20 VC 063 What It Takes To Standout In A Crowded Market with Ezra Galston @ Chicago Ventures

In episode 63 of the 20 Minutes VC, host Harry Stebbings interviews Ezra Goulston of Chicago Ventures, a venture capitalist with a background as a professional poker player, entrepreneur, and author of the VC blog BreakingVC.com. Goulston shares his journey from coding at a young age, through a failed startup during the dot-com bust, to various tech and marketing roles, and eventually to venture capital. He emphasizes the importance of passion and obsession with technology, as well as the significance of understanding customer needs in marketplace investments. Goulston also discusses Chicago Ventures' focus on untapped talent in the Midwest and consumer markets, with an average investment ticket size of around $500,000. He highlights the potential in food tech due to its trillion-dollar scale and high frequency of consumer engagement, while also acknowledging the challenges of differentiation in crowded markets. Finally, Goulston advises aspiring VCs to build a strong network and immerse themselves in their interests to stand out in the industry.

• Ezra Goulston is a VC at Chicago Ventures focusing on consumer-facing and marketing tech investments.
• He has involvement with companies such as Blitzy, Bloom Nation, Capal Vents, Shift Gig, and Zip Mints.
• Ezra's insights on startups have been featured in major publications like the Wall Street Journal and TechCrunch.
• His career journey includes roles at Foundation Capital and director of marketing for Card Runners Gaming.
• He was a professional poker player prior to his business career.
• Ezra authors a VC blog called breakingvc.com.
• Hiring Screen is mentioned as a successful hiring tool used by the host.

"Ezra is a VC at Chicago Ventures where he focuses on consumer facing and marketing tech investments. He's actively involved with blitzy Bloom Nation, capal vents, shift gig and zip mints, just to name a few."

This quote introduces Ezra Goulston as a venture capitalist with specific investment interests, highlighting his active involvement with various companies.

• Ezra taught himself coding languages at a young age and started his first startup, getaccess.com, at age 12.
• Faced challenges during the .com bust with his startup as services he resold went bankrupt.
• Worked as director of interactive marketing for Buzz Marketing Group while at NYU.
• Burned out early due to starting his career at a young age, leading to playing online poker.

"I taught myself visual basic. Like I taught myself how to code when I was maybe eight or nine years old. And I taught myself HTML when I was ten or eleven."

Ezra shares his early passion for technology and self-learning, setting the foundation for his future entrepreneurial endeavors.

• After college, Ezra chose to play high stakes poker professionally over a traditional marketing job.
• He joined an online poker training site as the second employee, which saw significant growth.
• Utilized free cash flow from the poker business to acquire a software analytics company.
• Took a hiatus to attend rabbinical school in Israel, leading to self-discovery and a refined vision.
• Ezra's resume, though unconventional with poker and startups, led him to pursue a big company logo for credibility.
• Realized corporate life was not for him and started making angel investments unknowingly.
• Encouraged by a friend and mentor, he pursued a career in venture capital.

"But I'd made all this money. Like, I was getting paid more than I know what to do because I was in college at the time. And so I started playing a lot of online poker."

This quote captures Ezra's decision-making process post-college and his entrance into the world of professional poker, which later influenced his business ventures and investment mindset.

• Ezra is now at Chicago Ventures, having realized his aptitude for venture capital.
• The mission of Chicago Ventures and specifics about their investments, such as average ticket size and preferred sectors, were about to be discussed before the transcript ended.

"And now you're at Chicago Ventures."

The quote marks the transition from Ezra's backstory to his current role at Chicago Ventures, setting the stage for a discussion about the firm's mission and investment strategy.

• Ezra Goulston's VC fund was established in December 2011.
• The fund is relatively young, being only three and a half years old at the time of the conversation.
• Their first fund was $40 million, with 39 investments made from it.
• The average initial investment ("first check in") was around $500,000.

"We were started in December of 2011. And so the first fund was $40 million. We made 39 investments out of that fund. Average ticket size, like first check in, around $500,000."

This quote outlines the basic financial and operational history of Ezra Goulston's venture capital fund, providing context on its size, inception date, and investment activity.

• The fund's thesis is based on the untapped talent and resources in the Midwest.
• A third of Fortune 500 companies are located in the Midwest, creating opportunities for startups in the region.
• The proximity to these companies allows for valuable connections and potential business for startups.
• Chicago is seen as an especially promising market for consumer-focused startups due to its large technology adoption and opportunities for service and convenience businesses.
• The fund's investments are split, with about 50% in Chicago, two-thirds in the broader Midwest, and the remaining spread across New York, the Valley, LA, Austin, and DC.

