20VC Why Founders Should Not Focus On Top Line Valuation, Why Capital Efficiency Is Key To Returns And Investment Success & Why Despite Popular Thought, $100m Is An Exciting Exit For VC with Micah Rosenbloom, Managing Partner @ Founder Collective

In this episode of the 20 minutes VC, host Harry Stebbings interviews Micah Rosenblum, Managing Partner at Founder Collective, a prominent seed fund with investments in major companies like Uber and Buzzfeed. Micah shares his journey from Hollywood agent to venture capitalist, emphasizing the importance of conviction in investment decisions and the value of capital efficiency over chasing unicorn status. He discusses the challenges of email management and balancing new opportunities with existing portfolio commitments, while also highlighting Founder Collective's unique position outside the Silicon Valley echo chamber. Additionally, Micah touches on the potential pitfalls of focusing too much on preparing for the next funding round rather than building the business itself, and he introduces Bumpers, an innovative podcast editing tool.

• Harry Stebbings hosts the 20 minutes VC podcast.
• Harry can be found on Snapchat and has academic writing on Mojitovc.com.
• The episode features Micah Rosenbloom, managing partner at Founder Collective.
• Micah's background includes being a Hollywood agent and a serial entrepreneur.

We are back with another installment of the 20 minutes VC with your host Harry Stebbings and you can find me on Snapchat at htebbings and all ads. Get a personal thank you from me. Would absolutely love to see you there. You can also find some more academic writing of mine on Mojitovc.com.

The quote introduces the host, Harry Stebbings, and provides information on where listeners can find him and his work.

• Micah Rosenbloom is a managing partner at Founder Collective.
• Founder Collective has made investments in successful companies like Uber, Buzzfeed, and Pillpack.
• Micah's career transitioned from Hollywood to entrepreneurship and then to venture capital.

...with check this out, investments in Uber, Buzzfeed, Makerbot, Pillpack, Coupang and Cruise, just to name a few.

The quote highlights some of the successful investments made by Founder Collective, indicating the fund's impact in the VC industry.

• Micah started as a Hollywood agent.
• He transitioned to entrepreneurship, founding three companies.
• Micah had a successful exit with Brontes Technology alongside Eric Paley.
• He is a board member and observer with other notable companies.

...prior to being a VC with Founder Collective, his career was varied, starting as a Hollywood agent before becoming a serial entrepreneur, founding three companies with the last a successful exit.

The quote summarizes Micah's diverse career path, which led him to his current position at Founder Collective.

• Intercom offers an integrated platform for marketing and customer support.
• It enables businesses to have real conversations with customers and prospective clients.
• The platform helps in onboarding and retaining users by sending targeted messages.

Intercom is the first to bring messaging products for marketing and customer support together on one integrated platform.

The quote describes Intercom's unique value proposition as an integrated communication platform for businesses.

• Cooley is a global law firm focused on startups and venture capital.
• It has extensive experience in forming venture capital funds and supporting fund lifecycles.
• Cooley is a leading law firm for VC-backed companies going public.

Since forming the first venture fund in Silicon Valley, Cooley has formed more venture capital funds than any other law firm in the world.

The quote emphasizes Cooley's pioneering role and expertise in the venture capital sector.

• Micah's path to VC was unconventional and driven by his entrepreneurial spirit.
• He declined a job in investment banking to pursue opportunities in Hollywood.
• Micah took a risk by moving to LA without a confirmed job but was hired by Endeavor agency.

I followed no path, and only in retrospect does it make sense.

The quote reflects on Micah's non-linear career trajectory, which ultimately led him to venture capital.

• Micah's transition from Hollywood to startups was gradual and driven by his interest in entrepreneurship.
• He co-founded Handshake.com, an early online scheduling service.
• The company was part of Idealab, the first accelerator, and raised significant capital during the dot-com boom.

And so we started a company called Handshake.com, which ultimately got funded by Idealab Capital.

The quote marks the beginning of Micah's entrepreneurial journey with the creation and funding of Handshake.com.

• Handshake.com was overcapitalized and lacked focus on critical business metrics.
• The dot-com crash led Micah to pursue an MBA and reflect on his experiences.
• Business school provided Micah with a network of future collaborators and partners.

...the business really just was overcapitalized. It was the wrong. We didn't really focus enough on CAC and LTV and all the stuff people are trained to do now.

