The Best Deals Aren't the Hottest Deals | Dan Teran - Gutter Capital | Episode #104

And I was like, so I want to give equity to all the cleaners. You know, when we sold hundreds of cleaners and Handyman made, you know, significant money.

Today's guest is a New York operator turned investor. Dan Turan founded Managed by Q in 2014. What started as an office management platform grew into a company that powered workplaces across the country, and they were ultimately acquired by WeWork in 2019. After leaving WeWork, Dan made the move that founders joke about as going to the dark side, and he became a venture capitalist and launched Gutter Capital. Gutter just yesterday announced its $70 million third fund. Gutter is a true operator-led firm backing pre-seed and seed founders tackling real-world problems. Do you think that it is possible to build a company and not grind? Not for me. Have you ever seen anyone do it?

I'm not trying to go sit on a beach and read a book. Like, I want to build things that matter to people. And so the gift, like, of Managed by Q was like, it was like a big problem. And like, I don't know, we used to talk about it with the team. We're just lucky we found a big enough problem that we can work on for a long time because that's like where the fulfillment comes from.

Today's guest is a New York operator turned investor. Dan Turan founded Managed by Q in 2014 with a simple but ambitious vision, making running a physical workplace as seamless as using modern software. What started as an office management platform grew into a company that powered workplaces across the country, including our office at BetterCloud for a long time, and they were were ultimately acquired by WeWork in 2019. After leaving WeWork, Dan made the move that founders joke about as going to the dark side, um, and he became a venture capitalist and launched Gutter Capital. Gutter just yesterday announced its $70 million third fund. Gutter is a true operator-led firm backing pre-seed and seed founders tackling real-world problems. I've known Dan for a while, and I actually recently visited his office in Chinatown to meet with a cohort of founders and It was really actually one of the more impressive groups of founders I've met with and just the grit and personality of those founders is amazing. So with that, Dan, welcome to Not Another CEO podcast.

Thank you. It is a pleasure to be here. Longtime listener, first-time caller. And in addition to you being one of our first customers at Managed by Q, also, as I think you know, my cousin was one of your first sales reps, which is Testament to how small New York tech used to be.

Okay, great. First question I ask operators, we're gonna go to both operators and investor kind of questions, but first question, what was the one thing that you did big or small at Managed by Q that had the biggest impact and you'd do again if you were CEO of another company in the future?

Yeah, that's a great question. You know, often when I'm talking to founders about Managed by Q these days, I'm pretty quick to tell them we did a lot of things wrong, but I would say the one thing that we really got right was the culture. We were really intentional about culture from the very beginning. From the beginning, we knew it was gonna be really important to attracting the best people, uh, retaining the best people, making everyone productive. Um, and so I think the way both the values that we had as a company, but also the way that we operationalized those values in things like recruiting, performance management, um, kind of making it part of the everyday, uh, uh, air that we breathe at the company is something that was really special and it really made us durable through a lot of ups and downs as a company, which I'm sure we'll get into. And so, you know, working with founders today, that's the one thing that, that we really try and emphasize. And actually, um, in Elbow Grease, the accelerator that we do, uh, we have a lot of instructors come in and teach workshops, um, on various aspects of operating. And the one that I always teach is, is mission, vision, values.

How early in the company history did you kind of codify that? Was it organic for some number of years, then you codified? Did you do it day one?

Yeah, no, it's a good question and it's one I get a lot. Um, I think the, The right answer is it's iterative. So I think you have to start on day one with intention. You have to have a sort of an idea of what the culture needs to be for the company to be successful. But the reality is like part of what a culture is that makes it so unique is it's a reflection of the early leaders of the company. And so I think over time as you add people, it's really important, especially when you're like pre-seed, seed stage, to bring your early leaders into the process of articulating the culture. And part of the question, you know, that we ask is like, what are the attributes of your best people that you want to see reflected in the next 10 hires? And so, you know, if you decide that only on day one as a founder, it's gonna look and feel a lot like you, which is nice, but probably is not what it's gonna take to build the company you wanna build.

And as you kept go— I mean, you got to hundreds of people.

Yeah.

How did you maintain that? Was that you? I mean, were you the culture carrier? Was that a people team? Was that kind of in the individual orgs? Like, how did you do that?

Yeah, so I mean, it was something that, my leadership team knew was important to me and they all reflected into their own orgs. I can tell you, and you know this from being a CEO, the way a culture is manifest in an engineering team is gonna look very different from the way it's manifest in a sales team. And you've gotta kind of roll with that. You can't expect there to be, you know, a monoculture, but there is like a, a shared set of values that need to get proliferated through the organization. I think like the simplest way to frame it is there's a few kind of key choke points to influencing the culture. One is how you hire. So do you actually have an interview that's focused on, on the attributes attributes that you kind of collectively describe as your culture. I think, you know, not hiring someone because they're not a culture fit without being articulate about what that means is pretty lazy and dangerous.

Hmm.

So you've gotta really be clear on what are the attributes that you're looking for and really interview for it. So that's kind of like, you know, step one, how do they get into the organization? And then, you know, on a weekly basis we would have an all hands, or as we got bigger, every two weeks. And basically we created a system where The only way to really give praise in the organization was through, you know, what we called shoutouts that were tied to the core values of the organization so that, you know, you kind of train in the organization. The only way that you get approval publicly is you do the things that we said are, are core to our culture.

Mm-hmm.

And of course, conversely, when performance management rolls around, there's two axes to performance management. There's the objective performance against your stated goals, and then there's, you know, the leadership principles, like what are the, How do you perform against the values with specific examples? And then ultimately that, you know, translates to who gets hired and fired, which is the ultimate teacher in organizations. So—

One thing that you just said that I wanna, I, no one has said this in 100+ episodes now, that thing that it's not a monoculture.

Yeah.

But that's a really important statement actually, cuz I think that to your point, engineering culture is just, is different. I mean, it just—

And we had, we had a close to 1,000 people in a field service organization, so cleaners, cleaners and handymen. You know, we were unique that we actually gave equity to all of those people. Obviously there was a vesting component, but you know, when we sold hundreds of cleaners and handymen made, you know, significant money, that was something that was core to our culture. Everybody was on the same team. But to your point, you know, did the values mean the same thing to a software engineer that they did to a cleaning supervisor? No, but they needed to be kind of, you know, speaking the same language and have some sort of like interoperability. And so that was really important to have leaders who understood that it was important to the, the culture of the organization as a whole to figure out the right way to reflect those down within their teams.

