20VC Optimising Investment DecisionMaking in Compressed Fundraising Timelines & A Deep Dive on Portfolio Construction, Price Sensitivity and The Importance of Ownership with Mark Mullen, CoFounder @ Bonfire Ventures

In this insightful conversation, the host welcomes Mark Mullen, co-founder and managing partner at Bonfire Ventures, to discuss venture capital, investment strategies, and the evolution of the VC landscape. Mullen shares his journey from finance to venture, influenced by the entrepreneurial spirit of cable TV pioneer Bill Daniels. He reflects on the lessons learned from market booms and busts, emphasizing the importance of seizing opportunities during downturns. Transitioning from a solo VC to a partnership, Mullen highlights the benefits of a team approach, such as expanded deal flow and collective expertise, while maintaining nimbleness in decision-making. They delve into portfolio construction, ownership stakes, the impact of rapid funding rounds, and the delicate balance of time allocation across portfolio companies. Mullen also touches on the changing dynamics of board membership, the consensus-driven investment process at Bonfire, and the firm's scout program aimed at broadening network diversity. Finally, Mullen advocates for transparency in VC returns and excitement about Bonfire's recent investment in Topia, a platform enhancing business interactions in the metaverse.

• Harry Stebbings introduced Mark Mullen, cofounder and managing partner at Bonfire Ventures.
• Bonfire Ventures is a leading early-stage fund in LA, now on their third fund with $101 million.
• Mark has previously invested in companies like The Trade Desk, Scopely, Goat Chow, Neantic, and Pendo.
• Prior to Bonfire, Mark was a solo GP with Double M and Mull Capital.
• Mark is also an LP in 15 other funds, including Upfront, Freestyle, Backstage, and Crosscut.
• Thanks were given to Greg at Upfront, Howard Lindsen, Martin Graycroft, and Jim Andelman for contributing questions.

"And this hits all of my venture nerd passion points in terms of the discussion we had today. And so I'm thrilled to welcome Mark Mullen, cofounder and managing partner at Bonfire Ventures, one of LA's leading early stage funds, now on their third fund with $101,000,000 in the latest."

The quote highlights the introduction of Mark Mullen, emphasizing his significant role in the venture capital industry and the success of Bonfire Ventures.

• Mark started in finance after college, working for a bank and then as an investment banker.
• He worked for Bill Daniels, known as the father of cable TV in the US.
• Bill Daniels had a diverse background, including being a Golden Glove boxing champion and a fighter pilot before starting cable television in 1953.
• Mark worked for Daniels' firm for 20 years, dealing with M&A in the cable, ISP, and broadband wireless sectors, and living in Paris and London.
• The firm also invested in companies and other funds.
• After selling the firm and its assets, Mark became a senior partner at RBC Capital Markets before venturing into solo investing.

"Well, really, when I came out of college, I was already getting into finance. I worked for a bank and then I became an investment banker, more like a merchant banker, because we also made investments for a very famous entrepreneur. His name was Bill Daniels and is currently still known as the father of cable tv in the US."

The quote provides insight into Mark Mullen's early career in finance and his experience working with Bill Daniels, a significant figure in the history of cable television.

• Working with Bill Daniels and his right-hand person, Brian Deevy, taught Mark the importance of being straightforward and honest in business.
• The experience instilled values such as integrity and the importance of a handshake in professional relationships.
• These lessons from Bill Daniels and Mark's father were significant in shaping his approach to venture capital.

"Just the way they dealt with people was straight up. You told people what you thought, you helped people do what they wanted to do. You lived by a handshake, and those were things that sound very trite but are super important today."

The quote reflects on the personal influence of Bill Daniels on Mark Mullen's business philosophy, emphasizing the value of direct communication and integrity.

• Mark experienced various market crashes, starting with the 1987 crash, which taught him lessons about risk management.
• The experience of these economic cycles has made him more cautious but also more aware of opportunities during downturns.
• He has learned to balance his portfolio with a mix of liquid and illiquid investments, adapting a "barbell mentality."
• The past economic downturns have influenced him to take calculated risks when opportunities arise.

"Yes. Definitely put a little bit of a damper on the riskiness I take with my portfolio. However, I think I've turned the corner and learned a lot about what I didn't do, which was take advantage of the dips."

