The Operator Approach to Venture Capital with Chris Van Dusen (Part One)

Forbes Books presents the Startup Science Podcast with Gregory Shepard, brought to you by startupscience.io. Greg is an entrepreneur who has built and sold 12 businesses. He's a recipient of 4 private equity awards and is a featured TEDx speaker and Forbes author. Here's Gregory Shepard.

My guest today is Chris Van Dusen. Chris is the senior partner at Selaico Capital. A vertically integrated investment firm that takes a unique private equity approach to venture capital. Chris, welcome to the podcast.

Oh, my pleasure. Thank you so much for having me.

Yeah, I mean, you have an incredible background and it's a real honor. So maybe for the listeners, you could start out by sharing a little bit about your background and how you got involved in the VC world and private equity and all of that stuff.

So you mean my nonlinear journey?

As a dynamic approach to your journey.

Yeah. So yeah, as I said, nonlinear is the best way I like to say it. So grew up in Connecticut, went to college at the College of William Mary, graduated with an economics degree. Certainly, Greg, the more you get to know me, the more you'll know I'm not someone who goes and sits behind a cube after college. So an analyst was not the job that I was going to get. So I started in sales, ended up doing sales in the financial world as a wholesaler. Moved to California in '09, about 7 years after I graduated. And, uh, company I came out for, let's just say, ran into a smidge of financial trouble. So I'm marooned out in Newport Beach, California. Not a bad place to be, but big difference between that and Williamsburg, Virginia. Uh, ended up starting a marketing firm. I met my wife a few years earlier and she had started one as well. And we did conversion rate optimization and high-intent media buying, staples of marketing today that really just kind of Weren't that back in 2015. And we scaled that up, worked with a lot of amazing brands, and through a mutual friend met these 5 guys, and they were endeavoring to start a CBD company. They had started at the end of 2016. I joined them as the initial and first CMO, and within a couple years we had scaled that business up quite dramatically. We ended up being the 2nd largest CBD brand in the world behind Charlotte's Web. And, uh, it was a fantastic time. I learned what it meant to, to do a parabolic rise. And then as you look at discretionary spend around COVID, parabolic compression. And it was just a very interesting time. I call it, I got a master's degree in, in what it means to scale and reduce, if you will, within a year.

At the same time.

At the same time. You're right.

Yeah.

You know, at the same time, my wife and I co-founded with another couple, uh, a liquor distillery here in Huntington Beach where I live. Called Surf City Stillworks, raised some capital for that. We had also built another beauty care brand in the CBD space that we had merged with my original company. Now, we sold the CBD brand in '21 to a publicly traded company, and we did a merger with the liquor distillery in '21 as well. So I'll tell you, if you've ever tried to do 2 transactions in 1 year as an operating lead, it's quite a bear, let's just say. And then I had a friend of mine from college. We raised 2 funds in the cannabis space at the same time in '18, '19, all around picks and shovels, ERP systems, analytics companies, accessory companies. I was kind of fascinated by the build versus buy model that would happen if you're kind of bullish on federal legalization long term. And so kind of back up 2 seconds, back in 2017, I joined this group called Alder. It's all around generational leadership and it's really, there's an old Greek proverb goes, the world's a better place when old men plant trees whose shade they'll never enjoy. And that's really what the group's about, right? A collective of individuals across the country who come together and try and make the world a little bit better place. At that time, I met this gentleman, John Garcia, who was starting this firm called Sileco Capital. They ended up being an investor in the liquor distillery, so they watched this come full cycle. As well as, you know, we just became friends and would talk quite often. And after the last exit in August of '21, he asked me if I wanted to join as a senior equity partner at Sileico and fell in love with the firm, fell in love with the ethos. It's a very gritty firm. And what I mean by that is we love operating and helping as all of us being ex-operators inside of our portfolio companies. So we take this private equity approach to venture. Much different than traditional venture.

I mean, I gotta tell you, it's so great to hear that somebody in venture has been a founder. You know, like there's so many people in venture that are telling founders, you know, what to do, giving them advice that have never ever driven the bus before. The, like the fact that you're a serial entrepreneur is like just really incredible and that, By itself differentiates you guys dramatically from the rest of the world, right? They're all out there, you know, you're talking to some deal hunter, you know, they get on the phone with you, you know, they want to raise money. They don't know anything about— they're just making overrides, right? So they don't know anything about it. And then they just work through the process and get on a monthly call and harass you. And you're on the other side of this as a founder, having experienced that, Saying, let me help you. It's really beautiful. Let me ask you more about that. Like, you know, how do you guys actually operate in that way in more specific details?

