20VC Why Companies Going Bust Is Part Of The Plan, Why Most VCs Are Later Stage Than They Think & Why Venture Capital Is Humbling with Charlie O'Donnell, Founder @ Brooklyn Bridge Ventures

In this episode of the 20 Minute VC, host Harry Stebbings interviews Charlie O'Donnell, founder and sole partner at Brooklyn Bridge Ventures, discussing his journey from an analyst at General Motors pension fund to a venture capitalist with a focus on early-stage New York-based companies. O'Donnell shares insights from raising his second fund, highlighting the importance of being helpful and hardworking within the community, while also addressing the challenges of fundraising and the potential disconnect between being good at raising venture capital and running a company. The conversation also touches on the impact of personal branding, the significance of founders understanding the VC ecosystem, and the future of consumer acquisitions with examples like Dollar Shave Club. O'Donnell's latest investment in Industrial Organic, an innovative organic waste processing startup, showcases his commitment to scalable and environmentally beneficial ventures.

• Harry Stebbings introduces the podcast "20 minutes VC" and his online presence.
• Charlie O'Donnell is welcomed back to the show, having recently raised his second venture capital fund.
• Harry Stebbings mentions his personal goals and objectives for the new year posted on mojitovc.com.
• New routines for the new year are discussed, including sleeping more and productivity tools like Sirius Insight.

"Hello and welcome back to the 20 minutes vc with your host Harry Stebbings. And you can find me drinking mojitos on Snapchat at htebbings with two B's and writing some hopefully more thoughtful and academic pieces on mojitovc.com."

This quote introduces the podcast and the host, Harry Stebbings, along with providing information on where to find him online.

"So joining me in the hot seat today, we have Charlie O'Donnell. Now for those that do not know, Charlie is the founder and sole partner at Brooklyn Bridge Ventures."

Harry Stebbings introduces the guest, Charlie O'Donnell, highlighting his role as the founder and sole partner at Brooklyn Bridge Ventures.

"Another target of mine for the new year is productivity, and there's no better for that than Sirius Insight."

Harry Stebbings discusses his personal new year's target of increasing productivity and endorses Sirius Insight as a tool to achieve this.

• Charlie O'Donnell's journey into venture capital began at General Motors pension fund.
• He met the team at Union Square Ventures and joined them as their first analyst.
• After a stint at entrepreneurship, he joined First Round Capital to open their New York office.
• Charlie founded Brooklyn Bridge Ventures in 2012.

"I apprenticed my way up the chain. I started out as an analyst at an institutional limited partner at the General Motors pension Fund."

Charlie O'Donnell describes his entry into the venture capital industry, starting at the General Motors pension fund as an analyst.

"Then I transitioned over to working with them as their first analyst. And a couple of years later, after trying my hand at entrepreneurship, I joined first round Capital to help them open up their New York office."

Charlie details his career progression, including his time at Union Square Ventures and First Round Capital.

• Brooklyn Bridge Ventures Fund One invested in 35 companies.
• The fund followed a strategy of participating in the first million dollars raised by companies.
• The majority of investments were New York-based companies.
• The fund was deployed in three years and one quarter.

"Brooklyn Bridge Ventures Fund one invested in 35 companies. Basically, we do eight to ten deals a year."

Charlie O'Donnell explains the investment strategy and pace of Brooklyn Bridge Ventures Fund One.

"So basically, I have a rule that if you've already raised $750,000 in a previous round, it's actually too late for me."

Charlie shares his investment criteria, focusing on early-stage ventures that have not raised significant funding prior to his involvement.

• Brooklyn Bridge Ventures recently raised Fund Two, initially announced as $15.1 million but increased to $15.3 million.
• Charlie discusses the humbling nature of venture capital and the importance of separating decisions from outcomes.

"I think it was, it actually turned out to be 15 three because somebody heard about it through the ether and after we announced, really tried hard to get into the fund."

Charlie O'Donnell talks about the final size of Brooklyn Bridge Ventures Fund Two and the interest it garnered.

"The truth of the matter is you're going to get it wrong a lot, or rather not that you're going to get it wrong, but the outcomes are going to be less than positive a lot."

Charlie reflects on the inherent uncertainties in venture capital and the frequent disconnect between decisions and outcomes.

• Venture capitalists often face outcomes that are less than positive despite making good decisions.
• The inability to control outcomes is a humbling experience for venture capitalists.
• Emphasizes the challenging nature of startup ventures and the reality of high failure rates.

"It's important to separate decisions and outcomes. Hopefully you make all good decisions, but you can't control the outcome."

Charlie O'Donnell highlights the importance of focusing on the decision-making process in venture capital, acknowledging that outcomes are not always within one's control.## Venture Capital Investment Realities

• Venture capital investing involves a high degree of risk and an acceptance of frequent failure.
• VCs must have coping mechanisms and realistic expectations to manage the inherent uncertainty in the industry.
• A VC's success is often determined by a small number of investments that yield high returns, known as "outliers."
• Diversification through a portfolio approach helps mitigate the impact of individual failures.

