20VC The Ultimate Episode For Emerging Managers How To Determine How Big A Fund To Raise, What Is The Right Closing Strategy With LPs & Why We Will Not See The Eradication of PreSeed with John Fein, Founder & Managing Partner @ Firebrand Ventures



In this episode of "20 minutes VC," host Harry Stebbings interviews John Fine, the founder and managing partner at Firebrand Ventures, an early-stage fund in the Midwest. John shares his journey from a psychology graduate to a tech enthusiast, his experience with startups during the internet boom, and his transition from corporate to venture capital. He discusses the challenges and strategies of raising Firebrand's first fund, emphasizing the importance of building trust with founders, being helpful over being right, and the long-term commitment required in venture. John also highlights the need for more women in VC to increase funding for female founders and stresses that venture capital is not a short-term game but requires patience and a focus on assisting founders in building sustainable businesses.

Summary Notes

Introduction to 20VC and Firebrand Ventures

  • Harry Stebbings introduces the episode of 20 minutes VC, acknowledging the show's West Coast focus and the intention to feature managers from outside the Bay Area.
  • John Fine, founder and managing partner at Firebrand Ventures, is introduced with his background at Techstars and Optum Rx.
  • The episode's sponsors and their services are highlighted, including Clearbank, airbase, and terminal.

"I'm thrilled to welcome John Fine, founder and managing partner at Firebrand Ventures, one of the leading early-stage funds in the Midwest, with a portfolio including the likes of Scale, Factor, Replica Dweller and many more incredible companies."

The quote introduces John Fine and Firebrand Ventures, emphasizing the fund's significance in the Midwest and its impressive portfolio.

John Fine's Background and Path to Venture Capital

  • John Fine shares his journey from Brookline, Massachusetts, to venture capital.
  • His early exposure to computers through his father's work at Digital Equipment Corporation.
  • Fine's education in psychology and subsequent pivot to technology and startups.
  • His experiences in the startup scene during the Internet boom and co-founding a startup.
  • Transition to a healthcare company and managing large-scale projects for UnitedHealth Group.
  • The entrepreneurial elements and challenges of scaling operations at the healthcare company.
  • Fine's return to startups and networking in Kansas City, leading to his role at Techstars.

"I ended up moving to Southern California about a year after I graduated, which was one of the times in my career that was just fortunate because I got there soon before the Internet boom, and I joined my first startup in '97."

This quote explains Fine's fortunate timing in joining the startup scene right before the Internet boom, setting the stage for his future venture into founding Firebrand Ventures.

Raising the First Fund for Firebrand Ventures

  • John Fine discusses the challenges of raising the first fund for Firebrand Ventures in the Midwest.
  • His strategy of publicly announcing the fund before raising any capital to build momentum and awareness.
  • The support from key individuals in the Kansas City community who helped with introductions and fundraising.
  • The excitement and fear associated with launching a new venture fund without an established investor network.

"Simultaneously exciting and terrifying, I would say. So what I did early on as sort of like a forcing mechanism is sort of contrary to the advice of my attorneys, publicly announced it."

The quote reflects the emotional duality of launching a new fund and the bold strategy of public announcement to compel success despite the risks involved.## Fundraising Strategy and Execution

  • Harry Stebbings reflects on the initial fundraising process, emphasizing the importance of demonstrating legitimacy by writing checks.
  • A first close was completed in approximately eight weeks, allowing for the first three investments to be made.
  • The approach involved sequential closings and continuous capital commitments, repeated over 18 months.

It was a grind, but looking back, I'm really glad I did it that way.

This quote highlights the difficulty of the fundraising process and the satisfaction in retrospect for having followed through with the strategy.

And so part of the strategy was I wanted to make sure everyone knew that we were real, and the only way to do that is to write checks.

Harry Stebbings explains that making investments was a key part of proving the fund's credibility to potential investors.

Closing Strategy and Timing

  • The fund administrator played a crucial role in advising on closing strategy, advocating for closing once a certain amount of capital was committed.
  • Closings occurred roughly every quarter, a pattern that was maintained throughout the fundraising process.
  • The Midwest investor community, often investing in a venture fund for the first time, influenced the closing strategy.

Yeah, hats off to our fund administrator, because they have a lot of experience in this field and they're big advocates of when there's a certain amount of money on the table, you just do a close.

This quote underlines the importance of the fund administrator's experience and their advice on closing once sufficient capital is pledged.

Fundraising Challenges and the Impact of an Anchor Investor

  • Fundraising never became easy, although the process became slightly more manageable after securing an anchor investor.
  • The presence of an anchor investor provided mental relief, reinforcing the belief that the fund would be successful.
  • A significant portion of the fund was raised close to the final close, highlighting the urgency created by deadlines.

It never got easy. It got a little easier, but it never got easy.

This quote captures the ongoing difficulty of fundraising, despite reaching certain milestones that made the process slightly less challenging.

