Episode Transcript

 

Jon: Welcome to the VC podcast. We are here with Taylor Jones, with Petersen Ventures. You've been here for, what, two and a half years now?

Taylor: Two and a half years, Yeah.

Jon: You came from Google.

Taylor: I did. I did a stop as a founder. So I did. I worked on a startup called Blue Matador for two and a half years that Petersen backed. Okay, so that's how I got to know Petersen and the team, and then had the good fortune of coming on board on the investment team about two and a half years ago.

Jon: Tell us more about your background, your story.

Taylor: Yeah, so I'm from Utah from here, born and raised, I went to BYU for undergrad. My first job was at American Express in New York, actually ended up staying there for five years. So did a number of different roles from finance to marketing. It was a great adventure. It's fun to be in New York. Then I did business school for two years, and during that time I just got had a couple sparks.

Taylor: You guys know Jeremy Andrus? Who was an early employee at headphones company Skullcandy. And can. Do you think you had Skullcandy? And now is the CEO at Trigger? And he just talked about his experience at Skullcandy and being an early employee there out of business school. And I thought, well, that sounds really fine. Really interesting. So that was kind of my first spark.

Taylor: I also remember going to a panel with the Warby Parker team, really early days and they were still trying to figure things out. And so startups were not on my radar, but I just had a couple sparks that really inspired me. I actually ended up then joining Google out of business school, thought it would give me an opportunity to get to Silicon Valley, get into tech.

Taylor: I was actually really early in the Google Cloud team, so this is back in like 2014 when GCP Yeah, believe it or not, we were still keeping track of our customers on a spreadsheet. At that point. It was still really, really early. Sounds really fun to be a part of that team there and it ended up there being almost or being there almost three and a half, four years, and then had an opportunity to join an early stage company here, join to take the Google co-founders.

Taylor: We were working on cloud infrastructure monitoring, so it was a good match with my previous experience. Again, kind of fell in love with startups all over again. They're going from a big company where you don't feel a lot of autonomy, autonomy and purpose. Every day to going to. I really feel like you're getting up out of bed every day to really make an impact.

Taylor: It was a ton of fun That said, I mean, we didn't have a great, great outcome. We sold the business. Certainly wasn't what we were hoping for as far as the outcome. But so as far as we see now, I have a lot of empathy for what it means to be an early stage founder at the seed stage.

Taylor: And anyway, I was able to build a really good relationship with the leadership team here. They were our lead investor. I actually transitioned from Blue Manager into an executive in residence role because I wasn't quite sure what I wanted to do and they were gracious enough for me to let me hang out here for six months. So I worked a lot of portfolio companies but really got an inside look at investing and I've kind of gotten the slipstream of the work and, you know, really fell in love with the idea of being able to back and support and help great founders and so joined in kind of a long term role about two years ago

Taylor: with the Peterson team. So that's a very circuitous route. And intentional but real feel real privileged to be in the role and be a part of the Peterson team here back in early stage founders.

Jon: For our listeners who don't know. Tell talk more about your entrepreneur residency. Like, how did you get selected? Why did you get selected?

Taylor: I think you know, Peter, you probably have insight here too. I think it could mean a lot of different things, a lot of different funds. You know, a lot of times it is almost like an incubation type relationship where you've got an idea, you've got a relationship with the with the fund, maybe you're a past founder or past executive and they want to work with you and maybe you don't quite have the idea figured out there.

Taylor: They'll give you kind of the space and time and support to figure that out. That was somewhat on my mind. I also wasn't quite sure if I was ready to jump back in. And I think they they were thinking about could I be a good part of the investment team or not? It was almost like a glorified internship, to be honest.

Taylor: They let me hang out. I was jumped in with some portfolio companies, worked on some projects, kind of based on my functional background, which is more on the go to market side. But I kind of viewed it as this is a really like lucky opportunity to just be a part of the team. See how Venture works. As a founder, I think you're really intrigued by it, and at least I was, you know, who are these folks?

Taylor: As you raise money, it's like, how do they think how they operate? And I was always intrigued by that. And so it gave me a look at it being able to see if it'd be a good match for me and what I was looking for. I found that I find that it's very different from operating, which we can talk about, but there's a lot of things that I love about it, and so that was my experience.

Taylor: But I think it can mean a lot of different things, a lot of places it can. But most of the time I think it's kind of an interim role. You're either incubating something or thinking about project or you want to join an one of the portfolio companies or, you know, maybe it is a transition to being a part of the investment team that probably happens less the or not as much as the other path, but that was made.

Jon: Lots and lots of good background. Yeah, I've always loved the Pearson brand and what you guys have done and built here, so.

Taylor: Yeah, I feel really lucky to be part of the team.

Jon: I think I first learned about Pearson from the JetBlue investment.

Taylor: Yeah, Yeah. That might be good context for our listeners too. Is so and our we're an interesting spot because we were started about 25 years ago by a guy named Joel Petersen, who is former CEO of Trammell Crow, which is a large one of the largest real estate developer in the world. He kind of started a second career by founding Petersen Partners and also getting on faculty, the Stanford Business School and so we've been, you know, the core strategy of Petersen for 25 years has been lower middle market private equity, and that's where we invested in Dave Neeleman and JetBlue.

Taylor: We joke that we don't we don't invest in airlines. We only invest in ones founded by Dave Neeleman, which has been a pretty good strategy. But so about ten years ago, the idea was coming, institutionalized a venture strategy. So Joe had been doing early stage investing or angel investing, essentially backing students that I was working with at Stanford.

Taylor: Petersen was also sitting in this emerging tech ecosystem here in Utah. And so idea was could we invest in or do early stage investing focus on the Stanford ecosystem, which we had unique access to? And then here in Utah with, you know, as we were one of the oldest private equity funds here in Utah. And so can we implement this new strategy.

Taylor: So now we have about $2 billion under management. We have a private equity fund, a search fund, which industry model, and then we have a venture fund. So with three different strategies here.