Hmm. The other one is the shoutouts. Um, just specifically, like how did people get— it was in Slack or in—

There was basically, so my, uh, uh, assistant and then chief of staff, uh, Allie, uh, Sardinia, who's now at order.co, which is, uh, a company we'd angel invested in. She is amazing. And one of her OKRs was to make all hands the greatest show on earth. And so, you know, we used to joke that we were a slave to the ratings. We would put, put out a survey after every all hands and immediately get our ratings. And so every week we were iterating, making it better, making it better. And the shoutouts were something that she would collect from across the company. We would get like, you know, dozens, if not hundreds submitted. We would then curate and basically choose like, what are the 5 to 10 best ones that kind of reflect also kind of where are we at at this moment in the company, what do we want to highlight? And then, you know, we kind of read through them and everyone would cheer and then we'd send out the long list to everyone afterwards. But, you know, it was a moment of public recognition. And actually, as we got even bigger towards the end, we held, I think once before we sold, the Q Awards where we had these big brass Qs made and we had like a full-on award show. There was like a host. They did like these little kind of award show skits. Yeah. Um, and for all the nominees, there were videos made where we interviewed people across the company sharing their experiences with that person and why they reflected that value. And then of course, you know, the winners got their Q award. I still, I still have one of them. And somewhere in the shuffle with, um, you know, after the sale to WeWork, there's a, there's a box of heavy brass Qs that's somewhere in the universe. So if anyone's seen it, I'd like to back.

That's, that's the power of that. I, we did something not so involved, but we did something similar, you know, at BetterCloud for the BetterClouders of the Year Award. And that one thing for me may have been the most, the thing that drove behavior and motivation, inspiration for the rest of the team. Like when they saw those people winning, I mean, I can only imagine with like a whole production, like when they see those people get up and get called out for doing those things, does that, I mean, that at a deep level, like inspires—

Totally.

Everyone who's sitting there to to want to be up there.

Yeah. And I think like, you know, we assume as CEOs and people who are kind of self-starters that everyone kind of knows what to do when the reality is like most people don't. And I think the reason that people like working for great leaders is like they give them a lot of context and meaning to the work that they do. And so I think most people are just like, tell me the set of behaviors that I need to do to be good, to be successful. And I think a good culture It makes it really clear, you know, you do this and you don't do that. Um, and you might get an award and you might get promoted, but I think, you know, most people are kind of looking for direction. And if you have a really strong culture and you showcase, you know, the positive cases, it's pretty easy for people to fall in line.

Yeah, I, I really, I like all of that. Um, the, let's talk about actually this field workers, 'cause that was a unique part of the business.

Sure.

You know, you said 1,000, Close to 1,000. Close to 1,000. How did you ensure kind of scaling that? Because that, that was, again, being a customer, like you had people coming in the office.

Yeah.

Interacting with all your customers in the office.

Totally.

Every day. I mean, pretty much. How did you, how did you do that? Do you think that because you made them, you gave them equity, like was that Did you know you were gonna do that day one? Was that something that you end up doing later on because of something? Like, can you talk about that a little bit?

Yeah, we actually, so I had an amazing CFO, Chris Davis. He joined, you know, kind of unusually early for a startup. He joined right around the Series A. He had been the part of the Huffington Post prior. He actually just was, just completed the sale of, or the merger of Alma and Spring Health. He's still at it now, has over, a billion dollars in transactions under his belt as a CFO. But his like first day on the job, Chris will tell you, um, you know, he came into the office and I was like, uh, so I want to give, uh, uh, equity to all the cleaners and I need you to figure out how to do it. And it was like, you know, he's showing up to work at a startup and this is like his first, first, first week. I dropped this on him. Um, but we were fortunate to have some great resources in our network. We talked to the folks who'd implemented a similar program at Starbucks, which was the first of its kind. Um, and so yeah, the intention was there from early on. Um, I think it's, you know, it's really hard to implement an employee stock option program. And even like the folks at Starbucks were the, were told us kind of right away, most people won't even understand what it means or that it's valuable. And so you have to pair it with a pretty heavy education component. And even then you're still not gonna bat a thousand for people even knowing what, what it means. In terms of like how we got, you know, So the CFO would do the education? Yeah. So we'd, we'd had a, there was always a training component, you know, these were W2 employees and then we actually, you know, had a supervisor structure that were out in the field in the evenings.

And so they were responsible for kind of communicating.

We also had, um, an application that basically like, you know, the operator app was sort of like their, their work companion and had, you know, not only where they were scheduled to go in the evening and their task list when they were there, but communicated all of the HR things. And then we had similar to, to the all hands, we had what we called these operator assemblies where we would have, you know, at times hundreds of cleaners and handymen come in for a day of kind of continuing education, celebrating the wins again, like, you know, reinforcing the culture., and, and training.

Wow.

Wow. Yeah, it was, uh, it was not for the faint of heart, you know, running a large service organization in, in, in, you know, major metropolitan city, but, um, with people in other people's offices overnight. Um, but yeah, it was really rewarding and I think, you know, in a, in a challenging industry, we were able to build something, something really powerful.

Yeah. Um, so can you talk about this, the, the kind of, the acquisition by WeWork, was that something that was in the works? Did you have a relationship there for a long time? Did that come out of nowhere? You know, how did that come about?

Yeah, so I actually met Miguel McKelvey from WeWork on a trip with Charity:water to Ethiopia, probably in 2016. I had met Scott Harrison, who's amazing. He had invited me to join one of their trips. I had a friend, Neil Parikh from Casper, who was going, so I agreed to tag along. And Miguel and I got sat in the back of a Land Cruiser and, you know, Miguel's like 6'8" and I'm, I'm pretty tall myself. And we're sat in the back of a Land Cruiser for just hours driving across, you know, dirt roads in Ethiopia. So we got to know each other pretty well. And, you know, we didn't really talk work most of the time. We developed a friendship. You know, he came to kind of understand who I was and what I did. And as you, you know, may recall at, at the time, this was like a period of time in downtown New York where someone was either working in an office that was managed by Q where they were working in a WeWork. And so it just seemed natural that, you know, we would start to have a dialogue. Um, he convinced me to go meet with Adam. Um, had a mind-bending 2-hour conversation with Adam, as many people did at the time. Um, nothing really came of it. Um, a year later they engaged and they kind of started to open the door to this conversation. We weren't able to reach a deal at that time. And then basically a year later they came back with a really compelling offer and, uh, for a number of reasons, it seemed like the best path forward for the company. So we transacted in April of 2019.

