Episode 19 | Part One: Gen Z VC

Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author.

This is The Boss Podcast with Gregory Shepard. Over the course of my life, I've spoken to hundreds, if not thousands, of investors. But today I'm joined by the managing partner of the world's first VC fund backed by influencers. His name is Marshall Sandman. Marshall, welcome to the podcast. It's just a real honor to have you on the cast. I, I talked to a few people about you. I looked and did some research. I love your last name. We talked about that a little bit before. And Animal Capital has got to be the best name for a VC that I've heard. So I really appreciate you joining the podcast.

Thank you. Thank you so much for having me. I am thrilled to be here. And honestly, when we were Going to pick up the name Animal, I was just shocked it wasn't taken. It feels like such a such an easy one, given that so many of these venture firms just have an animal as their name. You'd think that someone would have beat me to the punch.

I couldn't believe it too. I was like, man, that must have cost a fortune. But it was just available. You actually just went in there and got it?

Just literally went in there and got went all over the place, all over Google, called a couple of like patent folks and copyright people just to make sure. There are a lot of things like nearby in the the family, but nothing even. Super cool. Like, there wasn't Animal Ventures either. Hopefully no one— hopefully no one listened to this and is like, oh my God, Animal Ventures, that's it.

You should go buy it real quick and squat on the domain until somebody comes and tries to buy it from you, and then like $10 grand.

Those websites are so funny that tell you like what the estimated value of the name of your website that you want is. Yeah, yeah, yeah. And based on your SEO, it like starts like trickling up, and all of a sudden you're like, yep, the domain you want's now worth $34,000. It's like, I I don't— I'm just gonna come up with a new name.

Yeah, yeah. At what point does that end, right? I'm really excited to talk to you, but before we get into what you're doing at Animal Capital, I just wanted to step back for a second because you have an interesting story and find out and have the listeners hear a little bit about how you got there. You're another one of these Ivy League guys who got into banking, right?

So I would say, I would say yes and no. I graduated at the very bottom of the top 20% of my class in Raleigh, North Carolina at Ravenscroft School where I went K through 12. And I was like not queued up in any way to get into Cornell. And all I really wanted to do was to get into the hotel school and thought that I wanted to do something in hospitality. So I spent most of high school working at a steakhouse in Raleigh. I'd go From class to cross-country practice or basketball practice, depending on the season, to theater rehearsal. And I'd leave theater rehearsal at like 8, 9 o'clock, and I'd go to the steakhouse and wash dishes till 2 or 3 in the morning, every, probably 3 or 4 nights a week for months and then years. And I used that just to get into the hospitality school at Cornell. And so I, yes, I ultimately made it to an Ivy League school, but I was certainly not a brainiac when I got there. I was Middle, middle of the road and just, just grinding hard in class.

But I mean, you have grit, man. I mean, you just, you just worked through it, right? You powered through it. I mean, that's incredible.

That—

my story, story is very similar. Just having a lot of grit and a lot of power and just, just soldiering up to the occasion and getting through it. It's, it's impressive.

Oh, thank you. And, and sometimes it's a, it's a, it's a means to an end. So I, I was at, I was at Cornell and, you know, Pretty much since I started, you know, I became a manager and practice player for the basketball team there. I knew that what I wanted to do was something on the media strategy investing side. And so everything that happened after that, even though it was a little bit circuitous to say the least, uh, was really to serve that goal.

So tell me about your time at Goldman Sachs, and is this what got you interested in venture capital, or, or how did you find your way into venture capital?