Communicating Closing Deadlines to Prospective LPs

  • Conveying urgency without pressuring potential Limited Partners (LPs) into a decision is a delicate balance.
  • The approach involved accepting that some investors might say no, but it was important to get a definitive answer to move forward.
  • Reducing friction for enthusiastic investors was also a key focus.

And I got more comfortable with the fact that either they're going to love this or they're not.

The quote reflects the acceptance of potential rejection as a natural part of the fundraising process and the need to push for a decision.

Reflections on the Time Taken to Raise the First Fund

  • The average time to raise a first fund was known to be lengthy, but patience was challenging.
  • Advice from Brad and Lindell during a dinner meeting encouraged continued fundraising beyond the minimum target.
  • David Cohen advised on setting a realistic fund size, focusing on the minimum amount needed for the fund's strategy to work.

Yeah, I wasn't surprised, but I didn't like it.

This quote conveys the speaker's frustration with the time-consuming nature of fundraising, despite being aware of the typical duration.

Fund Management and Operational Challenges

  • Initially operating as a sole partner presented challenges in time management and decision-making.
  • The importance of prioritizing tasks and learning to say no to maintain focus on the fund's objectives was emphasized.
  • Even with a small team, balancing various responsibilities remains an ongoing challenge.

Sure. Well, in the beginning, it was just me, and so it was all the challenges that a sole partner has.

The quote describes the early stages of fund management and the difficulties faced when operating alone.

Approaching Meeting Requests and Time Management

  • A simple and direct phrase, "I'm sorry, I can't right now," is recommended for declining meeting requests while indicating that the current focus is elsewhere.
  • The phrase allows for the possibility of future interactions without committing to a specific time frame.

I'm sorry, I can't right now.

This quote offers a polite yet firm way to decline requests, emphasizing the need to prioritize existing commitments.

Advice for Aspiring Fund Managers

  • The advice emphasizes the importance of understanding that fundraising is an ongoing process, not a one-time event.
  • Fund managers should be prepared for the continuous nature of fundraising and the need to maintain relationships with investors.

I kind of knew this early on, but I think it just bears repeating.

The quote suggests that while some advice may seem obvious, it is important to internalize and remember it throughout the fundraising journey.## Venture Capital as a Long-Term Commitment

  • Venture capital is not a short-term endeavor but requires a long-term perspective.
  • A fund manager commits to a 10+ year relationship with LPs (Limited Partners) and portfolio companies.
  • The career is not suitable for those needing frequent positive reinforcement due to long feedback loops.
  • It's ideal for individuals who are passionate about building from scratch and supporting founders.

"Venture is a long game. Every fund that you raise, you're making a ten plus year commitment to your lps and to your companies."

This quote emphasizes the long-term nature of venture capital investment and the extended commitment required when raising a fund.

Seed Stage Investment Criteria

  • The term "seed stage" has become broad and ambiguous with various sub-categories like pre-seed, post-seed, and others.
  • Seed stage for John involves early revenue as an indicator of potential product-market fit.
  • The ideal seed-stage investment includes a core team, developed product, and early revenue (e.g., $5-10k/month).
  • The focus is on loving the product and the market, not just the financials.

"Seed is so broad that just to say that you're a seed investor really doesn't mean anything these days."

This quote reflects the current state of the seed investment landscape, where the term "seed" encompasses a wide range of investment stages.

The Importance of Pre-Seed Funding

  • Pre-seed funding remains crucial, especially for non-traditional or first-time founders.
  • The elimination of pre-seed rounds could disadvantage certain categories of founders.
  • Successful multibillion-dollar companies often start with first-time founders who benefit from early-stage funding.

"I think there's always going to be a place for precede, especially for those founders... Maybe first time founders, maybe founders that are not found in the typical places."

This quote underscores the ongoing necessity of pre-seed funding for a diverse range of founders, highlighting its role in the broader funding ecosystem.

Capital Abundance and Valuation

  • The current ecosystem is flush with capital, leading to higher valuations and challenges for investors.
  • Founders are advised against seeking the highest possible valuation to avoid cornering themselves for future rounds.
  • Building a sustainable business is prioritized over achieving inflated valuations.

"This boom economy is not going to last forever. Everything's cyclical."

The quote puts the current state of high valuations into perspective, reminding us of the cyclical nature of the economy and the importance of sustainability.

Runway and Fundraising Strategy

  • A 24-month runway is recommended due to economic uncertainties.
  • Fundraising should be strategic, like a chess match, planning several moves ahead.
  • Milestones achieved with capital are more critical than the fundraising round itself.

"It's not optimizing for your round, it's optimizing for your milestones."

This quote highlights the importance of focusing on business milestones rather than the fundraising process itself.

Ownership and Investment Strategy

  • Initial ownership stakes are assumed to be fixed, with the expectation of dilution over time.
  • Opportunities to increase ownership are taken when they align with the fund's strategy.
  • Building a relationship with founders is crucial, even if it means not increasing ownership.