The quote discusses how past market downturns have shaped Mark Mullen's investment strategy, making him more conservative but also teaching him to capitalize on market dips.

• Mark transitioned from being a solo GP to forming a partnership at Bonfire.
• The partnership has allowed for a broader team, increased deal flow, and a larger network.
• Mark emphasizes the importance of maintaining nimbleness in decision-making, even within a team structure.
• He reflects on past investments where he committed quickly and the need to balance that with a team's collaborative decision-making process.

"Really the hardest thing to do is scale yourself and scale an individual. And so me going from sole GP, sitting in my office, perhaps being lonely, looking at deals, trying to get things done to now we have a five person investment team and a broader team in general."

The quote captures the challenge and benefits of transitioning from a solo GP to a partnership, highlighting the advantages of collaboration and expanded resources.

• Mark shares his experiences with missed investment opportunities, such as Tinder and Honey.
• He regrets not investing due to limited time and understanding of the business.
• These experiences have taught him the importance of investing in the founder and team at the seed stage and building conviction based on interactions with founders.

"I met Sean Radd from Tinder and I met the guys from honey, and I turned down honey twice. And actually, I go back to the email exchanges I had with them, and I actually turned them down, as I said in the email, because I didn't have the time."

This quote reveals Mark Mullen's reflection on missed opportunities, underscoring the importance of dedicating time and effort to understand potential investments and the founders behind them.

• The current market requires fast decision-making due to the abundance of capital and competitive fundraising environments.
• Mark discusses the balance between building founder relationships and the necessity to make quick investment decisions.
• The Bonfire team strives to maintain a fast pace, sometimes moving from meeting to term sheet in as few as nine days.
• The challenge is to thoroughly understand the market and founding team in a short time frame while managing founders' expectations for rapid decisions.

"Well, we're all in the same boat, so we talk a lot about this, the need to move. It's been fun to find a situation where we all have this feeling around the founding team. We got to move fast."

The quote highlights the venture capital industry's current dynamic, where rapid decision-making is essential, and the collective effort required to assess and invest in promising startups quickly.

• Harry Stebbings expresses a strong interest in portfolio construction, which he considers a passion and a significant reason for his limited friendship group.
• Mark Mullen, with a new fund of $101 million, focuses on seed investments in B2B software, maintaining a clear focus and not deviating from this area.
• Mark's firm aims for a portfolio of 24 to 28 companies, with 7 to 9 deals a year, and allocates 40% of investments to primary checks and 60% to follow-ons.
• The firm has a methodical approach to follow-on investments and how much capital to commit to additional companies.
• They prefer to deepen their expertise in their chosen field (B2B cloud software) rather than expand into new areas.
• Portfolio risk may be adjusted based on the current state of the portfolio, potentially increasing risk for unique opportunities or less traction situations.

"We have made our bed. We said we are seed investors in b two b software, and we're very good at it. We're getting better. We're always trying to get better, but we're not going to move out of that."

This quote highlights the firm's commitment to specializing in seed investments in B2B software and their continuous effort to improve within this niche.

"We may dial up risk, obviously, we're monitoring the portfolio at all times, and we may dial up risk if the portfolio is kind of down the middle after maybe do three or four investments that are down the middle type of things that we like to do."

Mark Mullen explains that they actively monitor their portfolio and are willing to adjust their risk tolerance based on the current balance of their investments.

• Ownership has become more challenging to maintain over time, with expectations of significant ownership percentages shifting.
• Mark's firm believes in establishing substantial ownership during the seed stage to compensate for future dilution and to be rewarded for their time and capital investment.
• They maintain pro rata rights into the A round and possibly a bit in the B round, but generally do not go beyond that.
• The firm's involvement with their companies is deep, expecting to be the first call for both good and bad news, which justifies their desire for significant ownership.

"We like to take as much ownership in the seed. We almost double down because of the amount of capital we put in."

Mark emphasizes the importance of securing a significant ownership stake early on to account for future dilution and to align with the firm's hands-on investment approach.