Yeah, so we have a large firm, all things considered. So there's 11 of us senior partners and we have about 40 staff. And so it's quite a large team, but multidiscipline operators, you know, actually working in operations, finance, we have a tax division, And so, you know, as we engage with companies inside, you know, and end up inside of our portfolio, it's by no means mandatory, but we are there of service and we'll go in and help drive. We like calling it, you know, going faster on less fuel to use a race analogy, right? And the way we look at it is kind of twofold. We'll go in and for a fee, right? For service. This would end up being what you'd consider a management consulting firm in helping them, you know, early stage. Um, but a lot of ways the deals that we structure, we don't charge a management fee or we have a one-time management fee upfront that isn't a 2 and 20 model.

Wow.

And so for us, we like saying our interests are aligned a lot differently than a traditional kind of 2 and 20 venture. But more importantly, we can go in and our interests are aligned with founders. We're already an investor. We are proven operators in our own right. And we have a team that are just as good as we are, right, as partners. In helping drive. And that could be by offsetting part of your accounting team. It could be being an interim CFO or CSO. For me, my first year at the firm, I was a chief revenue officer, which is really where I sat, right, from a C-level position inside of these companies, driving what we were doing on our product mix with the product team, driving and putting operational rigor around marketing spend, helping hire, you know, the VPs of sales and marketing. And then 6 months, 8 months, whatever the term is later, they don't need a full-time chief revenue officer. They needed someone to come in with the expertise to drive that piece for that period of time and put the people, align, you know, the board with where it's going with all the different parts of the team, and you're out. And so that provides a lot of value. And to be frank, if you look at a lot of early stage companies, the quantum of cost for a talented lead in a role like that, especially in called the LA market or the New York market, is extremely expensive when you add full-time salary, full-time FTE carrying costs, plus stock options and all the things that, you know, great startups do. Well, we're already in, our interests are already aligned, and we just get in there, roll up our sleeves, do the work, and help that company move forward. And when you look at the totality of the cost, it ends up being, you know, a fraction of what it would be to hire that lead That now you may have outgrown at some point, because these are these formidable years of seed through B, these 4 years you may have outgrown their skillset or you needed a different operator long-term, and they don't have to necessarily deal with that during that first period.

This is really cool. Like really, really cool. I've done a massive amount of research on this whole subject. I wrote a book about it and it's extremely rare just to have The investors having even done a startup, let alone offering fractional services as part of the investment. That's like, I mean, this is really extraordinary. I wonder, so you're from the CBG space, so what do you guys usually look at? Are you into tech? Are you just into consumer goods or what? Do you guys have a certain focus for the founders that are listening?

Yeah, so what's really interesting about our firm, even further than maybe even saying we don't have those management piece, right? Is we don't have necessarily a mandate or thesis against what we're doing because we don't raise a fund. When you think about going out and raising a fund, it traditionally has a mandate, traditionally has a focus. For us, we're able to go out and identify great founding teams, right? We invest in people as much as investing in platforms and others. Amazing teams, amazing opportunities, amazing, let's say, total addressable market. And do we believe the founders can do it? It's much more intensive diligence process than what I'm saying right now. But then we go out and we build a deal and raise the capital for that one deal. So we have in our portfolio fintech, property tech, we have AI, we have hospitality, you know, we even have some straight play real estate. Really, at the end of the day, it's where we can find amazing alpha for our investors and be able to bring the kind of totality of our value as a firm to help drive those companies forward. And so we work on traditionally what we've been doing is an SPV model, and then we might have 8 companies within our portfolio that are raising their next round, and we'll put those together in what we call a portfolio SPV. So very different than a fund in that you can see the 8 companies, you can see the growth valuation forecast. It's not a raise against a thesis saying, you know, we're going to raise $100 million and we're going to deploy it against these types of companies that fit this certain thing over the next—

Yeah. It's like this company.

Yes. This company.

Yeah.

