise communication product. Particularly if you think about developers, who were some of the early advocates, they tend to be people who, in my experience, like email the least. Business people like me tend to like email. And so it's not surprising to me that a lot of my early adopter friends who got on Slack were developers and they were able to connect things like GitHub and Stripe that they care about into their Slack channels. But if you told me, hey, we're gonna build this communications platform for businesses, it's gonna integrate with a bunch of other services and we're going to charge companies based on usage, I would say that sounds like a perfectly reasonable idea that many people have tried before and have failed.

Yeah.

And so what is it about the context now that makes this the right time? And it's so hard as an investor sometimes to put aside previous experience because you definitely don't want to recreate the same mistake that you've done before because it's really painful to be like, yeah, you know, I kind of knew that that's typically what happens with these kind of startups. And I just kind of invested in another one and I feel like it's going to end exactly the same way. So clearly I didn't learn anything chasing. Yep.

To your point earlier, why not two years ago, why not two years from now? Context is everything.

Yeah. And it's so. And it's. You know, I will say, like a lot of the investors I admire the most, they have this. I don't even know if they can put in words. They just have this feeling or this. This accumulated set of experience that makes them particularly good at making assessments on timing. They just seem like to be very, very good at. And I would say, you know, the best of the best people I know get the combination of timing and they have enough access to good entrepreneurial teams that they find the right team at the right time. And that's just. I think that's a really durable competitive advantage in venture. If you can get really good at doing that, you can stay in this business and be successful for a really long time.

So you made a point about looking at markets with fresh eyes. And you've written about in the past about how you don't look at decks before the first meeting with an entrepreneur. By the way, side note, I am completely addicted to your blog.

Oh, thank you. I need to do more writing. You should. You got to get back on It's Coming. I'm building up a backlog of posts, so they are coming. Yeah, I don't know. The whole decks thing, it's one of those things that sometimes you say things that just seem obvious to you and other people tend to bristle. I think in venture, there's this theory that you have to see the deck first. Because one person told me the ability to put together a good deck is indicative of some familiarity with the fundraising process. And I think a lot of people use the presence or existence of a deck as a qualifier. Like, hey, if you can't even put a deck together, why should I take a meeting? I think that's totally fair. If your principal objective is to filter out people who you deem to be unserious from your calendar, totally fair. What I learned is, I don't know about you, Nick. I've never been in a meeting with a vendor or I've never bumped into someone on the subway and they said, hey, before we start this conversation, let me pull up a deck and walk you through it, right? Like if you're at a dinner party and someone asks you, hey, what do you do? You don't say, hold on, before, let me. Rather than tell you, let me pull up this deck on my phone and flip you through it.

I haven't done that one. No.

Yeah. So the reason I don't get too obsessed about decks is one, I just know myself, and if you send me a deck, I'm going to read it and I'm going to reach some conclusions based on the way that the information is presented. I'm going to come into the conversation kind of locked and loaded on a couple of things. And sometimes being so fixated on one or two topics that I saw the deck, it blinds me from paying attention to what the founder is actually saying in the meeting. Because I'm just waiting to get to the customer acquisition slide, because that's the one where I have a bunch of questions because I read the deck before, it inhibits listening. Two, I tend to judge the business without the benefit of the founder narrative. And not every deck tells you the whole story. And I find the Good ones intentionally create gaps in the narrative because they don't want to give the whole thing away.

And third, and more importantly than that, to me, the ability for someone to tell a stranger who's unfamiliar with their product or service about it in a conversational way without the aid of a visual crutch is actually something a good founder does 100 times a week.

You're pitching candidates, you're bumping into people at lunch. Like, a good founder is always recruiting new investors and is always recruiting new employees.