So what was really interesting to me is, you know, as you probably know, and some of the listeners that choose to listen to a business-oriented entrepreneurial podcast like yours know, there's a few kind of like, you know, parts of the buy-side market. There's private equity, there's growth equity, and there's VC, and they fit different personalities. The private equity person, like my wonderful girlfriend who works at Sun Capital, she like is a finance— she's a real financial engineer and a financial wizard. For me, I'm pretty good at the model. I'm pretty good at spotting a great founder and a good team, but I'm really good at the people stuff. I'm really good at high-volume networking and kind of seeing the forest through the trees. So once I identified media strategy and something on the investing side and got out of school and got to Goldman, it very quickly became apparent that that was gonna be the part that I was gonna be best at and best suited for. When I left Cornell, I went to Goldman and I was in prime brokerage on the sales and trading side and thought that that was going to somehow be the financial education that I needed to underpin my growth. It's a really, really great job if you absolutely love it and you absorb, as people may or may not know, but prime brokerage is sales trading specifically for hedge funds, so all of the typical you know, credit, equity, you know, derivative services, but strictly for hedge funds. And I met a bunch of great people, uh, but it was not for me. And so I needed to switch to banking. Um, and about 350 people applied from outside of investment banking at Goldman into investment banking. So those are people just like me in sales and trading and investment management, sometimes in ops, all trying to just get into banking because they saw The banking is really, you know, what gets a lot of people out the door to some of these awesome buy-side opportunities because they believe in that education, that skill set. So I was offered a position in TMT, the tech, media, telecom franchise at Goldman. Was thrilled to do it, really pumped, told my bosses I was leaving. I got to take a week off, which was unbelievable, you know, at 23 years old, which I didn't get to do again for years and years after that. I guess it was the day before or the like the Friday before Monday when I started when I got a call saying that instead of TMT, everyone who was given an opportunity was just three of us that were able to actually move to banking. So less than one percent acceptance rate there. We're all dropped into natural resources banking. So rather than sexy media-oriented businesses and places like Snapchat and Facebook and Amazon, etc., I was moved into natural resources where I covered. Chemicals. I covered, um, nuclear waste mining, really, uh, agriculture specifically around manure. So really sexy verticals. I was, I, I could really, really, really dig my, dig my teeth into. Um, when you talk about circuitous, I, I, it was a, it's exciting to move to Goldman banking. It, it, you know, and I tried to see the glass half full, but I was devastated.

Yeah. But I mean, you know, you, you, you got through some, if you were able to get through that, you can get through anything, right? I mean, the letdown must have been kind of painful, right? And then, But I bet when you got into it, you were able to sort of find areas where it became fun.

I think that I did, I did what I have done best, you know, always done best, which is I learned the hard skill set. I got totally, you know, crushed modeling, working on a big chemicals, uh, a chemical IPO for— it was a performance materials company, and that sucked. But really where I did well was I did a good job of being able to sort of tell a story through a really annoying and boring PowerPoint and walk through a narrative and relate what I was doing all the way back to the lowest level so that everybody listening to our story or whatever we're working on would understand. And it was that soft skill set married with, I would say, a rudimentary hard skill set at the time that made me successful in that role.

Well, I mean, this leads us to Animal Capital. This, first of all, just Again, the name is amazing. So this has been called the first Gen Z VC fund. So I'm just, this is really exciting, right? So can you tell me a little bit about how you got this started and why you decided to do it?

Sure. So the quick, like very quick version of the backstory is I was at WarnerMedia, I was working in venture. AT&T had bought Time Warner, Most, if not all, at the time of my team, with the exception of me, had been let go. And so I was kind of covering a lot more bases than I sort of expected to, and saw the opportunity to potentially leave in advance of COVID and think about starting a fund. And think of, you know, and at the time I thought, okay, it'll mostly just be my money. I'll write really small checks. Like I'll write $10,000 and $25,000 checks with family and friends' money and build a little baby-sized track record for me. But in advance of that, you know, I, as I kind of mentioned before, I had not, not worked for more than 4 or 5 days in 7 or 8 years. And so I quit WarnerMedia in January with the, you know, a sense that COVID was coming and that we might be out of the office for a while and started to get my thoughts together. And when COVID hit and everyone was out of school and work, I spent a good bit of time raising a bunch of money for a charity in New York called Harlem Grown, which is a not-for-profit afterschool program based in New York that Typically, you know, allows at-risk kids to have a place to go after school in the Harlem community. But that after-school program was closed during COVID And so we spent that time and dedicated those dollars and all that fundraising to making sure those same kids and their families were eating because normally they would get a free lunch from their school. So, you know, good, positive, fun, altruistic way to spend a little bit of my time. And one of the celebrities that just saw it on my very meager, tiny Instagram not only wanted to donate, but said, hey, actually, you know, my, my fiancée started this, this big tech business and presented it— is presenting it to these guys in the Sway House, who are 7 of the most famous male social media stars in the world. They may want a little bit of your help on the VC side. It seems like they really want to participate in the space, but don't necessarily have a way to diligence these businesses or a way to think about the opportunity cost of sometimes dedicating their social media in order to get equity into some of these businesses. And what do those trade-offs look like? And how do you vet these companies, you know, both on a surface level as well as really doing the DD to think about, is this a great way for them to not just invest their money but invest their time? So it was really a serendipitous connection of having left WarnerMedia, raised a little bit of money, had this random connection. And once I ended up on FaceTime with Michael Gruen, my business partner, Josh Richards, one of You know, the most famous social media stars in the world, and Griffin Johnson. And we just got along. I mean, like absolute bandits. And we, you know, I sort of thought, okay, these guys are pretty young. You know, at the time Josh was 18, he's now 19, and Michael and Griffin are 22. We started doing calls with founders about about a year ago, where it would be you know the three four of us plus a founder, and we'd be texting on the side talking about the merits of the investment and how to think about. What it really means to have a strong founding team, and what it really means to find a product market fit, and what it really means to identify your total addressable market and think about sizing of what's reasonable and realistic. And is this product going to work as it exists? And is this founder someone that we're willing to go to war with and pivot with? And not just be because in VC it's not just about sort of investing money and walking away; it's about investing money and then. driving value and driving outcomes. So we probably looked at 100 or so businesses pretty quickly that they, most of which they'd had sitting on the sideline where someone wanted to offer them some sort of equity in exchange for them posting on TikTok, Instagram, YouTube, Twitter, et cetera. And we did like 2 of those deals. But what was awesome was that a bunch of those same businesses, even if the deal that was on the table was crappy, I don't know if we're allowed to cuss on here. I was gonna use a more colorful word.