Jon: So talk about the search fund. And I feel like that's one of the yeah, I talked with founders a lot of them, when they're looking for next idea, they're like, I'm going to do a search fund or I won't be involved. Or, Yeah.

Taylor: Search. Search is a really interesting model. It was essentially started and that's again, going back to Joel Buy on Stanford and Harvard Business School. The idea was, could you support a young, bright eyed founder or excuse me, a bright eyed student to run a search, meaning go and find a company to acquire. And so you would raise a small amount of capital as the searcher or maybe like 253,000, which would give you two or three years to go support yourself, to go find a company.

Taylor: And the idea was then you could acquire that company. And then typically the company is, you know, maybe a founder owned positive cashflow, slow, maybe slower growing, but consistent with consistent cash flow and inject a new manager into it and either grow the top line or bring in some efficiency. So that's the that's the model. We essentially the search fund will invest a small amount of capital, maybe, you know, 20, 30, 50 K into a search to support a searcher and then it gets like a call option.

Taylor: It gives them the right, but not the obligation to invest in the company that they find. So it's essentially a private equity model with a really unique sourcing strategy.

Jon: Can you give us examples of some of those deals?

Taylor: Yeah, I think the the most prolific ones, a company called Insure in Australia on its started as a radio equipment company for tow trucks. Okay Wow And they needed they found as they were in the market they found that they needed to insure these devices and then they were in the right. So they started an insurance business for devices and then they were the right place at the right time for for mobile devices and cell phones.

Taylor: And so now they're the largest insurance provider of devices in the world. So if you get insurance on your cell phone, insurance assuring is behind it. So that worked out well for everyone involved. Kevin, imagine.

Jon: It sounds like you do a lot of insurance deals because both of you also both gave Ampersand Ventures, invested and Ethos together.

Taylor: We did, yeah. Yeah. So yeah, if this is a direct to consumer life insurance company, then obviously done really well and feel really grateful to be a part of that company. That was part of one of our early theses. So going back to kind of the genesis of the fund, one of the first investments we made was back in Andy done at Bonobos, who was kind of developing this digitally native vertical brand concept where you can actually sell directly as a brand, sell directly to consumers over the Internet.

Taylor: And obviously that's ubiquitous today with Shopify and other things. But at the time, you know, ten, 11 years ago, that was a new idea that you didn't have to go through Nordstrom or Macy's to reach your customers. And so that for especially in the early days of the phone, that was a core thesis of disrupting traditional distribution through the Internet.

Taylor: And we when we came across ethos lot, your perspective, Peter, the same idea is traditionally life insurance is sold through brokers. It's you know, 6 to 6 weeks to three month process.

Peter: And it's painful. It's literally.

Taylor: Painful.

Peter: You know, they kind of stick. Yeah.

Taylor: Yeah. They draw blood and yeah, and it can be really painful. And so we kind of saw some of the same idea that could you sell life insurance over the Internet and do quick approvals and onboard customers quickly and they've been able to prove out that thesis and you know it was they say it's like life insurance is a 800 billion to $1000000000000 market depending on who you ask.

Taylor: And so, you know, 99% of it still sold the traditional way. And so we see a huge opportunity for Ethos going forward.

Peter: Yeah.

Jon: Good. You seen it, Peter?

Peter: I mean, I think very similar things. I think, you know, one of the things that got us excited was just a lot of the ability to leverage data and unique ways to underwrite risk so you can bind coverage within a few minutes online versus like, you know, we talked we were talking about earlier having to have somebody come drop blood, you know, do all of that and still get pricing that is very, very comparable.

Peter: And the ability to just leverage a lot of the data that exists about the customer to do that underwriting in unique ways. frankly, that same thesis we've used in some of our other insurer tech investments as well. So for example, we're an investor in a an auto insurance company called Clear Cover, and there's a lot of regulations around what data you can use once you start engaging with the customer to, to buy in coverage.

Peter: But what's unique about Claire cover is before you even they start engaging with you, they're already pulling a ton of data and deciding whether or not they want you as a customer. And so, you know, I think similar to, you know, both of these companies like the ability to start tapping into this data that is now available because they are digital first is, you know, super interesting and and you know, we feel like is the way the future will ultimately work out.

Peter: And so to you know in the case of ethos to have you know there's 99% of $1,000,000,000,000 market still available is really attractive.

Jon: So so how does the thesis compare between your two funds? Is it similar or different? How do you look at deals?

Peter: So, I mean, for us, we're we're definitely more on the growth stage. So and we invested in ethos. You know, there were a lot further along and that kind of fit more of our model. and correct me if I'm wrong, but you guys are a lot more focused at the much earlier stages than we are. Yeah.

Taylor: Yeah, we, we traditionally focus on pre-seed and seed. We can stretch up and do rounds, but it's more the exception than the rule. So think like, you know, Genesis of the business founders in a slide deck. That's that was the story with ethos. It was, you know, pre-seed no revenue, just the concept. And the founders were back in and then we, you know, invest up to, you know, see, I would say significant traction, but hundreds of thousands and there are maybe 1 million and there are and and the products developed and there's early traction.

Taylor: So we have that flexibility, but we try and really think of ourselves as pre-seed and seed investors. So and then we've we've got a couple of areas of focus. Specifically, we really gravitate to four areas FinTech, health care, commerce and then B2C versus productivity tools. So we're we're generalists, but we kind of gravitate to those four areas. And over time, you know, we've developed pretty good track record each.

Jon: We get the Money 2020 conference, right? Well, yes.

Peter: Let's go hang out. Let's do.

Taylor: It. We should share notes, events and things. It's quite the same.

Peter: So I'm curious. Yeah. You know, when we're looking at a deal, we have the luxury of lots of data typically at the group stage because we're like series up. And at that point, you know, they've got real customers, real revenue. Yeah, you can kind of dig into a lot of the metrics. clearly like we pay much higher valuations in exchange for that lower risk profile.