The quote explains some of the reasons behind Handshake.com's failure, highlighting the importance of customer acquisition costs (CAC) and lifetime value (LTV) in startup success.## Founding of Founder Collective

• Founder Collective stemmed from the angel investing activities of Harry Stebbings and his colleagues, Eric, Dave, and Chris.
• The group had a history of investing in one another's ventures.
• The collective was established to create a more formal structure than what they had as angel investors, but not as formal as traditional venture capital firms.
• They aimed to avoid the classic VC approach, which they felt was too rigid.

"We kind of invested in each other. And so founder collective was really the growth from those angel activities."

This quote explains the organic evolution of Founder Collective from a group of individual angel investors to a more structured entity.

• Founder Collective believes in investing in companies that operate in unconventional spaces or locations.
• They have a history of successful investments that were not initially obvious to others.
• The collective values unique opportunities that others might overlook.

"The best investments we've made and the best investments out there were not obvious, and they were the kind of wacky deal in the corner of the room that everybody else sort of passed on."

Micah Rosenbloom highlights the collective's contrarian approach to investing, focusing on non-obvious and often disregarded opportunities.

• Founder Collective invested in a food delivery service based in Winnipeg, which was geographically and industrially an unusual choice.
• The founders of the Winnipeg company demonstrated a real need for their service in second and third-tier cities.
• This investment was an example of Founder Collective's strategy to invest in companies with passionate founders and a clear vision.

"They were focused on all the second and third tier cities like Winnipeg... They really executed a business that felt very real to me and felt like they were true entrepreneurs out of a need they had."

Micah Rosenbloom describes the rationale behind investing in the Winnipeg-based food delivery service, emphasizing the founders' genuine entrepreneurial spirit and their focus on underserved markets.

• Founder Collective believes that following the herd does not build credibility in the VC industry; instead, having conviction is key.
• The collective has led investments in companies like DIa & Co., which were initially overlooked by others.
• Being outside the Silicon Valley "echo chamber" has provided Founder Collective with a unique perspective and helped them avoid herd mentality.

"I think what gives you the respect and the credibility in our industry is conviction, is being able to lean into something that the herd is not leaning into."

Micah Rosenbloom emphasizes the importance of conviction over conformity in making investment decisions.

• Founder Collective values strong convictions but also believes in stress-testing ideas within the team.
• The investment process is not based on a majority vote but on individual conviction.
• The collective's decision-making process acknowledges the limited data available at the seed stage and the importance of human judgment.

"I get a little butterflies. This is probably extreme, but I'm an attorney making the case, and I want the guys not to necessarily convince me to do it or not to do it, but I want to show my conviction, and I want them to stress test my assumptions."

Micah Rosenbloom discusses the importance of presenting and defending investment cases with conviction to the team while being open to critical analysis.

• Founder Collective believes there is no shame in $100 million exits.
• The collective challenges the notion that only billion-dollar exits are successful.
• They encourage founders to have realistic expectations about acceptable exit outcomes.

"You've said before that there's no shame in 100 million dollar sales."

This statement by the interviewer introduces the topic of redefining success in terms of exit strategies, which Micah Rosenbloom has previously advocated for.## Venture Capital Perspectives

• Many entrepreneurs-turned-VCs have had successful careers without building unicorn companies.
• There is an obsession with massive exits, but exits in the range of $50 to a few hundred million can still be significant.
• The amount of money invested and the multiple returned are critical factors often overlooked.
• Keeping a fund small allows for meaningful returns without needing billion-dollar companies.
• As funds grow larger, achieving high multiples becomes more challenging.
• Entrepreneurs should be capitalist and consider liquidity at each funding round.

"Many entrepreneurs turn, VCs have only...exits of 50 to a couple of hundred million, there are a few billion dollar exits, but I think we've all had relatively good careers without building unicorn companies."

This quote emphasizes that successful venture careers can be achieved without reaching the unicorn status, challenging the common industry focus on extremely high valuation exits.

"So I think if you keep your fund small enough...You are able to return meaningful parts of the fund, meaningful multiples, without billion dollar companies."

Micah Rosenbloom suggests that smaller funds can provide meaningful returns without the need for billion-dollar exits, arguing for capital efficiency and a focused investment strategy.

• Obsessing over benchmarks for the next funding round can lead to building a business that caters only to investor expectations rather than genuine growth.
• The metrics for success and the business landscape can evolve rapidly, making it difficult to build a company solely for the next round.
• The venture capital industry can become like a "drug," with a continuous focus on the next funding hit instead of the business itself.
• "Always be raising" has become a norm, but it may not always be the right approach for founders.

"I think you can become obsessed with what you need to achieve for the next round...you're not really building the business, you're building the deck."

Micah Rosenbloom critiques the focus on meeting the next round's benchmarks, suggesting it can lead to decisions that don't necessarily benefit the business in the long term.

