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A podcast about venture capital, and what is happening each week. We discuss who is getting funded. Why specific companies were funded and much more relating to who the next big unicorn will be.
Welcome to the VC podcast. We are here with Taylor Jones with Peterson Ventures. You've been here for what? Two and a half years now?
Taylor:Two and a half years. Yeah. You came from Google. I did. I did a stop as a founder.
Taylor:So I did I worked on a startup called Blue Matador for two and a half years that Peterson backed. Okay. So that's how I got to know Peterson and the team and then had the good fortune of coming on board on the investment team about 2 and
Jon:a half years ago. Tell us more about your background and your story.
Taylor:Yeah. So, from Utah, from here, born and raised. Went to BYU for undergrad. My first job was at American Express in New York. I actually ended up staying there for 5 years.
Taylor:I did a number of different roles, from finance to marketing. It was a great adventure. It was fun to be in New York. Then, I did business school for 2 years. And during that time, I just got, had a couple sparks.
Taylor:You guys probably know Jeremy Andrus Mhmm. Who was an early employee at, headphones company. Skullcandy. Skullcandy thing. Yep.
Taylor:Peter. Skullcandy, and now he's the CEO of Traeger. And he just talked about his experience at Skullcandy and, being an early employee there, out of business school, and I thought, wow. That sounds really fun, really interesting. So, that was kind of my first spark.
Taylor:I also remember going to a, panel with the Warby Parker team, really early days, and they were still trying to figure things out. And so startups were not on my radar, but I just had a couple of sparks that really inspired me. I actually ended up then joining Google out of business school, thought it would give me an opportunity to, get to Silicon Valley, get into tech. I was actually really early in the Google Cloud team. So So this is back in, like, 2014 when GCP?
Taylor:GCP. Yeah. Believe it or not, we were still keeping track of our customers on a spreadsheet at that point. It was still really, really early. So that was really fun to be a part of that team.
Taylor:I was there and it ended up there being almost or being there almost three and a half, 4 years. And then had an opportunity to join an early stage company here. I joined 2 technical cofounders. We were working on cloud infrastructure monitoring, so it was a good, match with my previous experience. Again, kind of fell in love with start ups all over again there.
Taylor:Going from a big company where you don't feel a lot of autonomy autonomy and purpose every day to going to where you really feel like you're getting up out of bed every day to really make an impact was was a ton of fun. That said, I mean, we didn't have a great great outcome. We sold the business. Certainly wasn't what we're all hoping for as far as the outcome. But, so as a as a VC now, I have a lot of empathy for what it means to be an early stage founder at the seed stage.
Taylor:And, anyway, I was able to build a really good relationship with the Peterson team here. They were our lead investor. I actually transitioned from, Blue Matador into a executive in residence role because I wasn't quite sure what I wanted to do, and they were gracious enough for me to to let me hang out here for 6 months. So worked a lot with portfolio companies, but really got an inside look at at investing. And I've kind of gotten the slipstream of the work and, you know, really fell in love with the the idea of being able to back and support and help great founders.
Taylor:And so, joined the kind of a long term role about 2 years ago with the Peterson team. So that's a very circuitous route, unintentional, but real feel real privileged to to be in the role and be a part of the Peterson team here, back in Early Stage Founders.
Jon:For our listeners who don't know, tell talk more about your entrepreneurial residency. Like, how did you get selected? Why did you get selected?
Taylor:I think it you know, Peter, you probably have an insight here too. I think it could mean a lot of different things, a lot of different funds. You know, a lot of times, EIR is almost like an incubation type relationship where you've got an idea. You've got a relationship with the with the fund. Maybe you're a past founder or past executive, and and they wanna work with you.
Taylor:And maybe you don't quite have the idea figured out, and they're they'll give you kind of the space and time and support to figure that out. That was somewhat on my mind. I also wasn't quite sure if I was ready to jump back in, and I think they, they were thinking about, could I be a good part of the investment team or not? It was almost like a glorified internship, to be honest. They let me hang out.
Taylor:I was jumped in with some portfolio companies, worked on some projects kinda based on my functional background, which is more on the go to market side. But I kind of viewed it as this is a really, like, lucky opportunity to just be a part of the team, see how venture works. As a founder, I think you're really intrigued by it and or at least I was. You know, who are these folks? As you raise money, it's like, how do they think?
Taylor:How do they operate? And I was always intrigued by that. And so it gave me a look at at being able to see if it'd be a good match for me and what I was looking for. I found that I find that it's very different from operating, which we can talk about, but there's a lot of things that I love about it. And, so that was my experience.
Taylor:But I think it can mean a lot of different things in a lot of different places. It can but most of the time, I think it's kind of an interim role. You're either incubating something or thinking about a project or you wanna join a an one of the portfolio companies or, you know, maybe it is a a transition to being a part of the investment team that probably happens less than or not as much as the other past, but, that was
Jon:mine. Awesome. That's a good background. Yeah. I've always loved the the Peterson brand and what you guys have done and built here.
Jon:So
Taylor:Yeah. I feel really lucky to be part of the team.
Jon:I think I learned first learned about Peterson with from the JetBlue investment.
Taylor:Yeah. Yeah. That might be a good context for our listeners too is, so and our we're an interesting spot because we we're started about 25 years ago by a guy named Joel Peterson, who is former CEO of Trimble Crowe, which is a large one of the largest real estate developers in the world. He kind of started a second career by founding Peterson Partners and also getting on faculty at the Stanford, Business School. And so we've been you know, the core strategy of Peterson for 25 years has been lower middle market private equity, and that's where we invested in, Dave Neeleman and JetBlue.