Peter: But I'm curious when, when Peterson Ventures is looking at a deal, particularly at like the pre-seed, when there's not much to go off of, what are the things that you guys look for? You know, generally speaking.

Taylor: Yeah, we spend a lot of time, I'd say, on three things. the first and foremost is the market to, size. Yes, but also like what's changing, What are the inflections? So we think about is there a behavioral change, Is there a technology change? Yeah, there are regulatory change. And so I think we get really excited if there's going to be an underlying tailwind to push the company forward.

Taylor: And I think, you know, take it using ethos as a use case around just this idea of going digital and the data that Peter referenced in the ability to really underwrite a user or underwrite a potential customer via signals from from online, which wasn't possible before. So we really like to build a thesis around the market and the kind of the cliche why now?

Taylor: Question We do think a lot about market size. I think sometimes you can, have false precision on that a little bit. But we do want to think about is there a market here that's going to, you know, hopefully sustain 100 or 200 or $300 million in our business. So I think, you know, we get a lot of energy around that.

Taylor: You know, a lot of times there's energy around a deal and a lot of times it's around the market in the story there, especially the Pre-seed peak. The second is the founders. And we think a lot about like, do they have a specific background or insight or really an earned insight We talked about like have they had some sort of exposure, whether their professional career or some other aspect where they've got a unique insight into a market or a background and there's times when, you know, we'll just back a founder because he's a repeat founder.

Taylor: We have a lot of trust we've done. I wouldn't say it's just because of that, but oftentimes sometimes it's the market that's really compelling. Sometimes it's the founder that's really compelling and hopefully those two are the same. There's really tight, overlapping circles on those two things. Concentric circles, I should say. and I think the third thing I would say is and I give been our kind of our, our managing director, Ed Peterson, he's got really good taste as far as like the product.

Taylor: And is this the right product concept to go after this market? And I think I'm learning from him a letter on that. So we do like, I think it's just almost at the pre-seed it's almost like an intuition. Like what? I buy this. Yeah, what it is. And we can think about different companies and things like that. We're like, this just makes sense.

Taylor: Like I would there's like a clear pain and this is clear. We're going to fix it. And a lot of times we're looking for the founder to kind of articulate that to us. Yeah, but I would say those three things and I think the magic in when it like checks every box and it's like there's this interconnected link between those three things and I think every investment has a story.

Taylor: And if you can tell this story kind of in our investment, we tell the story to each other and that gets a lot of energy around the team. That's usually when we invest.

Peter: So that's great. I love that. Digging a little bit on the founder, I was having a conversation this last weekend with a friend of mine and and he was like, you know, what are the things? Because we were talking about the CEO of his company and, you know, he was just like really excited about this. This founder and how great they were.

Peter: And and so we were talking about that and he was like, hey, what are the attributes you really look for in a founder? Yeah, I'm just curious what your response to that is and happy to share your perspective.

Taylor: Peter The, I think this is really hard, to be honest. Yeah. And I think my taste is in investors. I've kind of led deals. I gravitate a lot to the market, I gravitate a lot to the product concept, like I said, and a lot of the investments I've had so far have actually been kind of C plus series.

Taylor: So I do kind of get a lot of comfort in the traction. And I love customer calls. I love like actually not only seeing the, the quantitative data as far as traction and product market fit, but actually I think at our stage we need to lean a lot on the qualitative and like the anecdotes from from the customer calls we do or conversation expert conversation we have.

Taylor: But getting to your question on the founders, it's hard. I what I really gravitate to, I think as a founder, you have to be really good at sales. And what I mean by sales is have kind of a magnetism about you because you need to convince customers that probably shouldn't buy your product that's going to be buggy.

Taylor: They almost have to take career risk, especially in the B2B sense, like they have to take career as a risk to buy your products to go with you instead of like the incumbent that everyone else is buying, Right? Yeah. So I think you need to be really good that with customers you have to convince people to come join your company when it's really nothing and there's nothing there.

Taylor: And it's more often than not probably going to fail. If you're looking at rationally, right? And you've got to convince them to come and be a part of your team and then you've got to be able to. Fundraising commits convince founders to actually investors to back you. So I think that's one thing I kind of look for. Is there a magnetism here?

Taylor: And it doesn't have to be like, you know, salesmanship like. Like you want to be the biggest, loudest personality in the room. But are you convincing in a way and compelling that I feel like you can check all those boxes? Yep. So those are the things I look for. I think actually, what really gets me excited when I talk with the founder, Chris Dixon, a Jason Horowitz.

Taylor: He did a really great blog called The Items and he kind of talks about like as a founder, you're in a maze and you're your point and you're trying to get points. And if we're honest, we're not quite sure how we're going to get there. But if the founder can lay out to me, like, here is the plan and here's how.

Taylor: Here's a the different unlocks of how I'm going to execute our plan to really build that, you know, venture scale business. and almost kind of like telling me the story, you know, so we went back to like market founders product concept and if I can get really behind that, that's, that's usually something I look for that they've thought through the logical connection between how we get from point A to point B, actually A two point Z, and walking through that is that's something that I get really excited about too.

Taylor: So it's abstract. I'll be honest, it's hard. And I think what's interesting about our business is we, like I said, part of our core sourcing strategy is we've tried that, we've tried to develop a great brand on campus at Stanford, especially specifically the business school there. And as you can imagine, those are some pretty compelling people. as far as this are being articulate and all that and that always, that doesn't always translate to being a great builder.

Taylor: Sure, sure.

Peter: It's a lot of polish.

Taylor: It's a lot of but.

Peter: That doesn't necessarily translate to the real value.

Taylor: Yeah. And so I think there's I think it's and I'm sure we both have experienced people who are backing founders with incredible fundraisers, but maybe they're not terrific at building or leading or managing and all those things. So yeah, there's a special alchemy with founders and I, I'll say I'm still learning, you know, I'm two years into my investing career and that's something.