And so you, you came in right before kind of a lot of the challenges. Yeah.

I mean, it was definitely ramping into the, into the, the challenge period. You know, it was like a very chaotic period in the company.

And they had done a lot of acquisitions. I mean, I remember they were doing—

They had done a lot and that's— and then after I joined, I was made head of corporate development. And so we did another half a dozen acquisitions in the 6 months that I was there. Yeah. Some of them were or some of the portfolio companies like Flatiron School, they were very acquisitive as well, acquiring sort of bolt-on capabilities. We acquired a few workplace technology companies.

You were in the real center of that.

Yeah, yeah, yeah. When I, when we completed the transaction, I became the head of corporate development and ventures at WeWork and my head of product became the CEO of Managed by Q. So then I had Meetup, Conductor, Flatiron School, and a long tail of stuff rolling up to me in addition to M&A strategic partnerships and the Creator Fund, which was a $200 million fund investing in the future of work. So it's a whole, a whole grab bag of responsibilities.

Wow. And so how long were you there?

Like 6 months.

And I think a lot of people, WeWork is a specific example, but I think a lot of people go through, and I know, you know, many founders have gone through these, these types of acquisitions. Like things change a lot.

Yeah.

Regardless of who's buying you. I mean, some bigger company buys a smaller company.

Sure. Things change.

What do you think was the biggest change that happened immediately?

Well, I stopped working at the Managed by Q offices, so I was like, I worked at the WeWork headquarters. And so that was a pretty big change.

Yeah.

I think for my team, and I think most of them would tell you this, a lot of us still work together today. I was really intentional about protecting them from whatever the chaos was at WeWork. It was, you know, as far as I know, the only acquisition WeWork did were the employees got paid all cash and all at close. They were not like exposed at all financially to the decision to, to do the sale. Um, and my employees never really had to set foot in a WeWork office. They stayed at the Managed by Q headquarters. And part of the sale was just to guarantee that we had the runway to execute the vision of the business. And so they were all very insulated. Um, definitely like, yeah.

Interesting. So it just ran, but I mean, your co-founder—

It, it ran independently. Um, my, my head of product, sorry. Um, yeah, became the CEO, Ron Feldman. He's awesome. Um, did an incredible job. And then after, yeah, about 6 months, basically, you know, obviously, uh, through no fault of ours, uh, WeWork failed to go public twice. Um, and sort of the, the need was to conserve as much cash as possible. And so, you know, at a certain point I was asked for my recommendation for all of the portfolio businesses I was overseeing and sort of my function in general. Um, and my conclusion was like, if the goal is to get profitable next year, you gotta kind of cut all of this stuff. Immediately and divest yourself of it. And by the way, it might also make sense to divest yourselves of me. And fortunately they agreed and, you know, I was moving on within about a week of that conversation. Yeah. WeWork then, you know, went through a fire sale of all the assets.

Of all the acquisitions.

Yeah. And some, I mean, some companies fared better than others. Managed by Q was sold to a competitor., you know, my team was not excited to work there. Yeah. And so basically they all walked out. Um, and that was really like, uh, one of the happiest accidents in my life where, uh, at a certain point I thought I was gonna buy the company back. Then it was clear that wasn't happening. Then my employees walked out and that was sort of like, kind of brings us to the genesis point of, of Gutter Capital and the firm that we built today.

Um, I want to get to Gutter. Um, In terms of that founder journey, what was the biggest challenge you faced along that 6-year—

Yeah, I mean, I started the company when I was 24 and I literally knew nothing, had done nothing. Like, you know, I, I, there was so much painful learning along the way, which I think, you know, a lot of that informs how we engage with founders today, but it was like, it was kind of all painful. You know, I had like, we, we, we joked that we like worked our way through every business model until we found a good one. So we went from like a tech-enabled service business to a managed marketplace to vertical SaaS and like all of this while consuming vast amounts of venture dollars, you know, made every hiring mistake you could make. It was just like kind of one, one mistake after another. Um, obviously we did a lot of things right as well, but, um, you know, that was like a, a painful, painful journey. A lot of hard lessons and like just, you know, grateful that we landed on our feet.

Okay, so you go, you, you decide you're gonna start Gutter Capital. And my sense, and I, I mentioned I had been to, I've been to the office and met some of the, the companies. What is the, what's the focus there? What's the thesis there? 'Cause a little, it is a little bit different.

Yeah.

So where can you talk about that?

Yeah, so I mean, it's helpful to take a little bit of a step back. So before I sold Managed by Q, I had started angel investing with my partner James. James is a computer scientist by training, became one of the world's most successful professional gamblers. And actually we met at Johns Hopkins many years ago. He came to me with the idea that we would start investing in early-stage software companies. I had a lot of access because, you know, as I'm sure you got the same emails at the time, there was very few founders in New York that could be helpful with fundraising. So we actually did 100, 110 deals off of mine and James's own balance sheet before we raised Fund 1. Um, and so that started in 2017. Um, and kind of up until 2021, we raised Fund 1. Um, and so when I left WeWork, you know, I already had sort of this portfolio of angel investments and it was, uh, I left WeWork in like October of 2019. And so, you know, fast forward a few months and like everybody was, you know, taking it on the chin because COVID was, you know, arriving in New York. It was about to shut down. And a lot of the businesses we had invested in were, uh, SaaS for SMBs. So, uh, Opus is a learning management software for frontline workers. Biggie is a customer data platform for independent restaurants. Those were two examples where I love the founders. I was like, at the time, like a pre-seed kind of angel check investor, was working with them pretty hands-on. And all of a sudden, like I was unemployed for the first time since I was 14. Had some time on my hands. I also like, you know, couldn't leave my apartment. And I had these founders that were really going through it and needed some help. And so I started working closely with both of those companies, advising them for a little bit of equity,, and just sort of coaching the founders. And then the company that had acquired Managed by Q, um, pretty quickly made it clear to the team that, that remained that like it wasn't a place they wanted to work. So they all walked out. Um, and I saw an opportunity to help some of these founders who I'd invested in rebuild their founding teams with some of the best people I've ever worked with. I said earlier, um, you know, my people all got paid at close if we worked there. That made them all really down to sign up for another tour of duty.