"You feel not as powerful when you realize that all you can do is put up the sail. You can't control the wind and the 40 foot swells."

This quote metaphorically captures the lack of control venture capitalists have over the success of their investments, likening it to a sailor who cannot control the weather.

"I built a model... half of the deals go out of business. This percentage of them makes it series A... this is how you net out to almost three x and call it 28% net IRRs."

Charlie O'Donnell explains his approach to venture capital investing, which includes a detailed cash flow model that anticipates a high failure rate but still aims for a target internal rate of return (IRR).

• The size of a venture capital fund influences the expected return due to the differing scales of investment and potential outcomes.
• Smaller funds may have different return expectations compared to larger funds due to the relative ease of achieving a high return on a smaller capital base.
• The concept of "outliers" is essential, with a few deals expected to drive the majority of returns.

"Do you think expectations are right to differ according to fund size?"

The question addresses the idea that different fund sizes may warrant different return expectations.

"For every 30 or so deals, the 10% drive about 75% of the returns."

Charlie O'Donnell outlines the disproportionate influence a small number of successful investments have on the overall returns of a venture capital fund.

"You've got three deals that are doing most of the work."

This quote emphasizes the critical role of a few high-performing investments in achieving a venture fund's return objectives.

• There is a debate about whether seed funds should have higher return expectations than Series A and beyond funds.
• The investment stage of a fund can be misleading as seed funds may invest significantly in later rounds.
• The difference in return expectations between seed and Series A funds may be marginal, considering the actual capital deployed at each stage.

"Should you expect more from a seed fund than you do from a sort of series A and beyond fund?"

Charlie O'Donnell discusses the potential for different return expectations between seed funds and those that invest in Series A and later stages.

"You call it a seed fund, but it's only seed in the sense that that's where it started."

This quote clarifies that the label "seed fund" may not fully represent the stages at which the fund invests the majority of its capital.

• Follow-on funding is a strategic decision for venture capitalists, involving whether to continue investing in portfolio companies during subsequent funding rounds.
• The presence or absence of follow-on funding can signal confidence or lack thereof to the market.
• Venture capitalists must consider the potential negative signaling of not participating in follow-on rounds.

"I will follow on, and anybody who's able to raise an outside round, if you can get somebody else, I will not lead a next round, but if you can get somebody else to participate, I will do a small amount of follow on across the board."

Charlie O'Donnell explains his follow-on funding strategy, which includes participating but not leading subsequent rounds to support portfolio companies.

"The entrepreneur can then say, yes, everyone is participating."

This quote highlights the importance of demonstrating internal support to potential investors in later funding rounds.

• Building a reputation for being helpful and hardworking is essential for venture capitalists.
• In a crowded and noisy market, personal branding and reputation can be significant differentiators.
• The value of personalization in venture capital varies with market conditions.

"How valuable do you think the personalization of VC is?"

The question probes into the significance of personal branding in the venture capital industry.

"It really depends on the market."

Charlie O'Donnell suggests that the importance of a VC's personal brand is contingent on the specific market context in which they operate.## Personal Branding and Marketing for VCs

• In competitive markets like San Francisco, personal branding for VCs is crucial for deal flow.
• Personal branding is less about marketing and more about informing potential entrepreneurs of one's existence and investment style.
• Being public and direct is part of a VC's approach to set expectations for entrepreneurs.

Francisco, where I happen to be visiting right now, I think personal brands and marketing that comes from sort of being public. As a VC, it is important because it is extremely competitive here to get into deals.

This quote highlights the importance of personal branding for venture capitalists in competitive markets to attract deal flow.

I think of my public Persona as not so much marketing, but just, hey, here's what I think about this stuff. Here's what I'm like as an investor, decide for yourself, whether or not you want to come and pitch me.

The speaker clarifies that their public persona is not intended as marketing but as a means to convey their thoughts and investment style to potential entrepreneurs.

• There's an expectation that founders should be knowledgeable about the VC ecosystem.
• The speaker questions whether this expectation is fair or if founders should concentrate on building their businesses.

Do you expect founders to be very in tune with the VC ecosystem? For me, it's very wrong of me, but it's a precursor. I expect all founders to have a very strong knowledge of the VC ecosystem.

The speaker admits to expecting founders to have a strong understanding of the VC ecosystem, though questioning if this expectation is justified.

• Fundraising skills and company management skills are distinct, and being good at one does not necessarily mean being good at the other.
• Being an advocate for one's company is essential, but venture fundraising has its own set of skills.
• The current fundraising landscape has been influenced by certain trends and expectations.

I think there's a little bit of a separation between being good at venture fundraising and being good at running a company, and it's over and above just being a good advocate for your company.

This quote acknowledges the distinction between the skills required for venture fundraising and those needed for effective company management.