Taylor: But a lot of times I think it's just your discernment and your judgment and you're looking for those those attributes. We feel like, man, I feel like this person can really grow into an amazing CEO of a big company. And so I think you're trying to envision that in your mind that could this person grow into that opportunity?

Taylor: And I wouldn't say there's a direct saying, exact science, but it's more a feel feeling. A you're trying to put your best judgment together to make that decision.

Peter: Yeah, yeah. No, I, I totally agree on the ability to sell. So that was definitely one of like my four things, that I think sometimes for whatever reason, kind of gets overlooked a little bit. but to your point, I mean, you're just constantly selling. Yeah. As a CEO and one of the things I tell my students a lot is, you know, they're interested in doing finance and because especially high finance, because they're thinking like it'll be a way to get around having to do sales.

Peter: And I remind them, like, the pinnacle of every job is sales, right? The CEO of sales, Yeah. President Sales, Right. Yeah.

Taylor: You should talk to the partners that IT consulting firms or investment banks. That's all they're doing is selling. They're selling to clients, right? Yeah, yeah, yeah.

Peter: So yeah, obviously sales I think is a big one. And, and in my opinion, there are a lot of ways to be a great salesperson. So it's hard to say like, you have to like follow this like framework of sales, like whatever it is, you just have to be effective at the end of the day. Yeah. I think the other one that I think about a lot is just like, you know, as I think about all of the founders that we've backed or met with over the last like 15 years, a lot of the great ones are just like, tenacious.

Peter: Yeah, they just have this, like, drive behind them that you need because it is hard. Yeah, right. Yeah. And there are days that just suck. Yeah, yeah. And there are so many uncertainties. We're like, Where is that next dollar going to come? Am I going to be able to even make payroll right? Like, am I going to be able to deal with this new regulatory threat even at like later stages and and the founders that are just like, tenacious, not going to give up, just going to keep pushing.

Peter: Yeah. I find are the ones that ultimately more often than not make it, I really like what you said earlier around kind of this earned insight earned secret right and like that, that sort of mindset. So that was another thing is like they have some unique insight into the market and they know it and they understand it and that translates into being like that standard bearer of that vision.

Peter: I think, you know, I was, I was listening to, something that Ward said over at CADA where we're an investor, and he was like, he's like, you know, I'll talk to my senior staff and, and like, be like, hey, you know, at some points, like, we have to exit you out of the business and bring in, you know, kind of level somebody up.

Peter: And I understand that that's not fair because here I am still learning is like but what I've realized is a big part of my job is just is own the vision of the company going forward. And so I think there's a lot of overlap between having kind of that unique insight but also and selling and also like maintaining this vision of like where the company is going so that, you know, you, you can provide that leadership over time that everybody can kind of rally behind and focus on.

Peter: And so, yeah, you may not be the most experienced CEO ever, but like the value is in you holding that vision and and moving things forward and then you know I think I think probably the least important but still important is something that you also referenced, which is like the ability to like manage people and organizations. Yeah. And frankly, like, I don't even know that you have to be that good at it, but you have to be you have to be good at finding people that are good at it and allowing them to operate.

Peter: Yeah. And hold you accountable. Right. And I think that's more often than not like what happens. Yeah. but yeah, that, that was kind of my. Yeah, my response.

Taylor: I love that couple of things. I'll just say I love that. I think these are funny. You have to have this tenacious ability to learn and grow and reinvent yourself all the time.

Peter: Yeah.

Taylor: but you also have to be really hardheaded and like, stick to your vision. And so as VC's, I think, how do we assess that? That's really hard. yeah, but I do when we're, when we're getting oftentimes we're kind of in the diligence process and coming down to making a decision. I am looking for signals of like I want them, I don't want them to come to me to learn, but also like, is there an ability to grow and learn and kind of honestly take feedback, which is is there some adaptability in them that I'm noticing?

Taylor: And that could come through, you know, just our Q&A and I could see them, you know, either kind of subtly changing the pitch a little bit or repositioning things with me or, you know, making progress in other areas. We've talked about. I think those signals are really interesting. And so the second thing I'll touch on to is, is just how you said the kind of tenacious, the tenacity and grit.

Taylor: And I don't know if you guys have seen this going around on Twitter, but Jensen Huang from, from Nvidia, he did a podcast and they said if you were 30 years, 30 years old again, would you go back and what would you do to start a company like, I wouldn't do it. It was really like in really direct is like there's so much pain involved and granted like Nvidia is like $1,000,000,000,000 value companies, you know, I don't know how much he's worth, but fabulously successful and he's like, I want to do it again.

Taylor: Yeah. And so I think that that just dogged determination and I'm just thinking of another experience our last night with the founder they're they're trying to close their CMO and they had a really good conversation last night and it last evening it is like, hey, I want to get I want to get their offer letter over tonight. Can you look up on option impact data and see what the CMO company so I can get it to them.

Taylor: And I, I think that one anecdote is a reflection of how well they've executed the last 12 months. They're in fintech. Then kick me hard. You need, you know, so much partnerships. You need to pull together all these things to to build a neobank like they're doing. And I just heard that is like I want to get I want to get it done tonight.

Taylor: And I think was a great signal like, no wonder they've executed so well because there's like just this determination and tenacity of them wanting to get, get the work done. And so I think you're you're you're trying as you're trying to make divestment decisions to look for those signals.

Peter: Yeah.

Jon: All right. So let's talk about some of your experience. So Peterson is very unique in that you do a lot in both Utah and Silicon Valley.

Taylor: Yeah. Yeah.

Jon: So have you seen the valuation differences changed in particular like the C or early stage.

Peter: Or companies to like the type of companies?

Taylor: Okay, let me talk about valuations first. I mean, so what's interesting for me is I started the venture in 2021 and it was like, let the good times roll. I mean, it was you know, there's up around every week and I see and, you know, new fundraising fall odds, you know, new valuation, new unicorns being of a new valuations, a unicorn status.

