20 VC 022 Letting go of the life we planned and the Power of the Female Narrative with Matthew McCall

Summary Notes


In episode 22 of the 20 Minutes VC, host Harry Stebings interviews Matt McCool, a partner at Skill Group with a notable track record of successful investments, including Feedburner and Playdom. McCool shares his unique path to venture capital, emphasizing the non-linear journey of life and referencing Joseph Campbell's concept of the hero's journey as it relates to entrepreneurship. He discusses the importance of backing passionate entrepreneurs and maintaining open communication for investment success. McCool also touches on his investment strategy, noting the benefits of capital efficiency and the potential impact of market cycles on venture capital. Additionally, he highlights the rise of female entrepreneurs and the influence of millennials seeking purpose in their work. The conversation concludes with McCool's recent investments in Hello Giggles and Viv, underscoring the power of narrative and mission-driven companies.

Summary Notes

Introduction to Matt McCool and His Venture Capital Experience

  • Matt McCool is a partner at Skill Group and previously at DFJ Portage.
  • He has made successful investments in companies like Feedburner, Playdom, and Everdream, leading to acquisitions by Google, Disney, and Dell, respectively.
  • Matt McCool has been recognized in Chicago's 40 under 40, top tech 25, named in the top 100 VCs in the US, and as a Hollywood hundred power player.

"Matt's past investments include Feedburner, acquired by Google, Playdom, which was acquired by Disney, and Everdream, which was acquired by Dell."

This quote highlights Matt McCool's successful track record in venture capital with notable exits through acquisitions by major corporations.

Matt McCool's Unique Path into Venture Capital

  • Matt McCool's journey into venture capital was non-linear.
  • He started as an athletic computer geek with an interest in early computing technology, which included the TRS-80 Tandy computer and the Apple II.
  • McCool's career began on Wall Street in merchant banking and then transitioned to consulting at the Boston Consulting Group.
  • He was initially planning to go into buyouts, influenced by his experience with KKR deals.
  • His venture capital career began serendipitously while helping a friend fundraise and subsequently getting involved in deal evaluation.

"I ended up back at Kellogg in the boss consulting group. And I always knew at that point I was going to go into buyouts... But there's a quote that you put on here. And I'm a firm believer that life is nonlinear and that venture is a perfect training ground for life because it never goes the way you think it goes."

The quote emphasizes the non-linear nature of life and career paths, reflecting McCool's own unexpected transition from a planned career in buyouts to venture capital.

Investment Strategy and Size

  • Matt McCool's core investment focus is on Series A and B rounds, with an average investment size of $4 to $10 million.
  • Skill Group also has a strategic seed program with investments as small as $100,000 to $250,000.
  • The Pritzker group's $7 billion evergreen pool of capital allows for flexibility in investment size, enabling follow-on investments up to $60 million.
  • This capital base allows Skill Group to support companies throughout their growth stages, especially during market downturns, without the constraints of a traditional fund lifecycle.

"So our core investment focus is series a and b, and that's four to $10 million on the downstroke. But we have a very active seed program we use strategically, so that can be as little as 250 or 100,000."

This quote outlines the primary investment stages and sizes that Matt McCool and Skill Group focus on, highlighting their strategic approach to seed funding and their ability to support companies with significant capital when needed.

Investment Timeline and Exit Strategy

  • Skill Group's evergreen pool of capital allows for a flexible investment timeline without the pressure to return capital at the end of a fund's life.
  • While they can hold investments for extended periods, the typical target is a three to five-year hold.
  • The group's flexibility is demonstrated by their willingness to support a company for over 14 years, if necessary.

"But our real target is kind of traditionally a three to five year hold."

The quote indicates Skill Group's typical investment horizon, which aligns with traditional venture capital exit timelines, while also highlighting their unique ability to hold investments longer if warranted.

Evolution of Matt McCool's Personal Investment Strategy

  • Matt McCool acknowledges that the venture capital industry is continuously evolving, and he learns new aspects of it every year.
  • His strategy has adapted over time, but specific details on how it has changed are not provided in the transcript.

"I think that every year I'm convinced that I've learned everything I need about venture capital, and every year I'm proved wrong."

This quote reflects the dynamic nature of venture capital and Matt McCool's experience of constant learning in the industry, suggesting a mindset of adaptability and continuous improvement in his investment approach.

  • Market cycles influence investment strategies and require reassessment of investment principles.
  • Large sector trends like the rise of millennials and female entrepreneurs, and significant events like the 2008 crash, impact investment decisions.
  • The speaker emphasizes the importance of backing authentic, passionate entrepreneurs with open communication and trust.
  • A strong sense of purpose and mission, as well as domain expertise, are crucial for entrepreneurs to navigate and adapt to changes.
  • Capital efficiency is highlighted as a historically successful strategy, especially during market downturns.
  • The speaker predicts a future downturn with a reference to Bill Gurley's comment on "dead unicorns."