"I bet it is a rare case that a seed stage company doesn't talk about the next round for at least six, for six months even."

This quote reflects on the venture capital culture where there is a constant pressure to think about future funding rather than concentrating on the current state and growth of the business.

• Capital efficiency is more important than ownership percentage at the seed stage.
• The amount of capital taken and subsequent dilution are crucial factors in determining the success of an investment.
• A VC fund should be structured to accommodate various exit scenarios, including smaller exits.
• Celebrating $100 to $200 million exits is essential, and ignoring these successes is a structural failure of the VC industry.

"We focus on capital efficiency...The biggest influence on what we have at the exit will be how much capital do they take and how diluted will we be and the founders be."

Micah Rosenbloom highlights the importance of capital efficiency over ownership percentage, emphasizing the impact of capital taken on dilution at exit.

"What it means is you're open to those exit ramps along the way, and that your fund isn't structurally set up, that those don't work at all."

This quote explains the need for a VC fund to be flexible and open to various exit opportunities, ensuring alignment with the founders' interests.

• Micah Rosenbloom's favorite book is "Thinking, Fast and Slow" due to its framework for venture investing and decision making.
• Another recommended read is "Hillbilly Elegy," which provides insight into the current political landscape.

"Probably a lot of people say thinking fast, thinking slow. But I think it's a really good framework for how I think about venture investing and how I think about my own decision making."

Micah Rosenbloom shares his appreciation for "Thinking, Fast and Slow," indicating its influence on his approach to venture investing and decision making.## Juggling Opportunities and Portfolio Management

• Micah Rosenbloom discusses the challenge of balancing new investment opportunities with the needs of the existing portfolio.
• He prioritizes the existing portfolio but acknowledges the difficulty in managing both.
• Micah credits Eric with the perspective that investing and helping companies is the only "A activity," while everything else is secondary.

"I always err on the side of the existing portfolio, but it is a juggle." "Investing in helping companies is the only a activity. Everything else is a b activity."

Micah emphasizes the importance of focusing on the core activity of supporting existing investments, while recognizing the need to manage new opportunities as a secondary concern.

• Micah Rosenbloom shares his strategies for managing the continuous influx of emails.
• He suggests internal email communication should be limited to necessary actions or important matters.
• Micah practices blocking out time for emails and recommends smart folder organization to focus on key communications.
• He also mentions the productivity challenges introduced by tools like Slack, which add another layer of communication to manage.

"Email management, how the fuck do you do it?" "Only send email to each other, or even slack if it's something that needs to be done or really important." "I do blocks twice a week...that I do not schedule any meetings."

Micah provides practical advice on managing email overload by setting aside dedicated time for email management and being mindful of the internal communication burden.

• Micah and Harry Stebbings discuss the pros and cons of various communication tools, including Slack and Facebook Messenger.
• They acknowledge that while tools like Slack are useful for internal operations, they can create additional noise and distractions.
• The conversation highlights the challenge of managing multiple communication platforms in the workplace.

"Slack has been extremely helpful for operations, it has created yet another place for people to check." "I love Facebook Messenger. I find it's quick, it's simple, and it gets to the point."

The dialogue reflects on the double-edged nature of modern communication tools that are meant to streamline operations but can also contribute to information overload.

• Micah Rosenbloom shares details about his recent investment in Skysafe, a drone prevention technology company.
• He explains the unique appeal of Skysafe, which addresses a modern problem and involves a combination of hardware, software, and military components.
• Micah also discusses his investment in Bumpers, a company that offers a short-form podcasting tool, highlighting the desire for efficient audio content creation.

"One of my more recent deals that was announced was a company called Skysafe." "I invested in a company called Bumpers, which is a company based in New York that has a short form podcasting tool."

Micah describes his investment decisions based on the potential to address current and future problems, as well as personal interest in the podcasting space.

• Harry Stebbings thanks Micah Rosenbloom for his participation and acknowledges Eric Paley and David Frankel for the introduction.
• Harry also encourages listeners to follow him for additional content and to check out his website for more academic thoughts.
• The transcript concludes with endorsements for Intercom and Cooley, highlighting their services for customer engagement and legal representation for startups and venture capital firms.

"And again, a huge hand to Micah for giving up his time stay to appear on the show." "If you enjoyed the show today and would like to see more from us, then you can follow me on Snapchat at hdebings for behind the scenes footage from the show, or you can head over to mojitovc.com to check out some hopefully more academic thoughts from me."

Harry expresses gratitude for the contributions that made the podcast episode possible and promotes additional resources for the audience's benefit.