Taylor: It was it was great. I'm like, well, this business is great. It's really easy. And then we've been in a different period the last 18 months. So I think, you know, I haven't had a lot of cycles to go through as far as valuations. And we were talking about this before recording, but you know, seed has been pretty durable.

Taylor: It hasn't moved a ton, just kind of regardless of geo. I think what we are seeing a little bit and we're we're trying to be opportunistic is pre-seed. I do think it's come down like we didn't when I first started. It was hard to find a valuation of obviously the business that we really liked of less than maybe 15 to 12.

Taylor: We do are seeing Pre-seed deals that are more like seven, eight, ten. I do think they creep founders continue to demand kind of the maybe 12, the 15 for Pre-seed, But so do you see Pre-seed coming down a little bit? Not always. and then the other opportunity is kind of the seed plus Molly, which has been fun and I've done a couple of those investments so far where maybe in a different market in the high times of 2021, they'd raise a big eight, but maybe there's just maybe one or two signals that isn't picture perfect.

Taylor: And so we see an opportunity to come in and do the round that's more of like, you know, a 15 to 20 to $25 million valuation where they're seeing really good traction and growth and all that. So I do think that's where we're seeing the opportunity now as far as valuations go, you mentioned the two geos. Again, I think we do see a little bit more, lower valuations in Utah, but not always.

Taylor: I mean I don't have actually I don't know if I'd even say that. I think a lot of it more is depending on I think can see that repeat founders always come in to premium and that's regardless of geo. I think traction can help you get to kind of a justify to a premium. Again, that's regardless of geo.

Taylor: so I don't know if we're seeing like two, it's definitely not a tale of two markets. I think that pretty those themes I just talked about have been pretty consistent. But overall I haven't as far as like the there's not a drastic shift in the valuations as far as the to the two two and half years I've been your.

Peter: Petersen, do you notice that there's any change in the companies so maybe valuations remain relatively steady but yeah they the companies have more traction. For example, they're a little bit further along.

Taylor: Yeah.

Peter: Do you see any of that or is it, does it feel like it's pretty similar to where it was from that viewpoint as.

Taylor: Far as geos? Sorry.

Peter: No, just like over time.

Taylor: I would you know, I don't know. I think like I mentioned repeating myself a little bit, but what's been really interesting and maybe it's a little bit of recency bias, like, you know, the investments I'm just leading right now is it's really compelling traction. Yeah. that I think in a different market it would have not been valued at where we're valuing in and that's not the it's not the game to like get you know, we're not value investors here.

Peter: Sure, sure, sure.

Taylor: You got to see the big potential that this could be a unicorn and it could be a big opportunity. But,

Peter: I just wonder if maybe, like, the bar has, like, moved up, you know what I mean? So valuations remain the same, but you're like, hey, you know, there are fewer allocators out there. Yeah, they're for the quality. The, the average quality has gone up. Whether I agree. Team traction. Yeah. Whatever it might be. Yeah. and so like, you could argue in a way that valuations have come down because that same founder with that same traction might've demanded a higher valuation in the past and there they are now.

Taylor: But Right Yeah I think well I mean talking about seeds specifically we as we going back to that I think we talked pre-recording the data from Carter that showed like seed is actually up a little bit as far as volumes around size. Yeah. And every other stages is considerably down as far as valuation and round size. So I think there's a few things that we're seeing there.

Taylor: One is I would say there's four things really, if the first is we're seeing a lot of multi-stage funds come down and do seed on computer. But like it's really interesting, we've been competing with deals with like, you know, name Brad Large multi-asset funds, which has been the first. I think there's a little less of it now, but during kind of the the the trough of maybe, you know, 2022 and the beginning of this year, I think seed is so insulated from the later stage funds and so the multi stage funds that maybe invest in ABC rounds, where where those valuations have just been slashed so much it was a safe place to go

Taylor: to, to invest.

Peter: Yeah.

Taylor: And we're not, you know, seed funds don't have to deal with like the cost of capital and valuations and for like 5 to 7 years. So let's, let's do seed. So I think, you know, for an end, you know, name your multi-stage brand name fund for them to do like a $5 million round and a $25 million post out of $1,000,000,000 fund.

Taylor: Yeah, no big deal. And are there 4 million or 20 past like that's not material for them. So I think that's one that's one trend I think is second is seed funds have just gotten bigger and there's been more appetite for a piece to invest. And you know look at even the funds here in Utah. We're all kind of about as seed funds are all investing $100 million funds.

Taylor: And so there's just capability and capacity to write larger checks.

Peter: Yeah.

Taylor: And I do think the third thing is like a flight to quality, right? Like you're kind of referencing. Peter. I do think everyone's everyone's thinking about it Seed like how do we ensure that this company can get to an AA round and not insure, but like, do we feel really good about them graduating when that a raising is really hard?

Taylor: Raising a B is really, really hard. Yeah. And so I think you're you're thinking through, okay, is this a company that I want to back in. Can they get there? And so, you know, I think we always, always have a high bar when we invest, but that is something you're thinking through is maybe I'll wait and see on this one, right.

Taylor: And see if we can get a little more traction and see that the eliminate some risk on their part of a series a Yeah, so those are the things that come to mind for me.

Peter: We did a little bit of that where we were like, you know, as a traditional growth equity fund, but we'll do some early stage stuff. You know, some of the deals that we've done this year have either been really, really compelling growth stage deals where the company is profitable and you know, like, yeah, the valuations super compelling and it's just like a unique opportunity or it's an early stage where we're like, yeah, we have 5 to 7 years for us to work through this current economic environment.

Peter: Yeah. And you know, as long as we feel confident that this is a strong team, that we'll be able to get to a series. You know, we worry less about the valuation today because, you know, whether it's seven or 15, five years from now, right. That it'll almost feel immaterial. Yeah. And so, yeah, yeah. You know, I can echo a lot of what you and we have also seen of these other multistage funds kind of coming down and playing in that area because you have so much more runway.