• Preemptive rounds are occurring more frequently and earlier than in the past, with valuations and capital amounts increasing significantly.
• Mark's firm benefits from these rounds as markups in their portfolio but acknowledges the challenges it presents, such as the need to write larger checks to maintain ownership percentages.
• They advise founders to lean into the market trends and help them run the fundraising process efficiently.
• The relationship with the founder is crucial as they can protect prior investors in discussions with new A round investors.

"We are seeing this every week and we are benefiting from it. Right. As a markup in our portfolio, we are benefiting from these preemptive rounds."

Mark notes the advantage of preemptive rounds in increasing the value of their portfolio but also the strategic implications for subsequent investment decisions.

• The high valuations and the need to invest more capital to maintain pro rata shares pose the challenge of opportunity cost, potentially preventing the addition of new companies to the portfolio.
• Mark's firm is committed to follow-on investments, which sometimes feels like a constraint, especially when considering the potential to invest in new opportunities at lower valuations.
• The mental game involves weighing the benefits of doubling down on existing investments against the potential of new investments.

"It's a mental game that there's no ending."

This quote reflects the ongoing strategic dilemma of balancing follow-on investments with the opportunity to invest in new companies.

• The concept of signaling risk, where not following on could signal a lack of confidence in a company, is less relevant today due to the abundance of capital.
• A round investors, who are looking to deploy large amounts of capital, may not be concerned with prior investors maintaining their pro rata shares.
• Companies that are not performing well may require more investment, potentially indicating issues to other investors.

"One thing I wanted to say as well is one of the reasons that it was important to commit to doing your pro rata was there was this thing called signaling risk, which people were worried about, and that still is relevant today, but less relevant."

Mark discusses the changing significance of signaling risk in current market conditions, where the abundance of capital has diminished its impact.

• Founders face decisions between working with multistage funds, which offer large amounts of capital and potentially less hands-on support, versus boutique seed firms that may provide more personalized attention.
• Multistage funds like Sequoia have entered the seed funding space, raising questions about their ability to provide the same level of support with a larger fund.
• Founders consider the potential signaling risk and the type of support they will receive when choosing between multistage and boutique seed investors.

"How does a company like Sequoia invest a 600 million dollar seed fund? How do they write a $2 million check, let's say, in a seed round, and then actually give you the full Sequoia team behind?"

Mark questions the scalability of support that large multistage funds can provide to seed-stage companies compared to boutique seed firms.

• When preemptive rounds come in, Mark's firm takes a fresh look at the company, leveraging their deep involvement and access to information to make informed reinvestment decisions.
• The firm has a process for investing in a few deals with high conviction, and the compressed investment period requires them to make quicker decisions on larger rounds.
• They also consider providing extension capital to companies that need it to reach the next funding milestone but weigh this against the potential need to reserve funds for new core investments.

"We're involved with these companies. We're seeing the information flow. So we should have the best feel and look at real information for how to make that investment."

Mark explains that their close relationship with portfolio companies provides them with the best perspective for making reinvestment decisions.

• Venture capital involves constant questioning around capital allocation and follow-on investments.
• The best companies may not need additional capital in follow-on rounds.
• Companies that do need extra capital might not be the best performers.

"The best companies don't need your extra capital in the follow on rounds."

This quote highlights a common dilemma in venture capital where top-performing companies often have sufficient funding and do not require additional rounds of investment from their existing investors.

• The importance of time allocation across a venture capital portfolio is emphasized.
• Winners may need less time than struggling companies, despite the potential for higher returns from winners.
• Venture capitalists commit to being there for their companies, especially when they struggle.

"The reality is, and you've heard this before, sometimes the winners need you the least and it just goes that way."

This quote reflects the paradox in venture capital where successful portfolio companies often require less hands-on support from investors, contrary to initial expectations.

• The approach to board membership and style can evolve over time.
• Experience across different companies and geographies influences board member style.
• Board members transition from focusing on details to strategic advice and founder support.

"I've learned how to work with and advise lots of different types of entrepreneurs."

The quote indicates the speaker's growth as a board member, gaining the ability to adapt their advisory approach to various entrepreneurs' needs.

• Board meetings should focus on strategy and decision-making rather than just reporting.
• Preparation before board meetings is key to ensure strategic discussions during the meeting.
• Encouraging board members to engage with founders beforehand can enhance the effectiveness of board meetings.