"What I would say is that where I've made my most money over the years is by backing authentic, passionate entrepreneurs, where there's open communication and trust."

This quote underlines the speaker's belief that the key to successful investing is supporting genuine entrepreneurs who value transparency and trust.

"The strategy that has worked historically the best are those companies that are very capital efficient at the end of the day..."

This quote highlights the speaker's view that capital efficiency is a timeless strategy that outperforms others, particularly in challenging economic times.

Importance of Communication and Trust

  • The speaker insists that maintaining trust and communication with founders is of utmost importance.
  • This relationship is considered critical and should be protected at all costs.
  • The speaker suggests that this principle is a key takeaway from early investment deals.

"So no matter what happens, at the end of the day, that is the most important thing I tell all of my associates and vps, is you have to protect that trust and communication."

This quote emphasizes the speaker's advice to their team that safeguarding trust and communication with entrepreneurs is paramount.

"Yeah, I would say that is the key thing. It's that relationship you need to protect at all cost."

This quote reaffirms the speaker's belief that the investor-founder relationship, built on trust and communication, is the key to successful investments.

Building Relationships and Karma

  • The speaker believes in fostering relationships through random acts of kindness without expecting anything in return.
  • This approach is equated to building a 'karma bank' which leads to synchronicity in business opportunities.
  • The speaker relates this principle to their own experience in the venture industry and the positive reputation of entrepreneur Dick Costolo.

"And it really comes down to karma equals synchronicity."

This quote introduces the speaker's philosophy that good deeds lead to positive and seemingly coincidental opportunities in business.

"I'm in the Dick Costolo fan club."

This quote reflects the high regard in which entrepreneur Dick Costolo is held, likely due to his positive relationships and reputation in the industry.

Characteristics of Great Entrepreneurs

  • The speaker admires entrepreneurs who introduce technology into 'ugly industries,' creating a competitive advantage.
  • Great entrepreneurs are seen as those who have domain expertise and technological knowledge.
  • They also have the ability to see opportunities differently, especially in challenging spaces filled with failures.
  • The speaker mentions that most innovations are evolutionary combinations of existing elements, using Uber as an example.

"The second is they see something differently."

This quote captures the speaker's view that exceptional entrepreneurs possess the vision to reinterpret and innovate within challenging markets.

"Most things are two evolutionary things coming together."

This quote explains the speaker's belief that innovation often results from the combination of existing concepts, rather than entirely new inventions.

Tech Bubble and Investment Forecasting

  • The speaker admits to being a poor forecaster but engages in blogging to document their investment perspectives.
  • A blog post from June 2008 predicted the end of a venture cycle, followed by another in November 2008 encouraging investment.
  • The speaker observes that towards the end of a cycle, there is an influx of new investors and a shift towards riskier ventures.

"I'd say I'm a horrible forecaster."

This quote reveals the speaker's self-assessed weakness in predicting market trends, despite their efforts to document their thoughts.

"As you get deeper and deeper into a cycle, people move into either geographies or sectors or types of investors come into the market that normally don't until it feels like the world's risk free."

This quote suggests that as a market cycle matures, it attracts a broader and potentially less experienced group of investors, contributing to a perception of reduced risk.

Venture Capital Market Dynamics

  • Venture capitalists are currently stretching beyond their traditional markets to find deals due to overfishing in their own market.
  • There is an anticipation of a market pullback, but it hasn’t happened yet because people are waiting for a market crash.
  • Signs of excess in the market include mutual funds investing large amounts into companies at outrageous prices.
  • Historical market cycles suggest that a downturn may be approaching, with a 15-year cycle and a 7-8 year stock market cycle being referenced.
  • The trigger for a market downturn is often an unexpected, nonlinear shock, typically not directly related to the tech community but affecting the global economy.
  • When the market pulls back, venture capital, being a high-risk asset class, will be among the first to lose liquidity.
  • During times of market downturn, great companies are often built, and venture capitalists like Matt McCool are holding their dry powder for such opportunities.

"But then what will happen is you'll start to see a pullback. We haven't seen that quite yet. And also, everyone's waiting for a market crash." "Mutual funds coming in and paying outrageous prices and putting 400 million into companies. These are all signs that were laid on the stage." "The stock market has a seven to eight year cycle. Kind of biblical about it. But again, 20 00 20 08 20 15 so the problem is that you can't see it because it's a nonlinear shock." "So as a result, that's when the great companies are built. So we've been actually kind of holding our dry powder."

The quotes reflect Matt McCool's observations about the current state of the venture capital market, the anticipation of a pullback, and the strategy of holding funds in preparation for future investment opportunities during market downturns.