Taylor: Yeah, totally. Yeah. And I think it'll be interesting. I think we're it was just an acute like six months where we saw that really happening on the multi stage that they're kind of coming back up a little bit. But it'll be interesting how that plays out.

Peter: I'm curious, there's been a lot of talk over the years about how if you have one of these large, you know, branded fans come in and dabble a little bit in your seed round, on the one hand, it feels really good, right? It's like high end or.

Taylor: Yeah, yeah.

Peter: They're in my round right now.

Jon: Are you Jeff.

Peter: Hershey's or Peterson. Yeah. And but then because it's not a big stake for them, they don't really care. And when the company's in a tough spot or needs to raise that next round either it signals partly because they don't participate right, or they're really not there to support. I'm just curious what you've seen. Have you seen that play out at all, particularly because there's so many of these like quote unquote party rounds, 2021 and now like there are a lot of companies that are in tough spots.

Peter: Yeah. Does that does that criticism carry weight in your opinion or not? Really.

Taylor: So this is going to sound extremely self-serving. So I take this with a grain of salt. But I think what's been maybe just I'll talk about party rounds in general and then let's talk about like the multi stage specifically. But it's really interesting and we don't do like a ton of wiki deals or things like that, but we're kind of going to quote unquote a hot deal.

Taylor: And the goal, it seems, is from the founders, just like, how do I get this round close as fast as capital regardless of who's my partner?

Peter: Yeah.

Taylor: And I think there's probably something to be said about that. Like, you know, fundraising is a drain. Your goal is to build the company as fast as possible. And but what's been really interesting in this environment is where the bar has been raised. And it's really hard to raise a and I you know, I've just seen again, I'm really my best my career, but just seeing how we're able to, you know, step up and help a founder kind of get to the next milestones.

Taylor: If you have an institutional fund who owns a large percentage of your company, whether that's, you know, I'd say anywhere from 7 to 15%, whatever that looks like, they are very motivated to help you succeed and to to partner with you both their time but also their follow following capital.

Peter: Yep.

Taylor: and so again, sounds self-serving, but that's, that's how we are oriented around investing. And I've just seen that play out. I just think about some of the folks that pulled the other party rounds and when things get tough. Yeah, like who's going to step up and actually kind of put together a bridge around or support in other ways.

Taylor: Now, if things go great, I don't think it matters. You know, if you're.

Peter: If you're you know, it doesn't top.

Taylor: Quartile, top decile as far as metrics and growth and all those things like you're going to be able to raise money and that's great. And I think that that's probably the mentality you have to have as a founder, right, is of course this is going to work. That's why I'm doing it. But, you know.

Peter: But it's more likely not to work more. And that's the sad truth likely.

Taylor: I mean, we talked about ethos. You know, they it has not been up into the right. It's been up in the right and in a step and then up, you know, and there's and at every stage there's going to be those times when your business is not an A-plus. You know, there's some a couple of things you're working through.

Taylor: And that's there's probably every every successful company has that story. And so I think you want a couple of partners that are there to support during those times when it's it's a little murky. And then I think, you know, again, on the under the growth stage funds that come down and maybe throw in a small check again, it's like I think you want what we always say and what we talked about, again, self-serving, but I think you want an investor in your round that focuses on that round.

Taylor: And so if you're you want to seed investor because that's the most important stage for them and our whole orientation here is to how do we get a seed coming to a series A and we're oriented around that. I think a more so stage fund is sure, you know their orientation. It could be just let me put in a small check.

Taylor: Let's see how this goes and we'll step up into the and we'll be well positioned. If it's not going well, there's not a lot of motivation to to step up and help. So, yeah, that's you know, that's how we think about it. That's our that's our pitch to founders. Yeah. and I think it's really on maybe the downside or the, the suboptimal side is when it's really important to think about.

Peter: Yeah, no and I totally agree. We, I'm almost embarrassed as well. I am embarrassed to say we participated in a bit of a party round in 2021 and got really excited about market and the founders and the offered, you know, a lot of these things. And I think, you know, one of the challenges was that at the end of the day, there was nobody, there was no real investor on the board because it was a safe, and there was nobody that had like a very big meaningful stake right?

Peter: And so I think on the one hand, yeah, it was really helpful that or would have been really helpful to have somebody like that helping the company. But I think one of the ways in which they that investor could have helped was by providing more oversight on the team and pushing them to be like guys, like we need to be cutting burn now.

Peter: We need, you know, like this is what I'm seeing in the market like and really holding them accountable because there was no one to do that. Yeah, and you know, it was a very strong reminder to me for us as in our model, like we co-invest alongside other larger funds, the importance of having another larger fund that is taking that lead position in the investment, because that's just not how we're structured to operate.

Peter: That's not what we do, but it is super important to have that. And I think that in, you know, in this particular instance, had the company had that person, they would have avoided or firm, right? They would have avoided a bunch of mistakes, they would have increased their runway, they would have more optionality. They would have been able to exert maybe a little bit more pressure on that investor to continue to support them.

Peter: You know, a bunch of these things. And, you know, for us, it's a it's a very small it's a very small check. So like, I don't worry too much about it except just all the the learnings that came away from from that experience. Right. and, you know, I just think about how, you know, if everything works out, that doesn't matter.

Peter: Yeah, right. But more often than not in this business, right, Like you're going to hit some, some road bumps. Yeah. And then, and then you're kind of wishing maybe it would have been better if we'd done. Yeah. Than a different structure.

Taylor: I could share a quick example too. I think, one of our companies marketplace, doing really well. Growth has been really solid. I think from our perspective though, our purview, we're able to see that like valuations have come down for marketplaces, the bar is raised and so we're really bullish on this company that founders excellent, executing really well.