And most of those interactions are unplanned and casual. And I think the better if you're at dinner with a candidate and you're trying to close them and they've got a bunch of questions about the business, again, you can't pull out. You can't rely on the deck as the thing that will sell them. So I'm very interested in founders who I think are good storytellers and who I think can weave together a narrative and who I think can have a conversation around the business that doesn't need a visual aid, because a lot of life doesn't give you that opportunity. The last thing is, I've just found, not requiring a deck. It allows me to meet with people who are not maybe as far along in fleshing out every element of the business. And I'm okay with that. And candidly, sometimes those meetings are really bad. And sometimes I meet with someone, I'm like, wow, you're really not as far along in thinking this out, thinking this through, as I'd thought you were. Had I sort of slightly raised the cost of you getting on my calendar, I probably wouldn't be in this meeting right now. To me, that's okay. It's a question of, like, well, what scares you more? Spending time in the occasional meeting that's not productive or missing out on someone who's maybe the chance to build a relationship with someone who's not as far along because they don't have all the materials that tick the boxes for you.

Sure.

When I say, like, I don't need to see a deck, it's like I'm willing to meet with people who are still wrestling with kind of the core things in their business.

Yet you're the first person I've met that doesn't look at the deck, or at least publicly says they don't look for a deck pre meeting, but I don't either. And it was based on something you said. I view it as either a crutch or a tool. And the first time that I Meet someone, I want to hear it. Because they're, they're going to have to sell their business to everybody, every stakeholder, and they need to be able to do it without the crutch. And if you can get to the second meeting, then I think the deck can serve as a good tool to transmit a lot of information about some relevant pieces, but without the sales, without that elevator pitch that really compels me to want to learn more. It's just not worth it for me to try and comb. Comb through a deck and try and understand what they're getting at.

Yeah. And what I usually tell people is I certainly don't want to take a meeting where 10 minutes in I go, hey, we got to stop. Because I have a company that's in conflict with what you're doing. Or I've looked at this space 50 times and like, I've never gotten to a yes. I can usually accomplish that with just a brief paragraph, like, hey, come, just tell me what you're doing and like what you're working on in like five or six sentences over email. So that I can make sure that I'm not going to put us both in an awkward position by agreeing to a meeting where I quickly realize that, geez, you know, like, I've got something in the portfolio that's a little too close for comfort relative to what you're building.

Yep.

And that's for me, like the main knockout. But I also just think I have a higher tolerance for meetings that maybe don't go anywhere than some of my peers. And I just feel like I would much rather meet interesting people earlier in their journey. And I'm willing to accept that some portion of the things I have probably in my calendar could have been filtered out with a, with a more rigorous.

Kind of get a meeting criteria. But the more rigorous the filter, it influences how approachable you are. And my goal is to invest in people at the first stage and the less experience they have with the fundraising process, oftentimes the more raw that first presentation of the business might be.

Yep. Love the focus. Concise emails from entrepreneurs with a couple sentences on what they're doing and get me interested enough to ask for a deck.

Yeah, right.

So, Charles, I wanted to ask you a little bit about pre traction startups.

Yeah.

So you know, startup comes to you, no traction, early stage. What do you look for and why?

Boy, it's so hard. So one thing I always ask myself is like, is there a good reason why this company doesn't have any traction for hardware companies? I think it's easier because oftentimes like the physical manifestation of the product again just doesn't exist. Like no one's, like there is no product to buy or use yet. Yeah, that kind of puts that to the side. But sometimes I'll look at a business and say, okay, what's the logical leap here? Like, is this something that's so abstract and hard to imagine that even if it existed today I'd still have the concerns about whether anybody would use it? Or is this a product category where I'm pretty convinced that there's some level of endemic demand for the product and the real question is, can this company capture it? So for software companies, this is something I've thought for a long time and I haven't really shared with many people. I think most things in software can be built. Now maybe some of the weird deep learning AI kind of things, like maybe those can't be built. But if you named a B2B Enterprise software category and you told me what the product is like, I think most things in software can be built.

Sure.

So the real risk isn't like can it be built? The real risk is, hey, can the team that's been assembled before me, can.

They build it Execution?