The Power of Commencement Speeches

  • Commencement speeches are valued by Matt McCool for their ability to distill life lessons and inspiration into a short, impactful message.
  • The "granddaddy" of commencement speeches, according to Matt McCool, is Steve Jobs's speech.
  • A good commencement speech often contrasts difficult experiences with subsequent opportunities and growth, akin to a hero's journey.
  • Matt McCool recommends a documentary called "Finding Joe," which explores Joseph Campbell's concept of the hero's journey, as it resonates with the entrepreneurial experience.
  • He emphasizes the importance of sharing wisdom and encouraging the next generation of entrepreneurs, especially highlighting the rise of female entrepreneurs.

"What I think is wonderful about commencement speeches is a good commencement speech is someone looking at their life, pulling the nuggets and insights from it, putting an inspirational wrap around it, and in a very short window or period of time, communicating their very essence, in many cases to the next generation of." "There is something I would actually recommend. Everybody who listens this download, I've probably had 150 entrepreneurs listen to this. Even my 19 year old son listened to it begrudgingly, has now listened to it or watched it ten times and written papers on it."

Matt McCool expresses his admiration for the format of commencement speeches and their ability to convey life lessons. He also shares a specific recommendation for understanding the hero's journey, which he sees as parallel to the experience of entrepreneurs.

Rise of Female Entrepreneurs

  • Matt McCool has observed a significant increase in the number of deals involving female founders or CEOs within the venture capital industry.
  • In Southern California, half of the deals involve companies that are co-founded or led by female entrepreneurs.
  • This trend is not due to a specific mandate to fund female-led companies but rather a natural outcome of seeking profitable investments.
  • Examples of successful female-led companies include Jessica Alba's The Honest Company, Zoe Deschanel's Hello Giggles, and Sarah Penna's Big Frame, which later became part of Awesomeness TV.
  • Matt McCool suggests that the rise of female entrepreneurs and millennial entrepreneurs will define the next 15 years in the industry.

"Half our deals. Half are either co-founded or led by female founders. And it isn't because we said, hey, let's go out and do was we just wanted to make money." "But it's Jessica Alba, the honest company, right? Which has gone from zero to several hundred million in three years."

These quotes highlight the significant presence of female entrepreneurs in recent venture deals and the success of their companies, demonstrating a shift in the venture capital landscape.

Millennial Impact on Business and Consumer Behavior

  • Millennials demand purpose and meaning in their work and the products they purchase.
  • Firms employing millennials need to have a clear sense of mission and purpose.
  • Consumer preferences of millennials have led to the growth of companies like Whole Foods and the decline of traditional stores like Safeway.

"Millennials are demanding that there be a purpose and a meaning to what they're doing. As a result, the firms that they work for have to have that sense of mission and purpose, and the products they buy have to have that. So that's why Whole Foods is in a triple store count while Safeway is shutting its stores down in the US."

This quote highlights the influence of millennial values on their workplace and purchasing decisions, which has tangible effects on business success and failure.

Women's Influence in Business and Marketing

  • Women have the ability to deeply connect with narrative and passion, driving powerful business narratives.
  • Female-driven narratives resonate with other women, leading to viral marketing and reduced customer acquisition costs.
  • Jessica Alba's advocacy and story regarding her company Honest is an example of such a narrative's impact.

"Women can take that narrative and drive it. And when they drive it, it resonates with other women. And women have this network, right, whether it's moms or other women, and it spreads virally, so the acquisition cost goes to zero."

This quote emphasizes the unique capacity women have to create and spread compelling business narratives, which can lead to organic growth and community building among consumers.

The Role of Storytelling in Venture Capital

  • Storytelling is crucial in venture capital.
  • Books on narrative and writing are recommended for aspiring founders to understand the power of storytelling.
  • Examples of recommended books include "Several Short Sentences About Writing" by Verlyn Klinkenborg, "Writing Down the Bones" by Natalie Goldberg, "On Writing" by Stephen King, and "Story" by Robert McKee.

"Venture is about storytelling, as we just talked about."

This quote underscores the importance of storytelling in the venture capital industry, suggesting that successful entrepreneurs often excel at crafting and conveying their company's story.

Recent Investments and Rationale

  • Matt McCool's recent investment in Hello Giggles was driven by the company's narrative and organic growth.
  • Another investment, Viv, was chosen for its innovative technology in context understanding and action-taking capabilities.
  • Strong mission, purpose, and narrative are key factors in investment decisions.

"Most recent investment was in Hello Giggles. And why we said yes was because of the power of what they'd achieved on no money at the end of the day. And they'd gone from zero to 15 million uniques with no capital based on a narrative."

This quote explains the decision to invest in Hello Giggles, highlighting the company's success in building a large audience without significant capital investment, thanks to a compelling narrative and mission.

"Another deal that we recently did is coming, called Viv. Viv. And it's next generation Siri. It understands context, so it'll pull from multiple databases and sources, understand contextually what's going on and then take action for you."

The investment in Viv is justified by its advanced technology that surpasses current virtual assistants by understanding and acting on complex, context-rich user requests, indicating a focus on innovative solutions in investment choices.

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