Taylor: But instead of needing to raise at the end of 2020 for what if they were able to raise it 2025.

Peter: Yeah.

Taylor: And, and just give them another 12 months to execute and be in a fabulous position to raise a really solid round. So we're putting together a small, a small fall on financing for them that we're leaving out, doing it proactively to best position them to be able to raise that. And hopefully 25 And so if you've got a party around going on, who's going to step up and do that right?

Taylor: And who's going to have the who's going to have the proactive nature to be like, you know what? Like as we look at marketplaces, the dynamics have kind of changed and what it's going to take to raise in a Yeah, I would think about, you know, maybe getting another 12 months of runway. And so having that collaborator, the thought partner and the capital provider to do that, I just don't know if that comes together in a party round, right.

Taylor: So yeah.

Peter: You know, that reminds me one of the things that I wanted to talk about way back, you know, not to backtrack too far, but when you're talking about founders, I really liked where you were talking about with this, like, this tenacious desire to learn. Yeah. And how, like, great founders are able to kind of walk this, this tightrope balance of humility to learn the things they don't know but have confidence and strength around the things they do know.

Peter: And to stand up for those things. Right, right. and kind of bringing it back to this conversation. Right. You know, to be able to work with a founder where you guys have this expertise that they don't necessarily have, right? I mean, you're seeing all of these deals. You're understanding like the broader landscape of what's going on and to be able to share that with the entrepreneur and the entrepreneur to say, hey, you know what, I'm going to like put my ego to the side and say instead of trying to go out and raise like the series A now, which may or may not end up, you know, where I want it to be to

Peter: work, you guys, to really position the company really well for that, that series in 2025. Right. And then I think that is like another like really interesting hallmark. Yeah. Of, of a very mature maybe founder.

Taylor: Yeah totally. Yeah I think I'm thinking as we're talking but you know I found too we do a lot of pre-seed and we were like we can't help the founder find product market fit like that. There's just some black magic there as far as being in the market, bringing products to market, having contact with, it's going to say contact with the interview, the contact with them.

Peter: In.

Taylor: Getting real feedback. and I think that's actually sometimes where, where VCs can do harm is like, I think you should do this or you should try this. What about this market advantage? Why don't you chase AEI or whatever? Totally agree. and so I think we need to be really thoughtful as, as like, what is interesting in that unique insight that they had originally and, and letting them, you know, follow their intuition, follow their senses as far as where we use the analogy, where's the water flowing downhill?

Taylor: Like where are we finding product market fit? but I think, you know, the great founders, like you said, they can either attract as they scale, as they build the business. I think that's where we really can come in and add a ton of value, whether it's helping them find the right talent. Yeah. And support around them. Is it helping them with fundraising, which is not always intuitive, You know, being a founder, former founder and now seeing the other side, I'm like, now I understand why, but at the time you don't really know.

Taylor: You know, there's some things that are unintuitive. So I've been there. Yeah. you know, market perspective, I think things like that. And having the I liked how you said earlier, Peter liked being really convicted about the vision, but then being adaptable in other ways. I think that's, that's the, you know, the magic of a great founder.

Peter: Yeah. Yeah, totally.

Jon: Let's talk about valuations. So you hear about what's happened with Loom. It was a it was recently acquired for by Atlassian for $975 million that the video business but they're previously fairly valued at 1.5 billion. Yeah. Are you seeing like similar trends across the board still or do you think we've like plateaued.

Taylor: I think the story's yet to be told. I mean it's fascinating with the public markets, right? It's you get feedback very fast.

Jon: You know.

Taylor: Over the past 18 months, you know, valuations, especially the trough, are down like 80 or 90%. The private markets just don't work like that. You know, we these are assets that are only valued during transactions unless you're really proactive in marking things down. And the auditors are licking the books and they're ensuring that happens. But that's a slow process.

Taylor: It's a slow burn. So I think we're definitely going to see more of that. And I think that's okay. Like, you know, I think the fact that volume makes it for 975 million is just fabulously successful and amazing for all involved. Now, maybe across the late, late growth stage, investors are feeling some pain there. But, you know, that's kind of the the risk profile of that asset class.

Taylor: I think when it's an upmarket and it's going great and you're able to get in right before an IPO, there's been some you know, you can make very fast money. I think for the founders that early stage investors, it's just a fabulous outcome. So I think that's the lens I would look through. Matt is what an amazing investment for early stage investors and the founders.

Taylor: An incredible outcome. And so I can't I know that I just saw some chatter on Twitter around like, you know, TechCrunch positioning it as like, we have to like, justify how we only sold for 975 million. You know, it's like.

Peter: I think it's.

Taylor: So rare and I'd be just, you know, bursting with pride if that was one of our portfolio companies.

Peter: Yeah, yeah, yeah. I agree. I think it should be celebrated. Yeah. Yeah, I think it's great. It's a great outcome. And look, I mean, even the growth stage investors, you know, barring any like, lack of protective terms, they're probably okay too. Yeah, right. They're probably at least getting their cash back. And you know, this, this is probably a pretty solid win all the way around.

Peter: I mean, you look at the other news this week, which was convoy shutting down. Yeah. And how much money they raised, you know, pushing a $4 billion valuation last round to go to zero. I think, you know, a lot of growth stage investors would look at that. You know, those two outcomes would be like, I will take loom all day long, especially in this environment.

Peter: So I think there's also kind of that aspect of it. And I think a lot of companies I mean, I don't know what what your thoughts are, what you guys are seeing, but it wouldn't surprise me if convoy's not the last, you know, high profile, well-funded company that kind of hits a bit of a wall here.

Taylor: Yeah. Yeah. I don't feel like I'm totally informed. I know. Just the freight market. It's been. It's been a while. What a roller coaster ride, like up and down. And so it sounds like, you know, revenue was suppressed a lot. And then if you don't have a profitable model in a really tough spot, I think there is more willingness before if you if the it was kind of like the one metric before is revenue growth.