You can.

I'll do my best to, Generally avoid it, but it might not might not be entirely possible. Um, but some of those deals were backed by Andreessen Horowitz and Mavron and Sequoia and Greycroft and Bedrock and freaking awesome tier one top quartile VC firms. We're being on the phone with the founder about getting equity at this early of a stage was really consequential and a place for us to really drive some value. So we went from just looking at those hundred businesses to looking at. I think 500 businesses or so in the last year, writing about a dozen angel checks. And we had a couple nice, you know, really nice markups and good PR. We had, you know, hits in Billboard and Forbes as well as sort of like, you know, I don't want to call them rags, but rags like us and people about the way that we were participating in the ecosystem. And we had people say, hey, can we co-invest? Hey, can we do an SPV with you? We want to participate with you. And for these guys, they're pretty young. They can't At this point in their career, they can't write $125,000 and $50,000 checks, but they are willing to put in you know the sweat equity to make it work. And so we formed Animal Capital and we launched it about six weeks ago in a typical GPLP structure. Michael and I you know represent the majority of the carry, and Josh Richards, Griffin Johnson, and Noah Beck, who represent over 100 million eyeballs globally, are our operating partners with some. We also have some awesome advisors and. We like to drive outcomes in the B2C space, and what we always say is if it's not fun and if it's not making people's lives better, we're probably not investing in it.

Oh, very cool, very cool. And what stage are these businesses? Are they like early stage businesses? Like what do you guys typically look for?

I don't want to say I'm agnostic because I'm not. It's primarily seed and Series A. Okay. And sort of between a five million dollar and a fifty million dollar valuation, as you know, and I'm sure. A lot of your listeners know these stages are amorphous now. Yeah, I always joke because my my dad is a pretty you know standard run-of-the-mill real estate developer and investor, and when I was explaining to him what a pre-seed round was, he was like WTF. Yeah, yeah, he was he was really like well there's not there's no such thing as a pre-seed. It's just See, that's the first money. And I was like, well, no, we can just— people can just make up whatever they want and say whatever they want and raise money at whatever valuation. So you have to really think about where the product is or where the service is in its lifecycle. Does it exist? Is it in alpha? Is it in beta? Can I play with it on my phone yet? Can I use it on my computer? Can I eat whatever this consumer packaged good is? So I like to think about it a lot more in terms of what's tangible rather than in terms of sort of like classic stages, because I think those stages are—

Oh, that's what I do too. I do the same thing, man. I listen to it in terms of like, I look at it as a life cycle, right? And I'm like, okay, do they have revenue? Do they have a customer? Do they have a proof of concept? Do they have, you know, can they demo the software? Same thing, right? Otherwise, you know, because everybody will be, oh, I'm Series A, well, and they're thinking, okay, I've done 2 rounds, I've done 3 rounds, whatever. And you're like, no, no, no, no, this has to do with where you are, not what round you're on, right? So it's fascinating to me that you align so well.

Well, I appreciate that. Just, just 2 smart guys talking shop. I like it.

Yeah. I read that Animal Capital is about $15 million to invest into, into the market, right? So, which is sort of small by VC standards, but what have you invested in so far? And I mean, I'm assuming, I mean, you just started, right? So, I mean, you came out of the woodwork, launched this thing, raised $15 million, and started investing into businesses straight away. So when you think about this, you, do you have an overall thesis? Do you have bigger funds that you work with alongside you? Are you targeting specific markets, specific competitors? There's a lot of entrepreneurs and investors that listen to the show, and this sort of information is very helpful for them.