Taylor:We we joke that we we don't invest in airlines. We only invest in ones, founded by Dave Neeleman Mhmm. Which has been a pretty good strategy. But and so about 10 years ago, the idea was can we institutionalize a venture strategy? So Joel had been doing early stage investing or angel investing, essentially, backing students that he was working with at Stanford.
Taylor:Peterson was also sitting in this burgeoning tech ecosystem here in Utah. And so the idea was could we invest in do early stage investings, focused on the Stanford ecosystem, which we had unique access to. And then here in Utah, we you know, as we were one of the oldest private equity funds here in Utah, and so could we implement this new strategy? So now we have about $2,000,000,000, under management. We have a private equity fund, a search fund, which is an industry model, and then we have a venture fund.
Taylor:So we have 3 different strategies here.
Jon:So Talk about the search fund, and I feel like that's one of the common when I talk about founders, a lot of them when they're looking for the next idea, they're like, I'm gonna do a search fund, or I'm
Taylor:gonna be involved. Or Yeah. Search search is a really interesting model. It was essentially started and that's, again, going back to Joel, by on Stanford and Harvard Business School. The idea was could you support a young bright eyed founder or, excuse me, bright eyed student, to run a search, meaning go and find a company to acquire?
Taylor:And so, you would raise a small amount of capital as the searcher, maybe, like, 250, 300,000, which would give you 2, 3 years to go support yourself to go find a company. And the idea was then you could acquire that company, and then, typically, the company is, you know, maybe a founder owned, positive cash flow, slow maybe slower growing, but consistent EBITDA, consistent cash flow, and inject a new manager into it and, either grow the top line or bring in some efficiency. So that's the that's the model. We essentially the search fund will invest a small amount of capital, maybe, you know, 20, 30, 50 k into a search, to support a searcher. And then it gets, like, a call option.
Taylor:It gives them the right but not the obligation to invest in the company that they find. So it's essentially a private equity model with a really unique sourcing strategy.
Jon:Can you give us examples of some of those deals?
Taylor:Yeah. I think the the most prolific one's a company called Insurion. It started as a radio equipment company for tow trucks.
Jon:Okay. Wow.
Taylor:And they, needed they found as they were in the market, they found that they needed to insure these devices, And then they were in the right so they started an insurance business for devices, and then they were at the right place at the right time, for for mobile devices and cell phones. And so now they're the largest, insurance provider of devices in the world. So if you get, insurance on your cell phone, ensuring Asurion is behind it. So, that worked out well for everyone involved.
Peter:Okay.
Taylor:I can imagine.
Jon:It sounds like you do a lot of insurance deals because both of you also both UGF and Pearson Ventures invested in Ethos together? We did.
Taylor:Yeah. Yeah. So, yeah, Ethos is a direct to consumer life insurance company. Done, obviously, done really well, and I felt really grateful to be a part of that company. That's part of one of our early thesis.
Taylor:So going back to kind of the genesis of the fund, one of the first investments we made was backing, Andy Dunn at Bonobos, who was kind of developing this digitally native vertical brand concept where you could actually sell directly, as a brand, sell directly to consumers over the Internet. And, obviously, that's ubiquitous today with Shopify and other things. But at the time, you know, 10, 11 years ago, that was a new idea that you didn't have to go through Nordstrom or Macy's to reach your customers. And so that for especially in the early days of the phone, that was a a core thesis of disrupting traditional distribution through the Internet. And we when we came across, ethos and love to hear your perspective, Peter, the same ideas.
Taylor:Traditionally, life insurance is sold through brokers. It's, you know, 6 to 3 6 weeks to 3 month process, And
Peter:It's painful.
Taylor:Literally painful.
Peter:Like, you know, they come and stick you.
Taylor:Yeah. They draw blood and Yep. And it can be really painful. And so we've kind of saw some of the same idea that could you sell life insurance over the Internet and do quick approvals and, onboard customers quickly? And they've been able to prove out that thesis.
Taylor:And, you know, what we used to say, it's like, life insurance is a 800,000,000,000 to a $1,000,000,000,000 market depending on who you ask, and, some, you know, 99% of it's still sold the traditional way. And so we see a huge opportunity for Ethos, going forward.
Peter:Yeah.
Jon:What'd you see in it, Peter?
Peter:I mean, I think very similar things. I think, you know, one of the things that got us excited was just a lot of the ability to leverage data in unique ways to underwrite risk. So you can bind coverage within a few minutes online versus, like, you know, we talked we we were talking about earlier having to have somebody come drop blood, you know, do all of that and still get pricing that is very very comparable. And the ability to just leverage a lot of the data that exists about the customer to do that underwriting in unique ways. Frankly, that same thesis we've used in some of our other insure tech investments as well.
Peter:So for example, we're an investor in an auto insurance company called Clearcover. And there's a lot of regulations around what data you can use once you start engaging with the customer, to to buying coverage. But what's unique about clear cover is before you even they start engaging with you, they're already pulling a ton of data and deciding whether or not they want you as a customer. And so, you know, I think similar to, you you know, both of these companies, like, the ability to start tapping into this data that is now available because they are digital first is, you know, super interesting. And and, you know, we feel like is the way the future will ultimately work out.