Taylor: And if that was solid, there'd be investors to to step up and continue to fund your business. I think if it's not profitable, burning a lot of cash, I think that's one of the big lessons from the public markets is like rule of 40 is the thing again, meaning, you know, rule 40 is your your growth rate plus your cash flow, cash flow rate or cash flow percentage or EBIT.

Taylor: So that's a thing again, and I think that's a lot of how I think the world's oriented or rotated to that. And yeah, I do think there's probably some some growth stage companies who don't, haven't found the efficiency yet and might be in a tough spot to have the next capital provider step up when they're not hitting those, those both growth and efficiency metrics, which is a new orientation for a lot of founders.

Peter: Yeah. Efficiency like, you know, we think a lot about like unit economics, right? It's like, well, if you've got an efficient business where the uneconomic are profitable, you can make cuts to push the business into profitability. But if you're still in the like, hey, we're going to spend a lot of money to acquire market share and then we'll figure it out with scale.

Peter: Or we're trying to fundamentally change customer behaviors and spending against that. That's really challenging in a capital constrained market. Yeah and yeah, I do not envy those founders now in that position.

Taylor: Yeah, Yeah. I think that's, you know, that's probably maybe part of the symptom as we're seeing in the market right now is a, you know, a it was kind of growth at all costs. Maybe there's less focus on are the unit economics, solid calc LTV retention numbers etc.. And so I think now one of the growth is harder and, you know, efficiency is more important than ever.

Taylor: You know, there's definitely gonna be some companies that are going to be in that spot. So, yeah.

Peter: You know, one of the things that I've thought a lot about with Convoy, and this is partly related to some of our other investments that I, I know one of my takeaways I guess is that convoy, because we've done a decent amount in the logistics space for investors and like flex port and stuff. and convoy really focuses on this like 5 to 15% of the market.

Peter: That fluctuates a lot. This market. Yeah. And you know, I think what happens is when freight is, you know, in high demand and, you know, that piece of the market grows a ton, right? but when it contracts, that's the first thing to disappear. Yeah. And so when evaluating similarly type businesses, it's like marketplaces can be super powerful, but if they're not sitting at the core of the pain point and, you know, with the core customer, do they end up being some of the first things to go, Yeah, right.

Peter: And so just like having that mentality because yeah, they had product market fit when times are good.

Taylor: Yeah.

Peter: Right. But what happens when times are, are bad, Are they really the, the critical solution in, in the value chain. Yeah. Or are they the first to go. Yeah. Yeah. So I know this is something that you know, I've been thinking a lot in the last few days since watching them go under is like when we're evaluating businesses, ensuring that like they, the business, the product is solving kind of that core need for the core customer.

Peter: Yeah. So you don't get caught up in that. Yeah. That marginal layer. Yeah.

Taylor: It's really I think there's both a macro perspective you can look at like you're saying like, yeah, how does this business shift as the macro conditions change? I think we, you know, we do fintech investing, we've done a little alternative lending, investing and you know, those are things we think about Proptech I think sometimes you really need to think about that, like how is this going to be effective if the market turns?

Taylor: We've had some hard lessons there for sure. And then I think at the at the micro level too, we talk a lot about ROI, like is there a is this a nice sound product or a must have product or mission critical product? Yeah. and you know, is it an operating system in a sense, or is it a core system that they it's not going to be the first thing to cut when the, the CFO says we need to get more lean a company.

Taylor: And so we talk about that a lot, like where does this fit in the value chain, especially when we think about SAS or B2B solutions.

Peter: Now, somebody mentioned this to me the other day. I don't know if I 100% agree, but I think it's like directionally correct. And they were like, I feel like product market fit is when if, if my company goes out of business, my customers company goes out of business.

Taylor: Yeah, right. So interesting. yeah, I remember Elon Musk talking about when he was thinking about starting Tesla. There was some electric car that was produced by one of the big, big auto companies. and they shut it down and he remembers hearing about like there was almost like a funeral for the, the owners. They loved it so much.

Taylor: They're like a fake funeral for this car that was no longer going to be produced. He's like, there's like a there's a market here. There's the people want an electric car. So I think that's really interesting. Like if I, if this, you know, if it went away tomorrow, how would how would that, how people be affected.

Taylor: So that's a great way to think about it.

Jon: Yeah, well, I think it was a great podcast.

Peter: Yeah, super fun.

Taylor: Thanks for having me. It's been great fun talking, you guys.

Jon: All right. Well, thank you. So this is again, Jason Taylor with Petersen Partners. You can subscribe, go to venture capital firm. All of the links are there. iTunes, Spotify, YouTube, and we'll see you there. And we'll see that money 2020 that. Yeah, I can't wait. What are you excited for my 2020 But first time.

Taylor: I've never been.

Jon: We've never been.

Taylor: I'd actually didn't buy a pass. and it seems like there's enough going on around.

Peter: I don't think like two thirds of the people that go buy a pass.

Jon: Yeah. You know, if you want, you can try to see if we need another media pass. Yeah, okay.

Taylor: Yeah. Whatever access you could give you. It was a late, late decision for me to go, but it seems like there's a lot happening. So, any tips, tricks, advice? Would love to hear about it.

Jon: This is your to. My goal is I find a person who knows the scene and just keep going. Okay.

Taylor: Well, maybe if you find that person, but you know.

Jon: Right, Right. Did you guys invest in a timer?

Taylor: Unfortunately, no. But I do know Jordan. Yeah.

Jon: Jordan dominates stuff that. That that arena.

Taylor: Okay, well, if you find the person, maybe it's Jordan. I'll follow you.

Jon: And, yeah, I'm going to play. I mean, Jordan's good to follow, and. And Glen knows everyone on this in the fintech space.

Taylor: Okay? And I wanted to ask.

Peter: Them, but yeah, let's stay in touch. Okay? Be fun to hang out and do some stuff together.

Jon: So just see you guys, okay, But.