"For example, Fred Wilson, for know, the board meeting is for some reporting, but it really is to talk about strategy and making decisions."

This quote underscores the belief that board meetings should prioritize strategic discussions over routine reporting, echoing the practices of respected investors like Fred Wilson.

• Transitioning from solo investing to a partnership affects the investment decision-making process.
• Consensus-driven decision-making is common in partnerships.
• Allowing individual partners to make small investments can empower them and bring in unique opportunities.

"We're consensus driven."

This quote indicates the speaker's firm's preference for making investment decisions based on collective agreement among partners.

• Scout programs are used to expand a venture capital firm's network and deal flow.
• Scouts are allocated a budget to invest in unique opportunities that align with the firm's focus.
• The program includes ongoing support and education for scouts to ensure alignment and growth.

"We have six scouts, we have four in LA, one in Boston and one in San Francisco."

This quote reveals the geographical and gender diversity of the speaker's scout program, indicating an intentional strategy to broaden the firm's reach and perspective.

• It's important to approach each new deal with a fresh perspective and avoid biases based on past experiences.
• Ensuring mental flexibility is crucial to avoid missing out on potential opportunities due to preconceived notions.

"It's human nature to be biased by anything in the past. But yes, you have to be aware of this issue that you've just brought up, Harry."

The quote acknowledges the natural tendency to be influenced by past experiences but also the necessity to remain cognizant of this bias when making new investment decisions.

• Importance of understanding diverse user experiences.
• The necessity of being open-minded toward technologies and experiences that are unfamiliar or initially unappealing.
• The value of learning more about something before forming a strong opinion.
• The benefit of explaining the rationale behind decisions, especially when based on past experiences.

"You have to expand and understand that user experience for all of us is much different, and especially with all sorts of things that come into someone's life, where they went to school, where they're from, what their family life was like, how they use technology, and then understand that that's where we have to be open minded."

This quote emphasizes the diversity of user experiences and the need for open-mindedness in evaluating technologies or ideas that may not align with one's initial perspective.

• Challenges of managing constant information flow from various communication platforms.
• The paradox of more information potentially leading to more difficult decision-making.
• The observation that over-analysis can backfire, with spontaneous decisions sometimes leading to better outcomes.

"The more information we have, in some ways, the harder it is to make a decision."

Mark Mullen discusses the difficulty of decision-making in the face of excessive information, implying that too much data can lead to analysis paralysis.

• The unpredictability of early-stage investments and their outcomes.
• The importance of not being overly influenced by early successes or failures in a portfolio.
• The potential for early wins to lead to a riskier investment approach, while early losses might lead to risk aversion.

"The thing is, determining how much risk to take for a portfolio is a really hard question."

Mark Mullen reflects on the challenge of balancing risk in a venture portfolio, acknowledging the difficulty in making these determinations.

• Exposure to diverse investment strategies and market opportunities through fund investing.
• The benefits of learning from different funds' expertise and approaches.
• The evolution from angel investing to professional fund investing.

"Having access to different types of deals than I would ever see, and getting expertise and information flow from them is helpful for what we do."

Mark Mullen explains how investing in various funds provides insights and opportunities that inform his direct investment strategies.

• The demystification of venture capital as a career accessible from various backgrounds.
• The desire for transparency in venture capital returns.
• The recognition of venture capital's opaque nature and the potential for misrepresentation of investment success.

"I think VC is up on this pedestal in some ways and that there's some sort of secret key to unlock the door to become a VC. And I think you can do it from any type of position."

Mark Mullen expresses that venture capital is not as exclusive as it may seem and that success in VC is attainable from various starting points.

• Personal growth and the impact of becoming a father.
• The importance of confidence and presenting oneself assertively.
• Common advice given about not worrying and delegating, despite the difficulty of practicing it.
• The humorous take on the misconceptions of the wealthy regarding taxes.

"Be bigger than you know, whether that's physically or know. Put yourself out there as being bigger, whether it's what you're talking about. Maybe it's physicality just to have that confidence in yourself to be bigger than you are."

Mark Mullen shares his personal motto, which encourages self-confidence and an assertive presence, both physically and in one's ideas and actions.