Peter:And so to, you know, in the
Jon:So Totally. How does the thesis compare between your two funds? Is it similar or different? How do you look at deals?
Peter:So, I mean, for us, we're we're definitely more on the growth stage. So when we invested, in Ethos, you know, they're a lot further along, and that kinda fit more of our model. And correct me if I'm wrong, but you guys are a lot more focused at the much earlier stages than we are.
Taylor:Yeah. Yeah. We we traditionally focus on pre seed and seed. We can stretch up into 8 rounds, but it's more of the exception than the rule. So think, like, you know, genesis of the business, founders in a slide deck.
Taylor:That's that was the story with Ethos. It was, you know, precede, no revenue, just a concept in the founders we were backing. And then we, you know, invest up to, you know, see I wouldn't say significant traction, but 100 of 1,000 in ARR, maybe a 1,000,000 in ARR, and, and the product's developed, and there's early traction. So we have that flexibility, but we try and really think of ourselves as precede and seed investors. So and then we've we've got a couple areas of focus specifically.
Taylor:We really gravitate to 4 areas, fintech, health care, commerce, and then b to c b SaaS productivity tools. So we're we're generalist, but we kind of gravitate to those 4 areas. And over time, you know, we've developed pretty good track record in each.
Jon:Will you be at the money 2020 conference call? Yes.
Peter:Let's go hang out.
Taylor:Let's do it. We should share notes on events and things. It's quite the scene.
Peter:So I'm curious. Yeah. You know, when we're looking at a deal, we have out the luxury of lots of data. Yeah. Typically at the growth stage because we're like series a up.
Peter:And at that point, you know, they've got real customers, real revenue.
Taylor:Yeah.
Peter:You can kinda dig into a lot of the metrics. Clearly, like, we pay much higher valuations in exchange for that lower risk profile. But I'm curious when when Peterson Ventures is looking at a deal, particularly at, like, the pre seed when there's not much to go off of. What are the things that you guys look for, you know, generally speaking?
Taylor:Yeah. We spend a lot of time, I'd say, on three things. The first and foremost is the market. So size, yes, but, also, like, what's changing? What are the inflections?
Taylor:So we think about, is there a behavioral change? Is there a technology change? Yep. Is there a regulatory change? And so I think we get really excited if there's gonna be an underlying tailwind to push the company forward.
Taylor:And I think, you know, talk using Ethos as a use case around, just this idea of going digital and the the data that Peter referenced and the ability to really underwrite a user or underwrite a potential customer, via signals from from online, which wasn't, possible before. So we really like to build a thesis around the market and the kind of the cliche why now question. Mhmm. We do think a lot about market size. I think sometimes you can, have false precision on that a little bit.
Taylor:But we do wanna think about, is there a market here that's gonna, you know, hopefully sustain a 100, 200, $300,000,000 ARR business? So I think, you know, we get a lot of energy around that. You know, a lot of times, there's energy around the deal, and a lot of times, it's around the market and the story there, especially the pre seed. I think the second is the founders. And we think a lot about, like, do they have a specific background or insight or really an earned insight we talk about?
Taylor:Like, have they had some sort of exposure, whether their professional career or some other aspect where they've got a unique insight into a market or background? And there's times when, you know, we'll just back a founder because he's a repeat founder. We have a lot of trust. We've done I wouldn't say it's just because of that, but oftentimes sometimes it's the market that's really compelling. Sometimes it's the founder that's really compelling.
Taylor:Hopefully, those 2 are the same. There's really tight overlapping circles on those two things, concentric circles, I should say. And I think the third thing I would say is and I give Ben our kind of our, our managing director at Peterson. He's got really good taste as far as, like, the product. And is this the right product concept to go after this market?
Taylor:And I think I'm learning from him a lot around that. So we do like, I think it's just almost at the precipice. It's almost like an intuition. Like, would I buy this? Yeah.
Taylor:What it is? And we could think about different companies and things like that, but, like, oh, this just makes sense. Like, I would there's, like, a clear pain, and this is clearly gonna fix it. And a lot of times, we're looking for the founder to kind of articulate that to us. Yep.
Jon:But I
Taylor:would say it's those three things, and I think the magic and when and there's it, like, checks every box, and it's like there's this interconnected link between those three things. And I think every investment has a story. And if you can tell the story kind of in our investment meetings, tell the story to each other, and that gets a lot of energy around the team, that's usually when we invest. So
Peter:That's great. I love that. Digging a little bit on the the founder. I was having a conversation this last weekend with a friend of mine and and he was like, you know, what are the things the because we were talking about the CEO of his company and, you know, he was just like really excited about this this founder and and how great they were and, and so we were talking about that and he was like, hey, what are they the attributes you really look for Yeah. In a in a founder?
Taylor:Yeah.
Peter:I'm just curious what what what your response to that is. I'm happy to share
Taylor:the thoughts here today. Peter. The, I think this is really hard, to be honest. Yeah. And I think my taste as an investor is I've kind of led deals.
Taylor:I gravitate a lot to the market. I gravitate a lot to, the product concept, like I said. And a lot of the investments I've led so far have actually been kind of c plus series a. So I do kind of get a lot of comfort in the traction, and I love customer calls. I love, like, actually see not only seeing the the quantitative data as far as traction and product market fit, but, actually, I think at our stage, we need to lean a lot on the qualitative and, like, the anecdotes from, from the customer calls we do or conversation expert conversation we have.