Mm-hmm.

And so Um, at Bicky, I introduced John Lucas and Chris Thompson, who are two of the co-founders, to, to Abhinav, who's the CEO. Uh, and at Opus, I introduced, uh, Vince Lee and Jeff Silver, who are two of the co-founders, to Rachel Namath, who's the CEO. And both of those businesses really started to inflect. Um, we, you know, COVID was a wild time. We all ended up getting an office together on Canal Street across the street from the one that you've been to. Um, and really just started to build out this pretty unique community of people that were you know, a mix of former Managed by Q operators, these really thoughtful, purpose-driven founders. Both Rachel and Abhinav had kind of deep personal experience in the industries they're working in. I think, you know, we'll get to it, but kind of the archetype of a Gutter founder, I think really is someone who deeply understands the problem from personal experience. And so that pushes us into, to kind of some different industries than maybe your typical venture fund. And I think, you know, certainly different than what we were doing at Managed by Q. So anyways, yeah, we started working together in this office, ended up mentoring a handful of companies. All of them started to do very well. And by 2021, you know, we were getting asked by the founders that we had angel invested in if we had the capacity to lead their rounds. And the reality is like we were just going to run out of money if we were doing that off our own book. And so kind of a perfect storm. We had an opportunity to lead a round at Forerunner, a round at Biki, and a round at Opus all in 2021. And James and I kind of looked at each other and we're like, you know, it's now or never. Let's, let's go raise a fund. And so that was when we raised Fund 1.

Wow. And when you meet with a founder first time, what is it that you're looking for? Like what you mentioned before, you said you, that they've lived this problem. They understand it. Can you talk more about that? And how do you, how do I, how do you see that? Like how do, what do you, what are you looking for in those, in those discussions?

Yeah. I mean, so I think there's kind of two separate things. One is like, what's the insight this founder has, which I think we think best comes from lived experience. And so, you know, that can look like the way someone grew up, uh, where someone has worked for a long time, like someone in their family, like some sort of deep personal connection to the problem. I think, you know, it certainly can work a lot of ways. You know, we've seen like, you know, Amazon basically, uh, Bezos came up with it at a whiteboard. Like, I'm not saying that that approach can't work. I think the founders that we tend to work with the best are deeply connected to the mission. And I think in my experience and with the culture I built at Q, you know, those founders tend to be more resilient through the ups and downs that come with company building. And so we want people who have, you know, they're going to do this with or without us. Um, and in most cases they have a lifelong commitment to the problem they're solving. It's not, it's actually bigger than the company. Um, in terms of like the, the founders themselves, there's a few things that we really key into. Um, integrity is, is obviously a big one. It's a, it's a non-starter if it's not present. Drive is another, you know, are they gonna persevere when others would give up? And then the last one, which is hardest to measure, is judgment. You know, do they have a history of making good decisions? Do they understand a good decision when they see it? Do they have a good process for decision-making? And that last one, you basically can't discern in one conversation, you know, you need to spend a lot of time with the founder. You need to put yourself in situations when you can evaluate decision-making. And ideally you want to just observe them making decisions over time.

How, how quickly between meeting a founder? I ask every investor this, how quickly between meeting a founder, first time you're meeting them, they're pitching you, how quickly do you know if you want to invest? Obviously you're not investing right away, but how long in your mind does it take for you to say, yes, I, I, I'm gonna lean in on this?

Yeah, I mean, I think like, listen, we're, we're human. I'm human. I have the same like impulse to be like, I, I love this person. I want to invest with them. Like, you know, 30 seconds in. We actually have like a pretty robust process for doing founder assessments, which actually, it's like literally hours of interviews that are conducted by me and my partner James that are assessing some of the things that I talked about that are deeply biographical. We really wanna understand where people are coming from, what their childhood was like, what their influences are. And so we really try to withhold judgment until we've completed the assessment. And we are, we're so cognizant of our own biases, you know, like how do you not fall in love in an investment process that we actually have a third third-party executive coach, um, who reviews the game tape of all of the interviews and comes back to us with an independent assessment based on the rubric that we've provided to him.

Really?

And we iterate on it constantly. So we've done like, you know, uh, dozens of hours of these assessments now. And, and now, you know, what's really cool is, um, we've been doing them for probably 3 years. And so we can actually start to look at, you know, were we right? You know, were the traits actually present? Like, was the evidence of the traits, um, strong enough, or were we just like telling ourselves the story? And so So, you know, the beauty of it is like humans are endlessly complex. We will always be iterating on these assessments, but I think probably more so than most VCs that you would talk to, we take a really long time to decide.

I wish I had game tape of every interview I've ever done for any employee ever.

Uh-huh.

Because it would be interesting being able to see like in 5 years what you're going to be able to see in terms of like closing that loop is going to be great.

Totally. And we've had, we have had investment processes where We're so close, you know, everything, everything checks out. And it's honestly like, it's a bummer because we've also invested so much of our time, but we had things that have come up in the founder assessment where we, we just can't quite square it. And then like we try and reference and try and reference and, and ultimately, you know, we've, we've had a few occasions where we get through the entire process. It doesn't happen often, but we have to, you know, we have to back out. And yeah, I think like the, the proof is in the pudding, so we'll see. But so far, Since we've implemented that process, which was only like a year and a half into the fund's life, I think we basically have not invested in anyone that, you know, that we're not excited to be in business with.

How does the founder— this is, I'm curious about this in the world that we're in today where some people are doing deals in like 5 minutes.

Yeah.

And how does the founder respond when you're taking them through that process? Is that part of the gating factor to see if they're leaving? Because I feel like now I talk to founders like, yeah, I got a term sheet in like 4 minutes and they gave me the highest valuation. I'm like, do you know anything about Yes, Darren.