So that's one. And do they have a proven track record of building stuff? I think number two, and this goes back to market structure relative to where the industry is, what does meaningful traction look like? So I think if you're, again, if you're building a brand new CRM company, you should have customers pretty quickly because it's a known category with lots of buyers and you should be able to pretty quickly get to the point where people are using and paying for the software that you're building. Like that to me doesn't seem like an inappropriate ask or expectation. However, if you're in a brand new category, particularly for consumer facing social apps, oftentimes you have no idea whether anybody will use it and there is no good analog for the product. And so I think for me for hardware there is legitimate questions as to whether the products can occasionally be built or manufactured at a cost and scale that will appeal to consumers. That's a reasonable thing to ask of a hardware company. So that's one. I think the second thing is always relative to where the company is. Do I think that they have reasonable expectations for how much money they want to raise and the terms at which they want to raise it? And that's kind of a squishy topic. And so sometimes I'll meet people who go hey, we want to raise 750k to finish our prototype, get it in the hands of our first five customers, and we're willing to do that at a valuation that reflects the fact that this is an unproven concept. And I think we're at this weird moment in the venture capital market where almost everyone I know would much rather pay up for something that they know works, then take a bet on something that hasn't been built and doesn't work. And so I think we're in this really strange world where at least in my opinion, people place a lot of weight on traction and perhaps even overvalue traction. And when people are so terrified of backing a company that doesn't end up being the winner that maybe they applied too great of a discount to pre traction for my model, that's great if that's the way that the world actually works. Interesting.

Just to transition a little bit in the spirit of continuous improvement, what are your thoughts on how one can learn and improve as a venture capitalist, maybe from your standpoint and or also from someone new to venture capital?

So I'll say that there's, I think, the obvious things to do. Get mentors, surround yourself with people who've been doing this longer than you have and have been doing it well for longer than you have and try to learn from them. I'm a big believer in taking notes because I think it's very easy to engage in revisionist history and venture and sometimes you'll say like, why did I pass on that company? And if you try to reconstruct it at the time that you know it was successful, it's very easy to tell yourself a self serving narrative. But if you kind of take notes along the way when you see things, I think it's a really good way to get better and identify your own blind spots. So for example, one thing that I do is whenever I go to Y Combinator demo day every year I go, I take copious notes on the companies that I saw and which ones I liked and my initial impressions of them. And granted these are not very long pitches. And every year when I go back, I look at the notes from the previous two years and I ask myself kind of the same two questions. Which companies that I thought were amazing and interesting turned out to be amazing and interesting or turned out to not be amazing and interesting? So how did the ones that I liked, how did that pool perform and what are the ones that I missed and why?

And for me it's just a good mind state to go into Like YC Demo day with is that like historically like what I've realized is for a long time the developer facing things were not companies and products that I particularly understood very well. And so I tended to not have strong opinions on those. And so I think the good news is if you're at a, at an active venture capital firm, you're going to meet hundreds or thousands of entrepreneurial teams over the course of the year and you're going to make a bunch of decisions on them and you're going to form conclusions. And if you're good at documenting your own thought process and being reflective, you can go back and with the sample size of 2 or 3,000 companies and interactions, you can recreate patterns.

Any other final thoughts on the topic today or other things related to, to investing in startups?

I'll tell you one thing I was thinking about was just like, well what are some of my like greatest misses or things that I regret sort of having not invested in?

I really wish I had invested in every single person from my business school class who started a startup because.

There, there are some patterns that I think, I think with even within rules there's freedom. And I think one area where I've been giving myself a bit more freedom in my new fund is there's a certain class or set of people that I've known for a really long time who I think they just have a knack for figuring it out and I would never want to construct a portfolio that was 100% composed of them, but to pass on them because they don't have everything figured out. They have a track record of going from kind of murky fuzzy to fully formed in pretty rapid succession that includes the founders of Trulia and some other really successful, interesting Internet tech and even non tech companies. And I think occasionally you tap into wells of really talented people and having a different bar or process for funding them is not necessarily the worst thing in the world.

Very cool. So Charles, if we could address any topic related to startups or venture, what topic do you think should be addressed and who would you like to hear speak about it?