"We don't want to assume that we can build on ownership over time, but if we can, and it makes sense for us to do it, of course, we love doing that."

This quote reflects the pragmatic approach to ownership, recognizing the limitations and opportunities of a small seed fund.

Building Trust with Founders

  • Building trust with founders is essential, even if the relationship is new or time-constrained.
  • Each interaction with a founder is an opportunity to lay the foundation for a trusting relationship.
  • Face-to-face meetings and informal settings like dinners are valuable for understanding founders beyond business dynamics.

"You can't completely build this amazing, trusting relationship in four weeks, but you can put the foundation in place."

This quote acknowledges the challenge of quickly building trust with founders while emphasizing the importance of establishing a solid foundation for future interactions.## Foundation of Trust in Investor-Founder Relationships

  • Trust is built through genuine interaction beyond professional veneer.
  • Vulnerability and openness about imperfections are encouraged.
  • Investors communicate they do not expect perfection from founders.
  • Acknowledging the journey of entrepreneurship will have ups and downs.
  • When mistakes occur, the focus is on problem-solving, not blame.
  • Trust is earned through consistent actions.

"We don't expect them to be perfect. We expect there to be ups and downs. This is going to be a journey."

This quote emphasizes the realistic expectations set by investors for founders, acknowledging the inherent challenges of entrepreneurship and setting a tone for a supportive relationship.

"We're not going to play the blame game, we're not going to point fingers, we're going to roll up our sleeves and we're going to solve these problems alongside the founders."

This quote highlights the collaborative approach investors take when founders encounter challenges, focusing on solutions rather than assigning fault.

The Role of Emotional Intelligence (EQ) in Venture Capital

  • The best venture firms of the next decade will be differentiated by EQ.
  • Investors need to be authentic, acknowledge their strengths and weaknesses.
  • A learning mindset is crucial for both investors and founders.
  • The investor's role is supportive, providing resources and assistance.
  • Success is defined by the ability to help founders, not by having all the answers.

"The best firms of the next decade will be separated by EQ."

This quote suggests that emotional intelligence will be a key differentiator in the success of venture capital firms, highlighting the importance of interpersonal skills in the industry.

"We're all works in progress. The learning is the most important part."

This quote underscores the importance of continuous learning and growth for both investors and founders, as well as the humility required to recognize one's own developmental journey.

Importance of Radical Self-Inquiry and Growth

  • The book "Reboot" by Jerry Colona is praised for its focus on radical self-inquiry.
  • Identifying self-defeating patterns and habits from childhood is crucial.
  • The book encourages personal growth and breaking free from ingrained habits.
  • It is beneficial for both founders and investors.

"How have I been complicit in creating the conditions I say I don't want?"

This quote from the book "Reboot" challenges individuals to reflect on their role in their own problems and encourages a proactive approach to personal development.

Gender Diversity in Venture Capital

  • Increasing the number of women on investment teams is essential.
  • More venture capital will flow to female founders with greater gender diversity.
  • Mentorship and role models are important for women entering the industry.

"Get more women onto investment teams."

This quote succinctly states the action needed to address gender imbalance in venture capital, implying that increased representation can lead to broader changes in funding patterns.

Impact of Attitude on Life Experience

  • Life is largely influenced by personal reactions rather than events.
  • The saying encourages empowerment and self-reflection.
  • It is important to challenge inherent biases.

"Life is 10% what happens to me and 90% how I react to it."

This quote captures the philosophy that personal agency and response to events play a greater role in life experience than the events themselves, promoting a sense of empowerment.

Being Helpful vs. Being Right

  • Early in his career, the speaker learned the value of being helpful over being correct.
  • Asking the right questions and listening is more beneficial than having all the answers.
  • Guiding founders is more important than impressing them with knowledge.

"It's much more important to be helpful than to be right."

This quote reflects the speaker's realization that contributing to the success of others is more valuable than proving one's own knowledge or correctness.

Investment Decisions Based on Founder and Company Traction

  • The Mint, a hotel-style housekeeping service for multi-tenant buildings, received investment due to its impressive traction.
  • Founder Kathleen Wilson's leadership was a key factor.
  • The company had secured contracts with major property managers.

"They had incredible traction, which really was a complete reflection of the founder, Kathleen Wilson, who is fantastic."

This quote explains the rationale behind the investment decision, highlighting the founder's impact on the company's success and the importance of traction in the investment process.

Appreciation for the Podcast and Resources

  • The speaker expresses gratitude for the podcast's role as a resource.
  • The podcast is seen as valuable for many people in the industry.

"John, thank you so much, Harry, and thank you for doing this. It's a tremendous resource for so many people."

This quote conveys appreciation for the podcast host's efforts in creating content that serves as a helpful resource for listeners involved in venture capital and startups.

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