"The basic thesis of the fund is that there is a lot of untapped talent and resources in the midwest. And while it may be slightly counterintuitive, what a lot of people don't realize is that a third of the entire Fortune 500 is right here in the midwest."

This quote explains the fund's investment thesis, highlighting the strategic advantage of being located in the Midwest due to the presence of large corporations and untapped resources.

• Proximity is considered important for maintaining regular contact with investments.
• While the fund visits distant investments like those in LA a few times a year, they prefer to have a lead investor who is closer to those companies.
• The majority of investments that the fund leads are based in the Midwest, emphasizing the value they place on being able to be more hands-on.

"We think it's pretty important to be in touch regularly with our know. Listen, I go to LA to visit our investments there a couple of times a year. But again, for kind of our investments in SF or LA, we're traditionally not the lead investor because we do like to leave that to someone who is a little bit closer, can be a little bit more hands on."

The quote reinforces the importance the fund places on proximity to their investments, as it allows for more regular and meaningful engagement with the companies they invest in.

• The fund invests in various marketplaces, such as Spot Hero and Kapow Events.
• Bill Gurley's blog post on marketplace drivers is considered essential reading for understanding digital marketplaces.
• Ezra Goulston looks for frequency of purchase, margins, and the economics for both sides of the marketplace.
• The potential for frequent transactions, even in B2B marketplaces, is a key consideration.
• The viability for participants to earn a living on the platform, such as merchants on Bloom Nation or couriers on Zipments, is also crucial.

"I care a lot about frequency of purchase. How often is a consumer going to repurchase something?"

This quote highlights the importance of transaction frequency in marketplaces, which is a key metric for the fund when assessing potential investments.

• The potential imbalance between supply and demand is a concern in marketplace investments.
• Investing in founders who are customer-focused is crucial, as they must keep all sides of the marketplace satisfied.
• Founders need to be obsessive about customer satisfaction to ensure that the marketplace remains balanced and successful.

"Chicken and egg is always something you need to be concerned of, but you invest in the right people who are completely obsessive about keeping their customers happy, and I think they'll figure it out."

This quote addresses the classic challenge in marketplaces of balancing supply with demand and emphasizes the importance of investing in founders who prioritize customer satisfaction as a solution to this issue.

• The food industry is challenging but attractive due to its massive size and the high frequency of consumption.
• The goal of food tech companies, such as Grubhub, is to create a platform where customers make frequent, possibly daily, purchases.
• The trillion-dollar food industry and the necessity of eating daily make it an appealing sector for tech integration.

"It's one where you do need to eat three times a day, every day, for the rest of your life. So it is conceivable, theoretical again, but conceivable that you could build a platform where someone would purchase on it three times a day, every day, for the rest of their lives."

The quote captures the allure of the food tech sector, emphasizing the potential for high-frequency transactions due to the essential nature of food consumption.

• The food industry is experiencing a shift in consumer expectations, especially among younger generations, with a focus on transparency and new eating styles.
• Urban areas are seeing major changes in food consumption habits.
• Despite the dominance of big agtech, there's a trend towards more transparent food practices.

"I think that there's one other aspect which also comes into play, which is that there's kind of being amongst our generation, there is an entire reimagination or changing expectation of what food looks like, how it's developed, what level of transparency there is behind it."

This quote highlights the evolving consumer expectations around food, particularly among younger generations who value transparency and innovation in food development.

• The on-demand food sector has seen a surge in new companies, leading to a crowded marketplace.
• Differentiation among these companies is minimal, with many offering similar services.
• The challenge in venture capital is distinguishing unique investment opportunities in a saturated market.

"However, as you said, we like to joke internally that about four months ago, there was a single week where we were introduced inbound. These aren't companies we reached out to, but inbound, four on demand food companies in the same week."

This quote reflects the high volume of new entrants in the on-demand food space, indicating a highly competitive market.

• Venture capitalists must carefully evaluate potential investments in crowded sectors.
• The decision to pass on investment opportunities can be due to market saturation despite strong founders and good metrics.
• Identifying less crowded and overfunded spaces can lead to more strategic investments.

"So we ended up passing on those investments. And again, it was because the founders were strong and the metrics were good, but I think we just had to ask ourselves again. It's just so crowded."

The explanation for passing on investment opportunities in the on-demand food sector is due to the lack of differentiation and an overcrowded market, despite the presence of strong companies.

• There has been significant innovation in food delivery, but not in frozen foods.
• The goal is to appeal to younger consumers with convenient, high-quality frozen food options.
• The frozen food market, while smaller than delivery, is still vast, with a value of $200 billion.