You know, I really think a great person to talk to would be Bryce Roberts from Indie VC who used to be at O'Reilly Alphatech and just talking about the alternative path to the raise a bunch of money, high growth venture model because it doesn't work for every single business and more importantly it doesn't fit the cultural context of every founder. And I think he's got a really interesting, you know, set of theses and thoughts around that topic.

Awesome. And then Charles, what startup investor has inspired you and influenced you most and why?

There's quite a few. If I could pick two, I'd probably say Chris Dixon is high on my list just because he seems to have a really good sense of that intersection of timing and special teams and areas that seem wonky, weird, undeveloped, or too hard. He seems to have a really good nose for picking those out and making them and getting the right teams at the right time to build the right companies. So I really admire him. The other person is kind of for really different reasons. It's actually Michael Dearing from Harrison Metal, who I just think is super thoughtful about people and about the founders he backs and what it really means to support them. And I've just been really impressed by the depth of attachment and affinity the founders he's backed have for him when it comes to two, three, four startups later, how they still kind of have a strong, I think, personal connection and warm feeling toward the time that they spent with them regardless of the outcome of that startup. And I think if you can cultivate that and the people that you back and support as a vc, that's a, that's a really big deal.

And finally, Charles, what's the best way for listeners to connect with you?

They can always hit me on email charles recursor vc.com or I'm on Twitter most of the day too and actually interact with a fair number of people. I don't know that way too. I will have a website up soon. It's under development but it's just not done yet.

Awesome. Well, thanks again for making the time here. Like I said before, your blog has been very inspirational to me and I've been admiring from afar for some time. So really appreciate you doing this interview and look forward to more.

Thanks so much. It was a pleasure, Nick. Take care.