I mean, exactly. It's an intelligence test. I think like we do relatively few deals a year. My partner James likes to say that a hot deal is not a gutter deal. And it's just like, it's true. Like we're not gonna, we are never gonna be the fastest. I think we, there's a stack of case studies that say we're the best possible partner to build your business with. But the reality is like, we're not gonna move the fastest. We're not gonna pay the highest price. And you know, for some founders, that's what they want to do and they're willing to, I would say often when we indicate serious interest, founders tell us they're willing to pause their process until we make a decision. It's, and, and, you know, in cases where they're not willing to do that, then, you know, we've just learned something valuable.

How do you work with founders? I mean, I've made the, I've said this probably, I don't know, 100 times to different people of like, I would have a hard time being an investor.

Yeah.

Because after building a company, not that we know all the answers, but if you've done it, you, you kind of know the shortcuts, you know how to, and as an investor, I feel like you don't, you can't really, you know, push that operating—

Totally.

—model on people. Like how do you deal with that?

Yeah.

Do you enjoy that kind of—

It's, I mean, it's a journey. So I basically agree with you. It is really tough to not be, you know, holding the levers yourself as a former CEO. I think I've kind of enjoyed the challenge of like, how do we build a machine that can create companies all have the same kind of embedded operational excellence. It really helped that a lot of the companies out of the gate had my former employees as leaders in them.

Yeah.

Either as founders or as early executives. But we, we're, we're pretty prescriptive with like what a well-run organization looks like. And so before we reach an agreement to invest, we give the founders what's called the, the Gutter Founder Contract, and it outlines sort of like our expectations. And part of that is, is kind of our operating blueprint, which is, you know, a cadence, an operating rhythm, nothing that's like that revolutionary, but like—

All hands, like all the—

Yeah, we're gonna have board meetings, we're gonna do OKRs, we're gonna have a biweekly check-in, we're gonna focus on the goals. And so we kind of tell them what it's gonna be like, what the operating rhythm is gonna be like to work with us. We do this at Alpha Greece too, by the way. And one of the things that, you know, we hear from founders constantly is like, it's one of the most valuable things because you establish an operating rhythm and a discipline very early on, and that carries with you throughout your career. I think the other piece that's important is like, you know, there's gotta be a carrot and a stick. We have a really deep bench of operating partners. My partner Richard was my head of talent at Gutter, or sorry, he was my head of talent at Managed by Q.

Yeah.

He's also the head of talent at Gutter. He has recruited at this point probably 115 people into the Gutter portfolio. He's had 5% regrettable attrition in the last 5 years. And the average gutter company, when they go to raise a Series A, about like half to 70% of the employees were people that we recruited for them. And like, I'm involved in the recruiting process. I'm helping to close executives, you know, every single day we're meeting with talent. And so there's a really big incentive to basically, you know, uh, work closely with us on these things. And if Richard's the one making the key hires, it means we need to be in sync on what the job description is and what the goals are. And if we're in sync on what the goals are, then we're in sync on the operating plan. And so, you know, having a resource like Richard gives us a lot of leverage on the operating. And then we also just brought on Vince Lee, who was head of design at Managed by Q and then was the co-founder at Opus from basically pre-seed through to almost the Series B. He left and joined us as head of design at Gutter. And so he actually will embed with our companies as basically a fractional head of product and design. And that's another, you know, huge lever for us to really ensure product excellence across the portfolio.

I love the operating blueprint that if there's one thing I can do when I go into a company, I mean, the two biggest things for me is ICP definition.

Yep. Yep.

Only let it talk for the founders. And then the second is operating rhythm. I think the operating rhythm so much kind of hangs off of that.

Totally.

And so few people, including myself in the early days, invested in it. It's like, oh, Do the all-hands. Nah, maybe we'll cancel this week. We have nothing to talk about. I'll do my leadership team meeting. It'll be an hour. We'll basically go around the horn real quick, updates, move on. And you have the board meeting once a quarter. I don't want to talk to my investors except for once a quarter. Then you start doing the strict all-hands schedule. You start doing biweekly check-ins with the investors. You start doing 3-hour leadership team meetings where you're syncing on goals. You do OKRs and all of a sudden— It starts to be a very different—

Lo and behold, you're hitting your goals or you're learning faster than you were Yeah. I mean, I think that's the thing, right? It's like having a discipline where somebody, you know, other than your co-founder is asking you just to check in on the goals that you committed to. And like, you know, we always frame it as like, the whole point of the check-in is for you to tell me where we can help de-risk the goals. Like, where do you need help with? You know, it's not like we're not trying to be anyone's manager, but we want them to use us. And I think just forcing that discipline where they're going back to the goals on a biweekly basis and, you know, So part of the key to having goals in an organization that early is not that like the goals are always right, it's that you iterate and learn how to set better goals over time. So yeah, we're dogmatic on the operating blueprint. It's also like the companies that really embrace it get a lot of help and attention from us and the ones that, you know, don't want to do it, they don't have to work with us. But yeah, we've found it to be really effective over time in terms of like your question of how do we work with them? We also have an office that you've been to where we've got 2 floors, uh, down on Canal Street where we've got about 70, 80 people across about 15 companies, um, from pre-seed to Series B that all work outta the same space. Um, and so, you know, for most of the founders where I'm on their boards, I'm actually seeing them every day in the office. And so there's a lot of opportunity to like, you know, have informal interactions where you can kind of be helpful around the edges. And then we also have the entire portfolio, of course, on a, on a Slack instance where people are chatting. Constantly. So there's a ton of interaction outside of the biweekly check-ins, but those are sort of the formal touchpoint. And then, you know, quarterly board meetings.

In terms of compared to when we built our companies. Yeah. What is different now with AI?

Man, I am so envious of the founders today and just how much you're able to accomplish with such a lean team.

I mean, when I was there and I was meeting some of those people, yeah, they're wild. It's like 3 people and they're, they have like a full, like a product. I mean, when you could build— 3 years.

Yeah, totally. I know. But like one person could build Managed by Q in a weekend today, which is great. So yeah, I would say the biggest thing is everyone is kind of hands-on either building or selling the product. There's like, you know, there's not really room for anybody else in any organization anymore. I think the founders are able to accomplish an incredible amount with limited resource, you know, like you just don't need a technical person to get validation on MVP. I think like you probably don't need a technical person at some point to have like a software business. But at this point, you don't need a technical person to get to an MVP. I think then as you get like, you know, as you start moving deeper into product market fit and thinking about scaling and thinking about what is sort of your defensibility, um, you know, we tend to still have, you know, technical co-founders and engineers, but I think to get out of the gate, you know, it's pretty impressive what non-technical people can accomplish on their own today. So that's like a pretty big difference. And then engineering teams are just like, insanely productive. And what that means is, especially for, you know, vertical AI kind of businesses with a B2B motion, there's just much less reliance on venture capital than there used to be. It's not hard to be profitable if you have some semblance of product-market fit. And so one of the things that's so exciting to me as an investor at this time is like the amount of shots on goal that you get when you don't need to have like 10 engineers just to get to a product to know if there's a there there. Mm-hmm. It's just like, it's an incredible time. You know, you are so much more likely to find product market fit just because you get more at-bats.