• There is a risk that excellent company builders may not be adept at navigating VC dynamics, potentially hindering their ability to raise funds.
• Fundraising abilities have been historically influenced by a certain demographic, which may not reflect the current diversity in entrepreneurship.

Is that not a negative thing? Because it means sometimes the best company builders and kind of runners of companies won't be necessarily brilliant at VC Dynamics and won't be able to raise the funding for their businesses.

The speaker expresses concern that the best company builders may struggle with VC dynamics, affecting their fundraising success.

• The venture fundraising process has evolved, with personal branding and a more diverse range of entrepreneurs and deals.
• There is a debate on whether traditional fundraising criteria should still apply.

So it's a little hard to say that the criteria should be the same.

This quote suggests reevaluating traditional fundraising criteria to accommodate the evolving landscape of entrepreneurship and investment.

• Recent acquisitions in the consumer product space, like Dollar Shave Club, signify a trend.
• Strong branding is a valuable asset, potentially justifying acquisitions by larger companies.

We have Ben Lira on the show from Lira Hippo and he said that the jet.com and the dollar shave club acquisitions were just the first dominoes in the consumer acquisition phase that we're going to see.

The speaker references a prediction about the trend of consumer product acquisitions, highlighting the importance of brand strength.

I would argue that brand not a form of strong ip too?

This quote implies that a strong brand is an intellectual property asset, significant in the valuation and acquisition of consumer-focused companies.## Brand Value and Execution

• Brand value is derived from product execution, not just marketing.
• A brand encompasses awareness, belief, and good execution.
• Product quality and process are integral to brand identity.

"Brand absolutely has value, but brand comes from product execution."

This quote highlights the importance of how a product is made and delivered in establishing a brand's value.

"The brand is process a product as much as it is sort of a front end."

This quote emphasizes that the brand is deeply tied to the product creation process and not just the marketing or visual identity.

• Gillette has a widely recognized brand but lacks awareness in the subscription-based grooming niche.
• Dollar Shave Club's existence is more prominent to consumers than Gillette's equivalent product.

"I know that Dollar shave club exists, but I don't realize that Gillette has an equivalent product."

The quote reflects consumer perception and awareness issues for Gillette in the subscription market where Dollar Shave Club is prominent.

• Ample Hills Creamery built an engaging retail experience leading to recognition by Disney CEO Bob Iger.
• The brand's commitment to quality and creative process contributed to its success.
• The story exemplifies how product and experience can attract significant partnerships.

"It's not just we built a brand we made damn good ice cream through a process and a process that ties very closely with our brand."

This quote illustrates that the core of Ample Hills Creamery's brand is the quality and uniqueness of their product and the process of making it.

• Charlie O'Donnell discusses the challenges and insights from his venture capital experiences.

• Distraction from existing work with portfolio companies was a significant challenge.

"Distraction from existing work with portfolio companies."

This quote identifies the primary challenge faced when raising a second fund, implying a balancing act between current responsibilities and seeking new capital.

• Josh Coppelman was a significant mentor, helping Charlie become a more effective board member.

"Josh very much helped me become a better and more effective board member."

The quote acknowledges the mentorship and its impact on Charlie's professional development.

• Charlie's favorite blog is "Wait, but why?"

"Wait, but why?"

This quote simply states Charlie's preference for a particular blog, suggesting it might offer valuable insights or perspectives.

• Emphasizes the importance of process engineering, listening, and empathy in supporting founders.
• Understanding and addressing the systematic challenges founders face is crucial.

"It's a lot of process engineering and a lot of listening and empathy."

The quote conveys the approach Charlie takes to assist founders, highlighting key skills like process engineering and empathy.

• Charlie led a round for Industrial Organic, an alternative to composting.
• Industrial Organic processes organic waste in an urban-friendly, scalable way.
• The investment is driven by environmental impact and the potential for large-scale adoption.

"I am leading around of a company called Industrial Organic, which is not yet closed, but it will be very shortly."

This quote indicates Charlie's commitment to an upcoming investment, reflecting his strategy and belief in the company's potential.

"Every single human being on the face of the earth produces organic waste."

The quote underscores the universal and scalable nature of the problem that Industrial Organic is addressing, justifying the investment.

• Charlie O'Donnell expresses gratitude and hopes to discuss Fund Three in the future, indicating a positive outlook on the current fund's performance.

"I hope that one day I come on and talk about fun three."

This quote reflects Charlie's optimism and long-term vision for his venture capital endeavors.

• Harry Stebbings promotes personal routines, productivity tools, and listener engagement.
• Endorsements for Simba Hybrid mattresses and Cirrus Insight productivity tools are given.
• Harry encourages feedback and interaction through social media and email.

"And with the new year, we need new routines."

This quote from Harry suggests the importance of adopting new habits and tools to enhance one's lifestyle and productivity.

"Check it out at ww dot sirusinsight.com two Zerovc."

Harry is promoting a productivity tool, indicating its relevance for sales professionals looking to integrate with Salesforce.