Taylor:But getting to your question on the founders, it's hard. I what I really gravitate to, I think, yeah, as a founder, you have to be really good at sales. And what I mean by sales is have kind of a magnetism about you, because you need to convince customers that probably shouldn't buy your product. That's gonna be buggy. They almost have to take career risk, especially in the b two b sense.
Taylor:Like, they have to take careers as a, risk to to buy your product, to go with you instead of, like, the incumbent that everyone else is buying. Right? Yep. So I think you need to be really good. That way, with customers, you have to convince people to come join your company when it's really nothing, and there's nothing there.
Taylor:And it's more often than not probably gonna fail if you're looking at it rationally. Right? And you've gotta convince them to come and and be a part of your team. And then you gotta be able to fundraise and convince convince, founders to, excuse me, investors to to back you. So I think that's one thing I kinda look for is there a magnetism here.
Taylor:Mhmm. And that doesn't have to be, like, you know, salesmanship like like, you don't have to be the biggest, loudest personality in the room, but, dude, are you convincing in a way and compelling that I feel like you can check all those boxes? Yep. So those are the things I look for. I think, actually, what really gets me excited when I talk with a founder, Chris Dixon at at Dresden Horowitz, he did a really great blog called The Idemes.
Taylor:And, he kinda talks about, like, as a founder, you're in a maze, and you're try you're at point a and you're trying to get to point z. And if we're all honest, we're not quite sure how we're gonna get there. But if a founder can lay out to me, like, here is the plan, and here's how here's the different unlocks of how I'm gonna execute our plan to really build that, you know, venture scale business. And almost kinda, like, telling me the story. You know?
Taylor:So we went back to, like, market, founders, product concept. And if I can get really behind that, that's, that's usually something I look for. That's they've thought through the the logical connections between how we get from point a to point b or, actually, a to point z and and, walking through that day. That's something that I get really excited about too. So it's abstract.
Taylor:I'll be honest. It's hard. Yeah. And I think what's interesting about our business is we, like I said, part of our, core sourcing strategy is we try we've tried to develop a great brand on campus at Stanford, especially specifically at the business school there. As you can imagine, those are some pretty compelling people, as far as just articulate being articulate and all that.
Taylor:And that always that doesn't always translate to being a great builder, to be honest.
Peter:It's a lot of polish.
Taylor:It's a lot of polish.
Peter:That doesn't necessarily translate to, yeah, real value.
Taylor:Yeah. And so I think there's, I think it's, and I'm sure we've both had experienced people who are backing founders where they're incredible fundraisers, but maybe they're not true if we get building or or leading or managing and all those things. So Yep. There's a special alchemy with founders, and I I'll say I'm still learning. You know, I'm 2 years into my investing career, and that's something but a lot of times, I think it's just your discernment and your judgment, and you're looking for those those attributes where you feel like, oh, man.
Taylor:I feel like this person can really grow into an amazing CEO of a big company. And so I think you're trying to envision that in your mind. Like, could this person grow into that opportunity? And I wouldn't say there's a direct sign exact science, but it's more a feel and a you're trying to put your best judgment together to make that decision.
Peter:Yeah. Yeah. No. I I totally agree on the ability to sell. So that was definitely one of, like, my four things Yeah.
Peter:That I think sometimes for whatever reason kinda gets overlooked a little bit. Mhmm.
Taylor:But
Peter:to your point, I mean, you're just constantly selling
Taylor:Yeah.
Peter:As a CEO. And and one of the things I tell my students a lot is, you know, they're interested in doing finance, and because especially high finance because they're thinking, like, it'll be a way to get around having to do sales. And I remind them, like, the pinnacle of every job is sales. Right? The CEO of sales.
Peter:Yeah. The president, sales. Yeah. Right?
Taylor:Yeah. You should talk to partners at, at consulting firms or or investment banks. That's all they're doing is selling. They're selling to clients. Right?
Taylor:Yep. Yep.
Peter:Yep. So, yeah. Obviously, sales, I think, is a big one. And and in my opinion, there are a lot of ways to be a great salesperson. So it's hard to say, like, oh, you have to, like, follow this, like, framework of sales.
Peter:Like, whatever it is, you just have to be effective at the end of the day.
Jon:Yeah. I
Peter:think the other one that I think about a lot is just, like, you know, as I think about all of the founders that we've backed or met with over the last, like, 15 years, a lot of the great ones are just, like, tenacious. Yeah. They just have this, like, drive behind them that that you need because it is hard. Yeah. Right?
Taylor:Yeah. And and
Peter:there are days that just suck.
Taylor:Yeah. Yeah.
Peter:And there are so many uncertainties where, like, where is that next dollar gonna come? Am I gonna be able to make payroll? Right? Like, am I gonna be able to deal with this new regulatory threat even at, like, later stages? And, and the founders that are just, like, tenacious, not gonna give up, just gonna keep pushing Yeah.
Peter:I find are the ones that ultimately more often than not make it. I really like what you said earlier around kind of this earned insight, earned secret. Right? Like that that sort of mindset. So that was another thing is like, they have some unique insight into the market.
Peter:And they know it and they understand it. And that translates into being like the the standard bearer of the vision. I think, you know, I was I was listening to something that Ward said over at Carta, where we're an investor. And he was like he's like, you know, I'll talk to my senior staff and and like be like, hey, you know, at some points, like, we have to exit you out of the business and bring in, you know, kind of level somebody up. And I understand that that's not fair because here I am still learning.