That I think is so, I was talking to founders, I don't remember when this was, a couple months ago, and they came to me and they said, oh, we got this idea. It's like a Slack replacement. And they vibe coded it, came to me, showed it to me, showed it to some customers. No one liked it. They literally just deleted it. Started over the next day. They came to me 2 weeks later with a, yet a completely different idea. Showed it to a bunch of customers. They kind of liked about, deleted it by like the, I think they got to their fourth idea and then that one hit, but that took them a total period of like 2 months or 2 and a half months.

I would think years. Like years.

That's the, that's, that's amazing. That's huge. That's very different.

It's very different. And then when things are working, you know, I think, you know, companies obviously are and will continue to raise venture, but it's more to like double down on inflection and what's working than it is to like, you know, wander the desert. You can wander the desert basically you know, one person on a very modest salary can spend a lot of time doing the experimentation that used to take a whole team and millions of dollars to do.

Do you, so you do more of these vertical types of software AI companies?

Yes. I mean, we were doing vertical software and marketplaces, you know, primarily before I would say we're doing a lot of vertical AI and also, uh, uh, AI native service businesses. So the lines are blurring pretty hard in terms of like what type of business these companies are and their pre-seed and seed stage. So, you know, it's not hard to imagine how someone can go from being a vertical AI company to taking on more and more of the work and all of a sudden they're an AI services company. So the lines are blurred, but I would say, you know, more often than not we're working with B2B or B2G businesses.

Is it geogra— like, do you focus only on New York? Do you do it anywhere in the world, country?

We have historically done deals outside of the United States. I'm on the board of a company in Berlin. And then we have got our portfolio companies all over the US. I would say probably more than half at this point are in New York. And so most of our companies either are headquartered in New York or they have a presence in New York based in our office. And I think it is easier for us to work with companies when they're physically in New York. And so I think that's our, certainly our preference going forward, but we're always open-minded when we meet incredible founders that we feel like we need to work with.

Okay. I wanna talk a little bit about AI services companies, 'cause I'm right now in this mode where I feel like that's, there's a lot of opportunity there. 'Cause everyone's saying, oh, we're gonna change, everything is gonna be based on outcomes. I'm like, I don't think people are just for software, just for an AI agent, I don't think you can charge. I mean, you can try to charge for outcomes. Intercom has done it, other people have done it. But if you really want to get there, which is what I think people want to buy, need the human in the loop, even if it's a limited amount of human in the loop. You need a human in the loop. Is that what, like, I, I just feel to me, if I were to start a company tomorrow, that's probably what I would start.

Yeah.

Because it feels like it's, if you're trying to build pure software, at least horizontal, at least it is just too competitive and it's too, it's you, you actually, there you have to raise a lot of money.

Yeah.

And in vertical, I think those verticals, at least the people that I saw in your portfolio, those, those are verticals where the customer really doesn't care. They just want the outcome delivered to them.

Yeah.

Is that a fair, like, I don't know, I'm not as deep in it as you are, but I more and more I'm like leaning on that direction.

Yeah. I mean, I think, you know, I can give an example of a company in our second fund, a company called Roble, which basically is a service provider to commercial real estate owners to do 179D tax deductions, which requires professional engineers, requires someone to actually go on site and do an inspection, but they're able to operate the business at software margins because They have their, uh, CTO was one of the first engineers at Datadog, stayed with them all the way through the IPO. He has built an incredible automation pipeline that basically takes their, you know, one or two professional engineers on their staff and supercharges them with AI tools to do projects that used to take months to complete in, in like a week. Um, and so they're getting these multimillion dollar tax deductions to their clients. They're taking 5% of them, um, as a fee. And so they have a roadmap of what are the other sort of deskwork-heavy services that commercial real estate owners need to do around tax, around compliance, around other incentives. And that could be a massive, massive business with very few employees.

Yeah, I've met someone who came out of Deloitte who was doing this for the R&D tax credits some states give.

Yeah.

And he said, you know, people would pay Deloitte hundreds of thousands of dollars to get them these tax credits. He said, We can do all of that in a fraction of the time. We charge them a percentage of how many of the tax credits we get from them.

Oh, it's free money. Yeah. Yeah. It's crazy.

Like, and I've never seen someone growing this, you know, adding $1 million a week of revenue. Totally. Because why would you not? Why would you keep going to the Deloites and the Accentures? Like, why would you do that? Totally. You know?

Yeah. I mean, we have another company that was in the Elbow Grease cohort that you met that's a property and casualty insurance company for SMBs. And they basically are going after the long tail of P&C policies for, you know, SMBs that otherwise are basically just getting a terrible service from the insurance industry because their policies are just not worth that much. And so if you're a broker, are you really gonna chase a $1,000 policy? You know, like often these leads just get ignored on, on marketplaces and exchanges. And so their insight was like, you could basically build a full, fully AI-native brokerage with very little human involvement. Mm-hmm. And, and use the AI to create like very professional, you know, quality presentations of, of options to these customers that otherwise would maybe be getting one option of it. Anyone even returns their phone calls. And so I think what's really exciting about that one, which is a company called Switchboard, is they actually can be like delivering an excellent experience to SMBs with AI that otherwise were like basically being ignored by the traditional insurance brokers.

Yeah.

Not 'cause the brokers are, are bad people or doing anything wrong, but like the incentives aren't there. To go after those customers and give a great service. And so that's like, I think, a really, you know, positive spin on what the benefit AI can provide for, for kind of mom-and-pop businesses as well.

Right. I love, in terms of, let's talk about New York, 'cause you've been here for a while, you've built here, you're building now this venture firm. How has New York changed in your mind?