Such a great conversation there with Charles. I had a real tough time limiting the key takeaways to three, so I decided to pick takeaways specifically related to the topic. Although clearly there were many more wise lessons than just these. Key takeaway number one is called market structure over market size. The three things that Charles looks at with a new market are number one, the market structure, number two, the high level economics of the business at scale, and number three, the relevance and timing of the opportunity. What Charles summed up as is the world bending in the direction that these founders want to go. First, Charles attempts to pick apart the market and look for all the factors that make for a good market versus a bad one. He asked the question what is the market going to look like at scale? Is this a winner take all market at scale where the steady state is that the market leader will get a disproportionate share of the outcome? Are there network effects? Are there structural reasons why everybody, consumers and service providers should be on one platform with a majority critical mass of users? Are there tremendous benefits to the greater network of users as more users are acquired? Do the benefits increase for all users on the platform when all are on one platform? The benefits can include things like more liquidity, the lowest search costs and the lowest transaction costs for both sides. He did mention that there are cases where the constituents in a market would not like one monopolistic provider. But there are some markets where the steady state going to have one large winner. Key takeaway number two is called fragmented versus consolidated markets. Charles went on to describe markets that are really fragmented. He brought up the example of Salesforce and how many assume that they own a majority of the market when in fact they have about 20% of the CRM market. In these cases it can be really hard to build a standardized product that can serve the needs of all customers. This is where we talked about the degree of homogeneity of the customer base. If customer needs are very heterogeneous, it is going to be very difficult to develop a solution that serves all and also to sell that solution in a scalable way. His final point here is that he doesn't like competing with large majority share incumbents in their home markets. He wouldn't want to compete with Google in search or back in the 90s with Microsoft in productivity apps. If you compete with the biggest in their core market, you're going to get their best punch and their best people are working to defend the core. In these cases. A startup must have a differentiated approach toward go to market relative to the incumbent. Okay, and then key takeaway number three is called nascent market tam. Charles starts with the question are people already spending money against this problem today? Then he looks to see how current spending habits map to new spending habits with the startups offering. And one of the watch outs here are companies looking to radically reduce costs. If they're playing in a billion dollar market and they plan to reduce costs by a factor of 10, then the market will shrink to 100 million. Then he looks to see if leading companies are healthy good gross margin businesses. There are plenty of verticals with massive tams but razor thin margins like retail grocery. And he also thinks about whether a whole new group of users will be brought into a market. Is the question one of non consumption? If so, the TAM may not be relevant. Or does the startup plan to reallocate surplus from one level in the value chain to another? In that case, the current TAM will be much different than the eventual market size. And his final point here is that he's not using TAM to calculate an exact market amount or revenue amount that will be achieved in the coming years. Rather, at the macro level, does he see a large number of customers that will be willing to pay a high price? It's really just that simple. Okay, let's wrap up with a tip of the week and this week's tip is called the Customer Volume Value Curve. We've spoken a lot in the past about companies that receive more benefit as they increase their customer base and customers become more active. Companies like LinkedIn, Netflix, Twitter all increase the value that users receive as the user base itself increases. But today, in a simple and direct manner, Charles took it a step further and talked about something I'm choosing to call the Customer Volume Value Curve. The example we discussed was Slack and how in a smart but maybe even diabolical way, they are set up so that the more customers using the platform, the more value is created for the users and for the enterprise. So not only does the value for the community of users increase, but the value for the payers does as well. In this case, the more people Slack has using the product, the more value the paid features have for the enterprise. In most cases it seems that this value is more of a linear relationship. The more users a social network has, the more ads they can sell. The volume side of the equation is most critical here. We know how much money we can make per user, so how do we get more users? The below graph depicts the case for most businesses where volume of customers does not impact the price that can be charged per customer. And for all you listeners out there, I will include three sets of graphs. So each set includes two graphs. On the left will be a graph that shows the relationship between the volume of users and the dollars you can charge per user. So volume on the Y axis, dollars per user on the X axis, and the graph right next to that one will still have volume on the Y axis, but now the X axis is going to be the total revenue received for the company. Very high level macro graphs that depict the relationship between volume and dollars that we're describing here. So the first graph is just a linear relationship. Volume doesn't impact price per user whatsoever. So while the company makes more revenue as they increase their number of users, they do not make more revenue per user. But what if the more users they did acquire, the more they could charge for every ad, click what if as volume increases, price increases as well. Here the curve starts to look less linear and more exponential. So the graphs depicted in this scenario on the left shows a linear relationship between the dollars per user and the volume. So as you get more users you can actually charge more money for each individual user. And then the graph on the right shows total revenue by volume of users. So this is where the exponential effect comes in. Because you're making more dollars per user, you have an exponential total revenue effect. So moving on to the last set of graphs on top of that, Slack has taken this all a step further with step change increases on top of the exponential curve relationship. In addition to the main paid service of security, they have other incremental paid features that also increase their necessity as the user base increases. So once a company has a certain number of users on Slack, the CSO ponies up for paid security. Then based on the extensive usage and conversation history, the CIO adds storage and searchability. Finally, individual departments may purchase integrations between Slack and other value added services like the example Charles mentioned of GitHub integration for developers. Now the graph starts to look even more interesting. And the graphs I have depicted in this section show not only an exponential curve relationship, but also step up increases at various places along the exponential curve as these incremental revenue sources are added. As I reflect on the customer volume value curves, I realize that every business cannot be set up to take advantage of these economics, but there are two questions here that I think are relevant for every new business. Number one, will your users receive more value over time? And number two, do your payers need more value over time? If the answer is yes, then the company is set up to share in and accelerate that value. This is likely why SaaS companies have become so popular amongst investors. Their business model and product delivery is set up in a way to allow for ongoing value creation. Remember, the more value one can offer, the more one may receive in return. That will wrap things up for today. Remember to head over to AngelList and back NewStack Ventures if you want to see some really exciting new startups and partner with some of the smartest angels around. We've been really fortunate to amass a group of folks that are sharing exceptional deal flow and contributing far more than just capital with their insights and connections. Okay, until next time, remember to over prepare, choose carefully and invest confidently. Thanks for listening.

Ra.