Peter:He's like, but what I've realized is a big part of my job is just own the vision Mhmm. Of the company going forward. And so I think there's a lot of overlap between having kind of that unique insight, but also in selling and also, like, maintaining this vision of, like, where the company is going, so that, you know, you you can provide that leadership over time that everybody can kinda rally behind and and and focus on. And so you yeah. You may not be the most experienced CEO ever, but, like, the value is in you holding that vision and and and moving things forward.
Peter:And then, you know, I think I think probably the least important, but still important is something that you also referenced which is, like, the ability to, like, manage
Taylor:Mhmm.
Peter:People and organizations.
Taylor:Yeah.
Peter:And frankly,
Taylor:Yeah. Yeah.
Peter:Yeah. And hold you accountable. Right? And I think that's more often than not, like, what happens. Yeah.
Peter:But, yeah, that that was kind of my
Taylor:Yeah.
Peter:My response on that.
Taylor:I love that. Couple of things I'll just say. I I love that, I think I think it's a family you have to have this tenacious ability to learn and grow and reinvent yourself all the time. Yep. But you also have to be really hard headed and, like, stick to your vision.
Taylor:And so as VCs, I think how do we assess that? That's really hard. Yeah. But I do when we're when we're getting oftentimes, when we're kind of in the diligence process and coming down to making a decision, I am looking for signals of, like, I want them I don't want them to, like, come to me to learn, but also, like, is there an ability to grow and learn and kind of, I wanna say, take feedback, but just is there some adaptability in them that I'm noticing? And that could come through, you know, just our q and a, and I could see them, you know, either kind of subtly changing the pitch a little bit or repositioning things with me or, you know, making progress in other areas we've talked about.
Taylor:I think those signals are really interesting. And so the second thing I'll touch on too is is just how you said the their kind of the tenacity and grit. I don't know if you guys have seen this going around on Twitter, but Jensen Huang from from NVIDIA, he did a podcast, and they said if you were 30 years 30 years old again, would you go back, and what would you do to start a company? He's like, I wouldn't it. He was really, like and really direct.
Taylor:He's like, there's so much pain involved. And granted, like, NVIDIA is, like, a $1,000,000,000,000 valued companies. You know, I don't know how much he's worth, but fabulously successful, and he's like, I wanna do it again. Yeah. And so I think that that just dogged determination.
Taylor:And I'm just thinking of another experience I had last night with the founder. They're they're trying to close their CMO, and they had a really good conversation last night and last evening. And he's like, hey. I wanna get I wanna get their offer letter over tonight. Can you look up on option impact data and see what the CMO Compass so I can get it to him?
Taylor:And I I think that one anecdote is a reflection of how well they've executed the last 12 months. They're in Fintech. Fintech can be hard. You need, you know, so much partnerships. You need to Mhmm.
Taylor:Pull together all these things to to build a neobank like they're doing. And I just heard that. He's like, I wanna get the I wanted to get it done tonight. And I think it was a great signal. Like, oh, no wonder they've executed so well because there's, like, just this determination, tenacity of them wanting to get get the work done.
Taylor:And and so I think you're you're you're trying as you're trying to make the best decisions to look for those signals.
Peter:Yeah.
Jon:Alright. So let's talk about some of your experience. So Peterson is very unique in that you do a lot in both Utah and Silicon Valley. Yeah. Yeah.
Jon:So have you seen the valuation differences change
Peter:in particular, like, the seed or early stage? Or companies too. Yeah. Just like the the type of companies.
Taylor:Okay. Let me talk about valuations first. I mean so what's interesting for me is I started a venture in 2021, and it was like let the good times roll. I mean, it was, you know, there's up around every week at at IC and, you know, new fundraising follow ons, you know, new valuation, new unicorns being a new valuations at unicorn status. It was it was great.
Taylor:I'm like, wow. This business is is great. It's really easy. And then we've been in a different period the last 18 months. So I think, you know, I haven't had a lot of cycles to go through as far as valuations.
Taylor:And we were talking about this before recording, but, you know, seed has been pretty durable. It hasn't moved a ton, just kind of regardless of geo. I think what we are seeing a little bit and where we're trying to be opportunistic is pre seed. I do think it's come down. Like, we didn't when I first started, it was hard to find a valuation of of, obviously, the business that we really liked of less than maybe 15 to 12.
Taylor:We do are seeing pre seed deals that are more like 7, 8, 10. I do think, like, repeat founders continue to demand kind of the maybe 12 to 15 for pre seed, but so I do see pre seed coming down a little bit, not always. And then I do the other opportunity we see is kind of the c plus small a, which has been fun. And I've done a couple of those investments so far, where maybe in a different market, in the high times of 2021, they'd raise a big a, but maybe there's just maybe 1 or 2 signals that isn't picture perfect. And so we see an opportunity to come in and do the round.
Taylor:It's more of, like, you know, a 15 to 20 to $25,000,000 valuation where they're seeing really good traction and growth and all that. So I do think that's where we're seeing the opportunity now as far as valuations go. You mentioned the 2 geos. Again, I think we do see a little bit more, lower valuations in Utah, but not always. I mean, I don't I'm actually I don't know if I'd even say that.