I mean, I think like you remember back, I used to joke that like in, you know, in that, that kind of early days of New York tech, they could fit all the founders in a room and like, I feel like they did it, you know, every other week. So it was a very small community. Everybody knew each other. You knew every investor. And now there's gotta be like, you know, thousands, if not tens of thousands of founders in New York. I would say the biggest change is like, I think Google was here. I moved to New York in 2010. I think Google was maybe just here, but there has been these massive waves of expansions of Amazon and Facebook or Meta. I just saw Anthropic is close to signing a half a million square foot lease, on Hudson Street, like a few blocks from my apartment, uh, which is unsettling. Um, but basically like what all of that hiring, it's all technical hiring. They're hiring engineers. Uh, they realize that New York City, uh, my opinion is the greatest city in the world. There's a reason you and I live here. Um, and they realize that like in this war for talent, you have to go where the talent is. This isn't like, you know, they all, the talent doesn't move to like the, uh, the GM plant anymore. So like you gotta bring, uh, the Meta plant to the talent and the talent wants to be in New York City. And so Over the last decade or 15 years, I think we've seen big tech realize that. And as a result, there's been, you know, a huge explosion of well-paying software engineering jobs in New York. And so they're actually, and then, you know, in the same time you have companies like Datadog and MongoDB going public. So you just have this like incredible infrastructure of talent, both in like engineering and in business functions that just didn't, there wasn't a pool that existed, you know, when you and I were starting out.

Yeah. Yeah.

So yeah, it's pretty amazing to watch. Um, I definitely appreciated the days when you didn't hear people like talking about term sheets in coffee shops. I thought that was like a San Francisco thing and now it's starting to happen here. Not sure how I feel about that as a New Yorker, but, um, it's great for founders.

Yeah. There was also not a lot of money here. I mean, I mean, I think you said like from a venture perspective, there was—

Yeah. You had to go, you had to go west to raise money. Um, I think we, yeah, of the rounds that we raised, our seed was Homebrew, which is West Coast, and our Series B was Google Ventures, which is West Coast. Just, you know, now it's like, it's, it's an option to raise from West Coast investors, but you certainly don't have to.

Right. Where do you think Gutter is in 5 years from today?

We're kind of, I mean, we have changed so much in the last 5 years. I mean, we talked about Elbow Grease. We just announced that we're doing a second cohort, which will be, you know, on the order of—

What is Elbow Grease?

Yeah, Elbow Grease is an accelerator for AI companies focused on real-world problems., and that can take a lot of different flavors. Um, we completed our first cohort, um, in, uh, Q1 of this year. Um, we were lucky to have you host an amazing fireside chat with Tom Biocchi, uh, of ServiceChannel. Um, but Elbow Grease is a hardworking, uh, AI accelerator. We pair early-stage founders with mentors who are, uh, folks that are either kind of Series B or exited founders. So one-to-one mentorship, they work directly with a Gutter partner. So me or James. They have access to all of our resources inside of the office. They work out of Gutter HQ. They're in the mix with all of our other founders and we put together incredible programming. So obviously like you and Tom did that talk, we had Claire Hughes Johnson, COO of Stripe, gave an amazing, amazing fireside chat. We had Mitch Kapoor, who was the founder of Lotus Notes, gave an amazing talk about what it was like to go from $0 to $53 million in revenue in 1983 and IPO in the same year. Um, you know, just like we were able to attract really amazing speakers and then we also give founders an unforgettable experience in New York City. Um, you know, we're big supporters of the arts. We have a good relationship with city government. Uh, we've got some pretty good sports teams here, so we try and put together a program that really, uh, shows the best of New York City as well. And we've got some, uh, some exciting stuff planned for this next one, which applications are open today. Uh, and, uh, we'll be open until, until August and the cohort will kick off in September.

Cool. And then, and then where does Gutter keep go— like where, where does this look? Do you want to get to funds that are hundreds of millions of dollars, billions? Like some people like that, some people don't want to build those kinds of funds.

Like, no, I mean, we've, we've stayed intentionally small. You know, we could have raised bigger funds, but our view is we want to stay early stage. So primarily investing at pre-seed and seed. We really don't invest even at the Series A, which is unusual for a fund of our, our stage. In size. And we want to have fairly concentrated portfolios, so we want to be able to work really closely with the companies. And so if you combined investing before the Series A and working with a relatively small number of companies, you just can't have funds that are that big. I think in the future we might have separate vehicles that can invest at later stages, but you know, my partner James and I, we were the biggest LP in our first fund. We were close to the biggest in the second fund. You know, we're, we're very well aligned with our LPs that we're not trying to, to get rich on fees. We want to generate the best possible return and we think we do that staying early, staying concentrated.

Just in terms of your background, just before, you know, you said first time you were unemployed in 14 years or what can you tell, talk a little bit about where you from originally?

Yeah, so I, I moved around a lot as a kid, was born in Connecticut, moved to New Jersey, spent about 5 years of my childhood in Los Angeles. And then moved back to New Jersey. But my middle school and high school years were, were in a town called Montgomery, New Jersey.

Okay. And what was that job you had at 14?

Actually, the very first like W-2 job I had was a receptionist at a psychiatrist's office, which is a crazy job for a child to have. Like literally transcribing this guy's session notes. I did that for, I did that for a summer. Yeah, it was really bizarre. I did that for a summer and then I got a job at a bakery on the Princeton campus called Chez Elise where I was like an assistant manager and worked there for like a year or two. I was a caterer for their catering company. I bartended weddings. That was a, that was a pretty great—

That was like 16, 17?

Probably 16 to 18. Yeah. And at the time I was also a volunteer firefighter and EMT, so I was like running off to fire calls and EMS calls, which, you know, my employer loved.

Did you know that you wanted to to start a company one day?

No, I definitely didn't. I think at the time it wasn't really on my radar. I grew up, my mom comes from a very Catholic family. I was raised pretty Catholic and I got really into the service work that kind of came along with the church. So it was actually like doing a lot of volunteer work all through high school. And at the time, you know, I was very interested in sort of like more kind of social theories of change and thought for sure that I was gonna have a career either in nonprofits or in the public sector. It was just not on my radar at all that I would be running a business to the point that when I, I went to college at Johns Hopkins, studied international studies and economics, and I actually made a point of getting an economics degree without taking a single business class, which, you know, as a 24-year-old CEO, I learned to regret.