With this performance, these projections, this team, everything.

Yeah.

Very different.

Dude, that's so cool. Like, I like this, the syndicate model so much better because the traditional fund model is the same as wealth managers, right? You lose, they make money. You win, they make money. Like they make money no matter what, but you're aligned with them. You're a real partner, right? It's almost like rev share, right? You're a real partner in on the deal and you're offering all these services and expertise. I mean, this is a really, I need to come and see you. I'm in San Diego, so I need to come and see you 'cause this is like so cool.

What's interesting, and I'm glad you brought it up, and I'm not gonna sit here on a platform of, you know, traditional venture is broken, right? That's not the platform I run on, but I think you brought up perfectly incentives are aligned when we as a GP make money when our investors make money. We're aligned with our founders when we're in helping them grow and helping them steward their vision forward. And because in my opinion, and what I've seen at least, you know, being an investor in deals way before I joined, you know, and on the GP and as a venture partner, Most deals take way longer than you ever expect them to, but most funds have time mandates that they need to turn capital. And we can go into a long, I'm sure another whole podcast on why they need to turn capital.

Yeah.

Right. But it becomes very different, right, for how we approach these companies. And, you know, the home office for Slightco is out of the Midwest, and I like to talk about the Midwest values, right? Our founder, John Garcia, talks about kind but fierce, right? Like that's the ethos of this firm is go in and really, again, interest align, but truly drive value, not only in the capital stack for other investors, but also certainly for the founders and the ecosystem. And that ecosystem's important. We have about 32 companies in our portfolio today, and we look as part of the due diligence process and say, hey, how can we help scale? But how does this company fit inside the greater Sileico ecosystem? And how are their partnerships? And how can we power broker deals? And how do we things together to help all ships rise. And it becomes a very unique way of looking at it. We don't think of it as a zero-sum game. Yeah.

I mean, the involvement that you have, like just that is crazy, right? I mean, usually they'll have like the entrepreneur of residence and this is some, usually a one-hit wonder, right? And they throw 'em in there and they go, okay, yeah, we give you all this help. And then they put some cat in there who doesn't really care. You have a vested interest, you got skin in the game. It's dramatically different. It's a really cool model. I wonder if you could— I want to kind of go backwards to go forward. So you, in your own right, you've had several exits, right? Is there anything that you could tell investors and founders that are listening to the podcast about what you learned during this process, about what are the most important things from those 2 perspectives? Because, you know, The investor's looking through their glasses, the founder's looking through their glasses. You have experience on both sides. It's very unique.

There's a lot. So I'll just start with, there's a ton, but one of the biggest things, A, don't try and do 2 at once, by the way, if you're an operator, that's really tough. I have a lot of gray hair scars and maybe a bout of alopecia to share for it, right? That happened during the time. It's all come back now, but very stressful nights. But really, Don't overpromise. And I think that's the toughest part, because if you think about the seesaw that we're both on when you're selling a company as a founder and certainly an investor or being on the board, you want to drive the highest valuation possible. And traditionally that's a multiple on valuation, a multiple on EBITDA, something, right? As a buyer, you want to spend the least amount you possibly can to acquire something that will give you the most value long-term. Our interests are aligned and we're always doing this. And that's usually where massive tension comes. Everyone hugs in the first meeting, everyone fights and then hugs again after the ink starts drying. But in between, it's really tough. And if you think about from the founder's point of view, trying to drive the valuation up is to focus on where the company's going. But what most people forget is this isn't a handshake. You sign some paperwork and you're done. These deals can take 6 months, 9 months, a year to truly get through, which means on the buy side, you're having 6 months, 9 months, 12 months to watch the forecast come to life. And it's always better to do better than, to exceed expectations than to be falling short, even by a small margin for things you can't control during seasonality or other things that you may have incorrectly baked in throughout the transaction. And so I would say, don't forget, you're going to get retraded if you do not hit those actual forecasted benchmarks around the way. And that becomes a tough pill to swallow when you have a number that you're driving towards a transaction and within the last 30 days of the deal, they're going, now we're going to offer you 10% less. And you're so tired and so exhausted for going through this process.

The old deal fatigue.

Deal fatigue.

Yeah.