Taylor:I think a lot of it more is dependent on, I think in seed that repeat founders always commend a premium, and that's regardless of geo. I think traction can help you get to kind of a a justifier of premium. Again, that's regardless of geo. So I don't know if we're seeing, like, 2 to it's definitely not a tale of 2 markets. I think they're pretty those themes I just talked about have been pretty consistent.
Taylor:But, overall, I haven't as far as, like, the there's not a a drastic shift in the valuations as far as the the 2 the 2, 2 and a half years I've been here in Peterson.
Peter:Do you notice that there's any change in the company? So maybe valuations remain relatively Yeah. Steady, but Yeah. They the companies have more traction. Yeah.
Peter:For example, they're a little bit further along. Yeah. Do you see any of that or is it does it feel like it's pretty similar to where it was from that viewpoint?
Taylor:As far as GEOs? Sorry.
Peter:No. Just like over time.
Taylor:I would you know, I don't know. I think like, I I mean, I'm repeating myself a little bit, but what's been really interesting, and and maybe it's a little bit of recency bias, like, you know, the in investments that I'm just leading right now is it's really compelling traction Yeah. That I think in a different market, it would have not been valued at where we're valuing it. And and that's not the it's not the game to, like, get you know, we're not value investors here.
Peter:Sure. Sure.
Taylor:You gotta see the big potential that this could be a unicorn, and and it could be a big opportunity. But,
Peter:I just wonder if maybe, like, the bar has, like, moved up.
Taylor:K.
Jon:You know
Peter:what I mean? So valuations remain the same, but you're like, hey, you know, there are fewer allocators out there. And therefore, the quality the the average quality has gone up whether it's team traction Yeah. Whatever it might be.
Taylor:Yeah.
Peter:And and so, like, you could argue in a way that valuations have come down because that same founder with that same traction might have demanded a higher valuation in the past than they're they are now. But Right.
Taylor:Yeah. I think well, I mean, talking about seeds specifically, we as we going back to that, I think we talked prerecording the data from Carta that showed, like, seed is actually up a little bit as far as values and round size. Yep. And every other stage is is considerably down as far as valuation and and round size. So
Peter:Right.
Taylor:I think there's a few things that we're seeing there. 1 is, I would say there's 4 things, really. The first is we're seeing a lot of multistage funds come down and do seed. Yeah. I don't know what you're seeing, Peter, but, like, it's really interesting.
Taylor:We've been competing with deals with, like, you know, name brand large multistage funds, which has been the first. I think there's a little less of it now, but during kind of the the the, the trough of maybe, you know, 2022 in the beginning of this year, I think seed is so insulated from the later stage funds. And so the multistage funds that maybe invest in ABC rounds, where where those valuations have just been slashed so much, it was a safe place to go to to invest. Yeah. And we're not you know, seed funds don't have to deal with, like, the cost of capital and and evaluations for, like, 5 to 7 years.
Taylor:So let's let's do seed. So I think, you know, for an end you know, name your multistage brand name fund for them to do, like, a $5,000,000 round at a $25,000,000 post out of a $1,000,000,000 fund. Yeah. No big deal. And they'll oh, there are 4,000,000 to 20 posts.
Taylor:Like, that's not, material for them. So I think that's one. That's one trend. I think a second is, seed funds have just gotten bigger. You know?
Taylor:There's been more appetite for LPs to invest in. You know? I look at even the funds here in Utah. We're all kind of seed funds are all investing in a $100,000,000 funds, and so there's just capability and capacity to write larger checks. Yep.
Taylor:And I do think the third thing is, like, a flight to quality. Right? Like, you're kinda referencing, Peter. I do think everyone's everyone's thinking about it seed. Like, how do we ensure that this company can get to an a round?
Taylor:I'm not unsure, but, like, do we feel really good about the them graduating when the a raising an a is really hard, raising a b is really, really hard. Yep. And so I think you're you're thinking through, okay. Is this a company that I wanna back, and can can they get there? And so, you know, I think we always always have a high bar when we invest, but that is something you're thinking through is maybe I'll wait and see on this one, right, and see if they can get a little more traction and and see that, eliminate some rest on their path to a series a.
Peter:Yeah. So those are the things
Taylor:that come to mind for me.
Peter:We we did a little bit of that where we were like, you know, as a traditional growth equity fund, but we'll do some early stage stuff. You know, some of the deals that we've done this year have either been really really compelling growth stage deals where the company is profitable and Yeah. You know, like Yeah. The valuation super compelling and it's just like a unique opportunity. Or it's been early stage where we're like, yeah, we have 5 to 7 years
Taylor:for
Peter:us to work through this current economic environment. Yeah. And, you know, as long as we feel confident that this is a strong team that will be able to get to a series a, you know, we worry less about the valuation today because, you know, whether it's 7 or 15, 5 years from now. Right? That it'll almost feel immaterial.
Peter:Yeah. And so yeah. Yeah. You know, I can echo a lot of what you and we have also have seen of these other multistage funds kinda coming down and playing in that area because you have so much more runway.
Taylor:Yeah. Totally. Yeah. And I think I it'll be interesting. I think we're we're it was just an acute, like, 6 months where we saw that really happening on the multistage side.
Taylor:So maybe they're kind of coming back up a little bit. Yeah. Yeah. Yeah.
Peter:But it'll
Taylor:be interesting to see how that plays out.
Peter:I'm curious. There's been a lot of talk over the years about how if you have one of these large, you know, branded phones come in and Yeah. And dabble a little bit in your seed round.