And so you just, so what was the catalyst? Like what was the—

I had a series of experiences. I was kind of trying to pursue this career path in public sector. I worked for, I was a community organizer for a nonprofit while I was an undergrad. And then I ran a state Senate campaign in Baltimore City when I graduated and kind of saw, got a firsthand view of like how electoral politics, especially at the local level, really function. Didn't really want to stick around and be a part of it. I moved to New York. I actually worked at a law firm in New York called Weitz Luxenberg alongside Erin Brockovich on environmental contamination cases all over the country. I would help to organize these community She would come and speak, we'd get retainers signed. But I also saw, you know, in a year there traveling around, getting all these people worked up about that there was gonna be some relief for whatever their issues were, so whatever corporate polluting they were, they were enduring. And then often the cases would just get dropped because they were too expensive to prosecute.

Mm-hmm.

And so I kind of got pretty jaded on that as well. And then at the same time, I was, you know, I was in New York, I'm like 21 at the time. I had graduated college early and I had friends that worked in startup and I just saw how they would go to work every day and like literally write some code, deploy it to production, and just like make changes actually in the world and the way people were living their lives and the way they were living their lives every single day. And I realized that like that level of agency and ability to make an impact without asking for permission, without waiting for an election, without going to a judge, was what I wanted for my career. And so I started applying to like every startup in town. I got hired at a company called Artsicle, which is a marketplace for emerging artists. Um, really lovely founders. Wasn't the greatest business idea. I learned a ton. Um, they kind of gave me a long leash, uh, let me redesign the product. Um, and I was able to establish enough of like a credential doing product design that I got recruited to PreHype, uh, by Henrik Werdelin. Um, and was an entrepreneur in residence there and then a partner there. I joined right when they started BarkBox. So I actually got to work on, um, some early product for BarkBox early on. And that was sort of like. and it took off from there. I ended up starting Managed by Q with Simon Rahmanyen, who was also a partner at PreHype, now the co-founder of Roe, where he's done fabulously well. But that was where, that was where it started to click for me.

Wow. And through all of this, you know, doing, working as a younger, you know, when you're in your teenage years and then building company, getting through all of that, then deciding to start a venture firm, which is not an easy thing. And then going down that path. What, what, what is it that drives you? Like when you talk about the founder drive that you're looking for?

Yeah.

What is that for you?

I mean, it's all impact. I, I think, you know, It's like, I feel really good about the founders that we work with, the missions that they've chosen. I think it's like the combination of working on worthy missions, you know, like the, the companies that we are invested in. Like we think a lot about what happens if we're right, what are the consequences of these companies succeeding? And so a lot of it is the mission of each individual company. And then it's also like, you know, the founders that we're working with are these people that, you know, we want to see be like serious economic actors in this world. I think we've seen the dark side of certain economic actors in this world. So, you know, our hope is that we're gonna mint a lot of billionaires and, you know, we hope they're the good kind in the New York mold.

Yeah.

Like a Mike Bloomberg.

In terms of, you know, everything you've seen, all the experiences that you've had in your career before you started your first job at the doctor's office, what's the one piece of advice you would go back and give yourself knowing what you know today?

I mean, I think it wasn't really until Managed by Q that like I got so in over my head that I really learned like how to grind. And so I think like, you know, the one piece of advice that I would give myself if I went all the way back would be like, it's okay to try hard. I think I spent a lot of my like adolescent and high school years was I had a brother who, I have a brother who's incredibly talented. He's a PhD chemical engineer, works at Tesla. But I grew up thinking like, I don't want to be seen trying hard because I'll never be as smart as my brother. I think if I could go back, I would probably tell myself like, it's okay. Just like, you know, try a little bit.

Mm-hmm.

Because I managed by Q, I learned how to grind and built sort of a culture and reputation around, you know, hard work, leaving it on the field, like having a high degree of humility and openness that you might not get it right. And I think if I had adopted that earlier in life, probably, it probably would've been a little bit more enjoyable for me. Yeah, earlier in life.

Do you think that it is possible to build a company and not grind?

Not for me. I mean, I think that—

Have you ever seen anyone do it?

There are definitely— I have never seen it firsthand. I've heard. Yeah, I mean, maybe it's not possible at all. Maybe some people just make it look easy. But I think like, you know, for someone who has a disposition that like, I love to work, I get fulfillment out of it. The beauty of a company and even what we're doing at Gutter is like, it is endless, you know, like you actually, it is, it's no, it's like, it's a, it's a beautiful thing. You can like pursue perfect knowing that you will never get there. And it wouldn't be very satisfying if it was, you know, I'm not trying to go sit on a beach and, and read a book.

Yeah.

Like I want to build things that matter to people. And so the gift like of Managed by Q was like, it was like a big problem and like I don't know, we used to talk about it with the team. It was like, we're just lucky we found a big enough problem that we can work on for a long time. 'Cause that's like where the fulfillment comes from.

Yeah. Yeah. I think that the idea, I mean, when just when you say about that, about grinding, I talk to founders sometimes where I'm like, are you ready? Like you're starting this company. You were like really ready to go into what is really a terrible job. I mean, you know, like —like, in a lot of ways, and if, like you said, first-time founder, first time, like, when you're going through it as a first-time founder, it really, I mean, it's a, you're gonna make a lot of mistakes. It's a story. You're gonna have a lot of problems. You're gonna have a lot of hard time raising money. And that's the message I try to tell people is like, it doesn't, AI, no AI, yesterday, today, 30 years ago, like, it's just, you're building something from literally zero.

Yeah.

You know, it's maybe the work changed from engineering work to sales work or from this to that, but it's, it's, I don't think I, I've not seen anyone who, who makes it without just making crazy sacrifices and totally, you know, 'cause if you're lucky enough to figure something out that someone wants, then you find yourself in competition and like, and the co—

and you know, the market will make you, you know, does not let you take it easy if it's a, if it's a prize worth winning.

Yeah. Dan, I, I'm really happy that we did this. Thank you for doing this with me and, and, I learned a lot about you that I didn't actually know. So I enjoyed— Thank you so much.

Yeah, it was a lot of fun. Thank you.

Awesome. For those of you listening and watching, I hope you enjoyed. And if you did, please share this out with your networks and we'll see you for the next episode of Not Another CEO Podcast.