And people just go, fine. Right. And there's, you know, you can watch other podcasts, you want, you can listen to tons of stories, read papers on it. Uh, it's very common. Uh, and the way I've seen that not happen is to be really focused and transparent on executing, which is the hardest thing to do. when you're also having management meetings and getting data rooms together and having to explain files in data rooms while you're trying to work with your team to continue to hit all the major milestones within that period. And so it's just be really realistic on what your company will do during the period of sale is, I would say, a very big lesson. Yeah.

I mean, yeah, it's like a, I mean, it's pretty much a full-time job just, just doing a deal. I don't know how you did 2 at the same time and run 2 businesses. That is mind-blowing. I'm surprised you didn't have a heart attack or something.

Yeah, I was probably about 35 pounds heavier than I am now too, eating junk food and staying up way too late.

But yeah, I get it. I get it.

Fix that, I guess.

Yeah. So why don't you tell me a little bit about the specific industries and verticals that you guys are focused on, if there are any? You said previously it's pretty much open, right, to anybody. Is there anything, you know, and I'm talking on this side, I'm talking to, you know, the LPs and the angels, right, that are like, I like to focus on this. Maybe you can say, you know, well, the majority of what we're seeing, 'cause, you know, you're a victim of what you see, right?

Yeah.

So, you know, what we're seeing now is this, so we're making investments in this space. Just to try to get their attention on, well, maybe we should make a phone call to you guys.

And, you know, you know, as we look across the portfolio, you look at a few kind of trend lines that come through. We have a few in sports. I think that's a very interesting topic. We haven't gone to the place of doing, you know, minority deals in teams or leagues that are starting to come over, but you're seeing more and more globalization of sport. And as you find, as you see that, You're seeing really interesting new leagues like padel coming over from Europe. That's very hot. And it's like pickleball and racquetball kind of merged together. It's a fantastic, and for the padel lovers, they'll probably send some nasty messages for me saying that. But optically, if you're not familiar with it, think about that. But looking at the numbers in Europe coming over, it's really taking a foothold in New York and they're trying to scale that. That is a very interesting opportunity in a new league. You know, sports tech around recovery, and then certainly AI in sports is fascinating. We've made an investment in a company in that space that we are extremely excited about, but we have a few in sports, I would say. Industrial manufacturing is a big spot for us, right? We have a great company, Paltronics. It's a smart pallet company. Fantastic industry, first of all, because the whole world runs on pallets. Every good and service that we both have on our walls and in our offices came on a pallet at one time, right? But you start looking at some of the inefficiencies in the business around sensors and the technology around it, and you think of Chipotle with their E. coli scare and where's the actual temperatures in the cold shipping, not at the pallet level in the truck. If you can build a sensor technology built in, which we have, and make a pallet that's as light as wood but as durable as plastic with sensors in it, that becomes a very interesting play. And so that's a company we've been invested in for many years. We love platforms. So there's another company, FreePower, that does platform charging. So if you think about Going to a conference, going to a restaurant, going to a hotel. Actually, Greg, just you being in your office right now and setting down your phone and having it start charging, right, on platform. It becomes a very interesting opportunity and they're endeavoring to make it as ubiquitous as Wi-Fi right now. And you might say, well, I see these charge mats that are all over the place. You know, you can buy 'em direct to consumer on Amazon or somewhere else. Well, it comes down to the technology because the original You know, technology for wireless charging is that magnetic ring on the back of your phone meets a magnetic ring on a pad and they end up overheating. And if they're not aligned, they barely charge. They developed this amazing technology with repeating coils, firmware, hardware, software. You can put down an Android, an iPhone, AirPods, and it builds the ring under the actual device, knows what it is, and starts charging it at the highest peak rate.

Wow.

It becomes a very interesting technology mixed with Being built into countertops, being built into desks, being built into new smart homes, smart hotels. And you look at where we're going, that becomes the technology du jour for powering devices and charging devices all over. Fascinating company. We have a company, EV Mode, here out of California in Irvine that's doing EV chargers. Now there's no lack of EV chargers, right? But one of the biggest problems in EV charging is the fact, and I used to have an electric vehicle, That like 60% of them are down at any one time. So you think about the infrastructure and you go up and it says there's 4 available and there's 1 or 2 and they've all been taken, right? And I had that happen to me many times sitting for 45 minutes or an hour. They built a better product, military-grade, you know, certified product that has a 99% uptime and then worked on a different incentive plan for the installers and for maintenance and how it works. And they're working on, you know, the level 2 and level 3 chargers. Like that's a very interesting way of looking at an existing market and finding a piece that's not being addressed. And so we look for those type of things. We have another fascinating company in biotech that invented a novel way of, you know, taking new medicine. Uh, and they're working on some great licensing agreements right now as a, as a technology. So we really have these different, different companies in different industries, but all are trying to solve something in traditionally an existing industry that's not being addressed. And that's what we get excited for.