Jon:Yeah.
Peter:On the one hand, it feels really good. Right?
Taylor:Because you're
Peter:like, ah, Andreessen
Taylor:or Sequoia. They're
Peter:in my round. Right? Or UGF. Or UGF. Yeah.
Peter:Or Peterson. Yeah. And but then because it's not a big stake for them, they don't really care. And when the company's in a tough spot or needs to raise that next round, either it signals poorly because they don't participate. Right?
Peter:Or they're really not there to support. I'm just curious what you've seen. Have you seen that play out at all, particularly because there were so many of these, like, quote, unquote, party rounds done in 2021. Yeah. And now, like, there are a lot of companies that are in tough spots.
Taylor:Yeah.
Peter:Does that does that, criticism carry weight in your opinion or or not really?
Taylor:So this is gonna sound extremely self serving. So take this with a grain of salt. But I think what's been real maybe just I'll talk about party rounds in general, and then let's talk about, like, the multistage specifically. But it's really interesting. It's and we don't do, like, a ton of YC deals or things like that, but we're just kinda gonna quote, unquote hot deal.
Taylor:And and the goal, it seems, from the founders, just like, how do I get this round closed as fast as capital regardless of who's my partner? Yep. And I think there's probably something you said about that. Like, you know, fundraising is a drain. Your goal is to build the company as fast as possible.
Taylor:And and but what's been really interesting in this environment is where the bar has been raised, and it's really hard to raise an a. And I, you know, I've just seen again, I'm early in my investment career, but just seeing how we're able to, you know, step up and help a founder kind of get to the next, milestones. If you have an institutional fund who owns a a large percentage of your company, whether that's, you know, I'd say anywhere from 7 to 15%, whatever that looks like, they are very motivated to help you succeed Mhmm. And to to partner with you both their time but also their follow on capital. Yep.
Taylor:And so, again, sounds self serving, but that's that's how we are oriented around investing. And I've just seen that play out. I just think about some of the folks that pulled together party rounds. And when things get tough Yeah. Like, who's gonna step up and actually kind of put together a bridge round or support in other ways?
Taylor:Now if things go great, I don't think it matters. You know? If you're if you're No.
Peter:It doesn't. Right?
Taylor:Top quartile, top decile as far as metrics and growth and all those things, like, you're gonna be able to raise an a, and that's great. And I think that that's probably the mentality you you have to have as a founder. Right? Is of course, this is gonna work. That's why I'm doing it.
Peter:Right. Right.
Taylor:But, you know
Peter:But it's more likely not to work. Right. Or And that's the sad truth.
Taylor:Right? Likely. I mean, we talked about ethos. You know, they it has not been up into the right. It's been up into the right and and a step and then up to you know?
Taylor:And there's and even at every stage, there's gonna be those times when your business is is not an a plus. You know? It's there's some couple things you're working through, and that's there's probably every every successful company has that story. And so I think you want capital partners that are there to support during those times when it's it's a little murky. Yeah.
Taylor:And then I think, you know, again, on the on the gross stage funds that come down and maybe throw in a small check, again, it's like, I think you want what we always say and what we talk about again self serving, but I think you want an investor in your round that focuses on that round. And so if you're you want a seed investor because that's the most important stage for them, and our whole orientation here is to how do we get a seed coming to a series a, and we're oriented around that. I think a multi stage fund is sure. You know, their orientation, it could be just let me put in a small check. Let's see how this goes, and we'll step up into the e.
Taylor:We'll be well positioned. If it's not going well, there's not a lot of motivation to to step up and help. So Yep. That's that you know, that's how we think about it. That's our that's our pitch to founders.
Taylor:Yeah. And I think it's really on maybe the downside or the the suboptimal side is when it's really important to think about.
Peter:Yeah. No. And I totally agree. We, I'm almost embarrassed to say well, I am embarrassed to say we participated in a bit of a party round in 2021. And, got really excited about market and the founders and the you know, a lot of these things.
Peter:And I think, you know, one of the challenges was that at the end of the day, there was nobody there was no real investor on the board because it was a safe. And there was nobody that had, like, a very big meaningful stake.
Jon:Right?
Peter:And so I think on the one hand, yeah, it was really helpful that or would have been really helpful to have somebody like that helping the company. But Yeah. I think one of the ways in which they that investor could have helped was by providing more oversight on the team Mhmm. And pushing them and being, like, guys, like, we need to be cutting burn now. We need, you know, like, this is what I'm seeing in the market, like, and really holding them accountable because there was no one to do that.
Peter:Yeah. And, you know, it was a very strong reminder to me for us as in our model, like, we co invest alongside other larger funds. The importance of having another larger fund that is taking that lead Yeah. Position in the the investment because that's just not how we're structured had the company had that person, they would have avoided or firm. Right?
Peter:They would have avoid a bunch of mistakes. They would have increased the runway. They would have more optionality. They would have been able to exert maybe a little bit more pressure on that investor to continue to support them, you know, a bunch of these things. And, you know, for us, it's a it's a a very small it's a very small check.
Peter:So, like, I don't worry too much about it except for just all the the learnings that came away from from that experience. Right? And, you know, I just think about how, you know, if everything works out, that doesn't matter.
Taylor:Yeah.
Peter:Right? But more often than not in this business, right, like, you're gonna hit some some road bumps.
Jon:Yeah.