So we, uh, yes to all of everything that you said. So $15 million fund, we're already deploying into the market. As I mentioned before, if it's not fun or making people's lives better, we're not investing in it. So because of that, we're 85% B2C. And a little, the little bit of B2B we do is because it serves that B2C ecosystem, you know, so nicely. So one thing that I love that we just wrote a check to and we're thrilled about is a company called Parallel Learning. Diana Heldford is the founder of that business and it is the first licensed telehealth business to diagnose learning disabilities.

Wow.

Hasn't existed before. It's something people didn't have access to, and those that did have access—it's really, really expensive. That's something that's really, really meaningful in my life and to the people in my life, as well as some of the guys in the house. And so it's something that we can organically think about how to put people in front of it and drive top-of-funnel growth. It's really, really good for everyone in any community. It is just a spectacular mission-oriented business, and it makes money. Like that's a great place where if you're telehealth drives spectacular margins. So. I, I, I, it really hits all of the different things that we, you know, we love. There's, you know, other things that are sort of more, um, down the fairway that you might expect. So we invested in a business called Immi Ramen. That's I-M-M-I Ramen. 2 amazing founders, both named Kevin actually, and they are lowering the number of calories, carbs, and sodium in classic instant ramen, and it's spicy and it's freaking delicious. Um, it's a total rockstar investment. We're thrilled to have gotten the chance to write, write them a check and to grow alongside them because it's something that we love to eat and we love to work with things that we love to enjoy ourselves. So we run the gamut between health and wellness, fintech, consumer, and media, but we're opportunistic. And there's things that are in our portfolio that, you know, we'll be able to announce publicly over the course of the summer and into the fall that are going to, I think, blow people's minds.

I think that that first company that you mentioned is amazing. I don't know if you know this, but I have autism and dyslexia. So I did a TED Talk on that, and so does my son and my daughter. So the fact that you have things for people that are neurologically different is incredible. It's incredible for some of us who have worked super, super hard just to get to the same place that other people get to easier because those things didn't exist before. It's You know, I personally want to say thank you to you. It's fantastic.

And honestly, you know, for for the guys, you know, Josh Josh's mom is a speech pathologist, and his dad is a public school teacher, and they're awesome people. And Griffin's you know Griffin grew up on a farm in Indiana and didn't get his first computer until college. And you he was the first person in his family to go to college. So things in the fintech space that are credit building. Things like parallel learning, things that are really promoting positive, healthy in all senses of the word lifestyles is just awesome. I don't really see a reason that we can't invest in triple bottom line businesses that are impact investing for profit.

Yeah. I think that that is just so cool, man. I didn't even know that about you, but it's just Really, really wonderful to hear. I keep hearing about you and Animal Capital changing the VC model. What do you think needs to change?

So there's a couple of things. For me, it's it's all about how do you view using talent, and is the talent to you just a social media post? Is the talent to you just a go-to-market strategy, or is the talent to you the people that have their— aren't just their finger on the pulse, but they are the pulse of the communities to which they are speaking to? And in Josh's case, that's 50 million freaking people. It's a lot of people.

Mm-hmm.

And we have a really unique model where— Josh is a great example. Josh also founded TalentX, the management company, which was recently bought by Rekt, but for the purposes of this, founded TalentX, and so for him, he's not worried about, you know, Michael, who is technically his manager, but much, much more his best friend and business partner, taking 10% or like carving out some piece for himself, whatever. It's about the rising tide lifting all sails, and what can we do for these founders on the distribution side? What can we do for these founders on the licensing side? And what can we do for these founders on the enterprise partnership side? because of how many eyeballs we have, because of how many companies we've touched or had relationships with. And so to me, that's what needs to change is bringing these pie-in-the-sky moonshot investments closer to the communities that they hope to reach. And I hope that we can just be a good example, not just for gigantic megastars like Josh Griffin and Noah, but for smaller stars that have really engaged audiences too.

Yeah, well, we'll get more into these social media stars next, but we have to stop right there. Coming up in the second part of my chat with Marshall Sandman, the managing partner of Animal Capital, Marshall talks about how he shuts out the haters and the noise.

How do I identify the goals and how do I get there? And as long as you continue to look, you know, look yourself in the mirror, be honest about what those things are and what makes you happy, you're gonna have a pretty semi-easy job of shutting out that noise. Learn more about the Boss Business Operating Support System. at bossstartupsience.com, or you can reach Gregory Shepard at gregoryshepard.com.

This has been a production of Forbes Books.