Yeah, you have really good, like, industrial transformation. You have the pallet deal, which is huge right now. You know, you have the AI, which is just kind of in everything now. You have the charging thing, which is a big deal. They should make a charger so you can drive over it in your garage instead of having to plug in your car. That would be amazing.

Yeah, so it's one of those that— and, and I'm not saying anything out of the bag, but like, you can see it going there. But the massive amount of, and this is probably, I'm over my skis on a knowledge totality, but I will tell you what that would have to be to just pull your car up and have it start charging would be a monumental feat, but I don't think impossible within our lifetime.

Yeah, I think so too. You know, you could see them in parking lots. You know, you just drive up, it's charging while you're, you know, it's an interesting idea. So Let me ask you a little bit about some of the decisions that you think founders make that are bad decisions. One of the things that I specialized in is I did this 5-year research project on why, when, and how founders fail. So a lot of what I try to do on the podcast is really tell founders like, hey, don't do this, or look out for this. Maybe you could give them some advice.

Well, so my question would be, what percentage of the companies in your research had founder infighting as a reason for failure?

Oh, it's like 28%.

That is a big number in totality, right?

It's a huge number. It's huge. It's almost a third, right? It's a massive number.

You get married to this vision that you share. And if you think about the amount of, just to be frank, divorces that happen in this country, they had a shared vision too when they started. And sometimes as, as life and as direction goes, they start veering away. And founder infighting for truly where the company needs to go becomes a big thing that we look at is that chemistry. Because you're picking your dance partner, right? You're picking the person that you're hoping knows what lane and what part of the company they're in charge of. And the other person knows where their lane is and what they're in charge of. And they work together beautifully to go make the thing that they've endeavored to do. I would say understand who you are doing this with really well and make sure your values, interests, how do I want to say this? Your amount of effort you're willing to give to make this successful are aligned because it's tough. I mean, if you're the capital partner who has no expectation at the beginning to do anything on a day-to-day basis, then there should be very clear lines that you're not going to be there grinding on this new project. But if you're a 50/50 or 51/49 partner that is sitting there supposed to be looking at each other again, you know, across from a desk working and grinding, and one's off doing liquid lunches on Fridays and hanging out with their families, no offense to that, right? Like, it's— I understand it. And the other one's sitting there for 14 hours grinding. That's gonna take its toll over the long run and traditionally does. Number 2, Define your lane. Do very well in your lane as a company before you decide to go do something else. Attack another vertical. So let's say you're doing, you know, a B2B SaaS company, and it is designed for, you know, XYZ group. What I see happen a lot of times is they go, yeah, but we can also go into this other area or this other area or this other area. And with limited resources, they will try to do that, not realizing the speed to sale or the incumbent foothold is a higher mountain than they can climb with the resources they have today. And they wasted time, energy, money, just fully opportunity costs going and chasing that new thing versus taking that same quantum of effort and putting it and doubling down into what they're doing really well and building a moat around what they have in their one vertical. Showing that and then going either raise capital or utilizing, you know, revenue to go scale into one other vertical. But you find they go to 5 or 6 right out of the gate because they can try to pick up little bits of revenue. And then they're, you know, an inch deep and a mile wide instead of being an inch wide and a mile deep, which those footholds help you be able to do the next vertical, the next vertical to show proof points. And I think rushing to say we can do it all, Is a huge lesson that I'd say certainly we learned as well in different companies that I've been involved in.