"Ben's thesis was, what if you could create an effectively frozen foods company that appealed to the 18 to 40 set, had farm to table food, actually wasn't even frozen, but was just kind of uniquely sealed so that it could stay fresh in your fridge for two weeks."

This quote outlines the innovative concept of creating a new kind of frozen food company that caters to the preferences of younger consumers, emphasizing convenience and quality.

• Building a strong network and brand equity is crucial for breaking into venture capital.
• Leveraging personal strengths and interests can help create unique value propositions.
• Establishing relationships and demonstrating expertise in a specific field can lead to opportunities in VC.

"So my story was, I told you before, I had a mentor who said you should really go to VC. So my background was in gaming. And so what I did is I never sent a resume to a single VC and I had no network. I'm really not good at asking for favors, getting warm intros. But my background was in online gaming."

This quote illustrates the importance of using one's background and expertise to build a network and gain entry into the venture capital industry without relying on traditional methods such as resumes or warm introductions.

• Ezra Goulston discusses how he measures his success as a venture capitalist, emphasizing that it is too early to judge solely on returns.
• He highlights the importance of internal fulfillment with the companies and people he works with.

"So to measure it only on a returns basis would both be inadequate as well as I'd just be lying to myself because it's just too early."

Ezra explains that solely using financial returns as a metric for success can be misleading due to his relatively short time in the industry and the ongoing bull market.

• Ezra expresses his support for Bitcoin and aligns with Ben Horowitz's optimistic view on its long-term prospects.

"I love bitcoin. I spent a lot of time looking into know I'll take Ben Horowitz's side of the Felix Salman bet. I think it'll fly long term."

Ezra's quote shows his positive stance on Bitcoin's future and his belief that it will succeed in the long run.

• "The Little Prince" is cited as Ezra's favorite book, linking its theme of imagination to his career in venture capital.

"My favorite book ever is probably the little prince. I think that this is a business where you've got to have a lot of imagination."

Ezra connects the imaginative aspect of "The Little Prince" to the creative and visionary nature of working in venture capital.

• Ezra is uncertain about investing in government-related industries but acknowledges the potential opportunities.

"I have no idea. I'm trying to think government really scares me. But at the same time I see so much opportunity in government."

The quote reflects Ezra's ambivalence towards government industries, indicating both apprehension and recognition of their potential.

• Ezra provides a cautious perspective on Etsy, placing it between a sell and a hold based on its market value.

"It's basically at 1.6 billion, which is where it kind of went out. I'd say somewhere between a sell and a hold."

This quote suggests Ezra's hesitance to give a definitive recommendation on Etsy, highlighting its current market performance.

• Ezra uses Reportive and communication apps like Bitmoji and Riffsy to enhance productivity and unique communication with founders.

"So I use reportive pretty regularly... and then honestly, I use a lot of emoji through bitmoji and then giphies through riffsy to communicate with people."

The quote lists the specific tools Ezra uses to stay productive and maintain engaging communication with his team and founders.

• Ezra mentions Ben Thompson's "Stratechery" as a captivating blog and references his own blogs, "Chicago Ventures" and "Breaking VC."

"Hey, I mean, listen, Ben Thompson from stratery... Right. So for anyone listening, just check out chicagentures.com and breakingvc.com."

Ezra promotes Ben Thompson's blog and his own, suggesting these as valuable resources for listeners interested in VC.

• Ezra discusses his recent investments in Luxury Garage Sale and Attendant, highlighting the uniqueness of Attendant's market and the founders' proven track records.

"So both companies like Alex. So attendant was founded by Alex Krueger... And on luxury garage sale as well. The two founders there, Lindsay, and know they just over executed with minimal resources at every stage of their business."

This quote provides insight into Ezra's investment rationale, focusing on founder capability and business differentiation.

• Ezra and Harry Stebings express gratitude for the opportunity to share insights on the show.

"Well, Ezra, it's been hugely entertaining having you on the show and absolutely fascinating. Thank you so much for joining us on today's episode of the 20 minutes vc."

The quote signifies the host's appreciation for Ezra's participation and the value of the conversation.

• The podcast episode concludes with a promotion of Hiring Screen and its features.

"Well, I hate it when you get a service and you have to pay a huge amount more for premium features. Well, that's not the case with hiring screen because all their packages include the incredibly beautiful UI and access to their blink algorithm."

Harry Stebings endorses Hiring Screen, emphasizing its all-inclusive packages and user-friendly interface, which cater to businesses of different sizes.