You know, when I look at deals, right, I'm looking at the horse. I call it the horse and the jockey, right? So you can have an incredible horse and a jockey that falls off, or you can have a really great jockey and an old donkey, right? So when you're looking at these scenarios between the horse and the jockey, right, you sometimes you're like, okay, well, the jockey can't ride, but Maybe if they lose some weight and then I teach them how to ride, then they can ride the horse. How do you guys assess and evolve this situation? And, you know, because sometimes you're wrong, you think you have a great jockey. It turns out that they, they speak really well and they seem like they're on point, but then execution seems to fumble. So how do you think about that and how do you work with the companies to help these 2 things along? And which one do you focus on more than the other? Or is that even the case?

Yeah. So I'll probably start from a due diligence perspective before we get into actually like working, right? One, naturally, if they're, uh, uh, on their second or third, that tells me they have the executional prowess to, to do this again. So it's not that they get a free pass, but they certainly get a little asterisk, right? Which says you've already done this a couple of times. You know what it takes, right? This isn't because there's a Pollyannishness. And I think that said that word right to Thinking I want to be an entrepreneur, having a great idea, but not understanding what it truly takes to get it done because it is—

The struggle.

It is a struggle. Yeah. It is a journey. And, you know, it's not one for everyone. And I'm not one of those individuals that stands up and says, go be an entrepreneur. Like, there has to be a level of craziness that says, I'm going to almost recklessly abandon a comfortable life. to go add some really hard stuff into it on a daily basis that is most likely statistically going to fail or not be sellable. I've just built a lifestyle business, so that's great too, but also like, it's not the dream I had. But number 2, and it was actually one of the GPs at Benchmark, and forgive me, I forget his name, but said a great thing. He goes, where founders make mistakes is if they're building a sailboat company, they want to tell you about the rigging. They want to tell you about the The beams. They want to tell you about the, you know, the galley, and they want to tell you about all the things that make the sailboat. What's actually most important is sell me the wind, because if the wind is going, it will make all boats launch. And you have time to change your boat in situ, like in flight, but you do not have time And you do not have the ability to change the wind. So show me the market, show me what's possible, show me your ideas on where this is going and why you are a perfect fit, because there will be more boats just like you that are going and attack it. And you can get really smart and figure out how to dial your boat in to get there faster, be bigger, be stronger. But if there is no wind, no one's going anywhere. And that becomes a really interesting point. So We talk about it a lot of, especially in diligence or when I'm having management meetings, like really describe to me this market and why you think this is going to change, right? And we have a company in, I'll call it property tech, kind of reworking owning of your primary residence. And they built this financial instrument that allows you to do some very meaningful things. And we spent so much time focusing on their buy box and what that means across the country and what that means for the people who own these type of homes and why This is the largest piece of their retirement and what that means if they could unlock extra value out of it over a 10-year period. And like, it had nothing to do with their company. It had everything to do with what's happening in real estate over the next 20 years and what's happened in the past 20 years and understanding patterns and understanding what it can unlock. And, you know, and you're starting to see some things in the news, not about that company, but about things that people are locked into their homes and all this. And it was a bet for us and it was a big one from a totality of investment dollars. But we believed the wind, we believed the market, we believed what they were saying, and we believed this instrument was sound to be able to capture that. And they are off doing that. And it became one of those things where it was focusing on the market and their ability to deliver. And both founders are serial entrepreneurs who had been working on this as a passion project for 4 years where they were operating and gearing up to sell their company. And you go, this isn't 2 guys sitting in their basement who had a good idea one night. These are guys who are You know, serial entrepreneurs who have done this before, who are in this market before, who have seen this gap and no one addressed it before. And then they're explaining the market in a way that you're going, that's undeniable, that's there and coming. And you guys have built an instrument to help address that. Well, that's an amazing marriage, right? Like, that's an amazing piece together.

I mean, this is so cool, and I really hate to do this, but we have to stop here. Coming up next time on the podcast, Chris Van Dusen, senior partner at Slico Capital, will discuss the vital role of cultivating connections when building a startup.

We love these deals. We put our own money in the deals and we want to have this great ecosystem of people that want to participate in helping this next generation of entrepreneurs build wonderful, amazing companies that could transform the world. And when they feel that and see it, I mean, it all comes down to that relationship as well.

The Startup Science Podcast with Gregory Shepard is brought to you by startupscience.io. Founders can log on to startupscience.io and use code Forbes to get free access. To connect and find out more about Greg, go to gregoryshepard.com. The Startup Science Podcast is a production of Forbes Books.