Peter:And then and then you're kinda wishing, oh, may maybe it would have been better if we'd done
Taylor:Yeah.
Peter:Done a different structure. I
Taylor:could share a quick example too. I think Yeah. One of our companies, Marketplace, doing really well. Growth has been really solid. I think from our perspective, though, our purview, we're able to see that, like, valuations have come down for marketplaces.
Taylor:The bar's raised. Mhmm. And so we're really bullish on this company. The founder's excellent at executing really well. But instead of needing to raise at the end of 2024, what if they were able to raise it in 2025 Yep.
Taylor:And and just give them another 12 months to execute and be in a fabulous position to raise a really solid a round. So we're putting together a small a small, follow on financing for them that we're leading out, doing it proactively, to best position them to be able to raise that a in in, hopefully, 2025. And so if you've got a party round going on, who's gonna step up and do that? Right. Right.
Taylor:Who's gonna have the who's gonna have the proactive nature to be like, hey. You know what? Like, as we look at marketplaces, the dynamics have kind of changed and what it's gonna take to raise an a.
Peter:Yep. I I would think
Taylor:about, you know, maybe getting another 12 months of runway. And so having that collaborator, the thought partner, and the capital provider to do that, I just don't know if that comes together in a party round. Right? Yeah. Yeah.
Peter:You know, that reminds me of one of the things I wanted to talk about way back, you know, not to backtrack too far, but when you're talking about founders, I really liked what you're talking about with this, like, this, tenacious, desire to learn. Yeah. And how, like, great founders are able to kinda walk this this tight rope balance of humility to learn the things they don't know but have confidence and strength around the things they do know and then to stand up for those things. Right?
Taylor:Right.
Peter:And kinda bringing it back to to this conversation. Right? You know, to be able to work with a founder where you guys have this expertise that they don't necessarily have. Right? I mean, you're seeing all of these deals.
Peter:You're understanding, like, the broader landscape of what's going on. And to be able to share that with the entrepreneur and the entrepreneur to say, hey. You know what? I'm gonna, like, put my ego to the side and say, instead of trying to go out and raise, like, the series a now
Taylor:Yeah.
Peter:Which may or may not end up, you know, where I want it to be to work with you guys to really position the company really well for that that series a in 2025. Right? Mhmm. And I think that is, like, another, like, really interesting hallmark
Taylor:Yeah. Of
Peter:of a very mature, maybe, founder.
Taylor:Yeah. Totally. Yeah. I think I'm thinking as we're talking. But, you know, I I found too.
Taylor:We do a lot of precede, and we rely we can't help the founder find product market fit. Like, that there's just some black magic there as far as being in the market, bringing products to market, having contact with I was gonna say contact with the NMB, but contact with customers and getting real feedback. And I think that's actually sometimes where where VCs can do harm. It's like, I think you should do this, or you should try this. What about this market?
Taylor:Or why don't you why don't you chase AI or whatever? Totally agree. And so I think we need to be really thoughtful as as, like, what is you know, trusting in that unique insight that they had originally and and letting them, you know, follow their intuition, follow their senses as far as where we use the analogy, where's the water flowing downhill? Like, where are we finding product market fit? But I think, you know, the great founders, like you said, they can either attract as they scale, as they build the business, I think that's where we really can come in and add a ton of value, whether it's helping them find the right talent
Peter:Yep.
Taylor:And support around them. Is it helping them with, fundraising, which is not always intuitive? You know, being a founder former founder and now seeing the other side, I'm like, oh, now I understand why. But at the time, you don't really know. You know?
Taylor:There's some things that are unintuitive, so helping their Yeah. You know, market perspective. I think things like that. And and having the I liked how you said earlier, Peter. I liked being really convicted about the vision, but then being adaptable in other ways.
Taylor:I think that's that's the, you know, the magic of a great founder.
Peter:Yeah. Yeah. Totally.
Jon:Let's talk about valuations. So did you hear about what's happened with Loom? So it was recently acquired for by Atlassian for $975,000,000. It's a video business, but they're previously value valued at 1,500,000,000. Yeah.
Jon:Are you seeing, like, similar trends across the board still? Or do you think we've, like, plateaued?
Taylor:I think the story is yet to be told. I mean, it's fascinating with the public markets. Right? It's you get feedback very fast. Mhmm.
Taylor:You know, over the past 18 months, you know, valuations, especially the trough, are down, like, 80, 90%. The private markets just don't work like that. You know, we, these are assets that are only valued during transactions, unless you're really proactive in marking things down. And the auditors are looking at the books, and they're ensuring that happens, but that's a slow process. It's a slow burn.
Taylor:So, I think we're definitely gonna see more of that, and I think that's okay. Like, you know, I think the fact that Loom exited for 975,000,000 is just fabulously successful and amazing for all involved. Now maybe the gross the late, late growth stage investors are feeling some pain there, but, you know, that's kind of the the risk profile of that asset class. I think when it's an upmarket and it's going great and you're able to get in right before an IPO, there's been some you know, you can make very fast money. I think for the founders, the early stage investors, it's it's just a fabulous outcome.
Taylor:So I think that's the lens I would look through Lumad is what an amazing investment, for early stage investors and the founders, an incredible outcome. And so I can't I know that I just saw some chatter on Twitter around, like, you know, TechCrunch positioning and is like, oh, we have to, like, justify how we only sold for 975,000,000. You know, it's like, it's so rare, and I'm I'd be just, you know, bursting with pride if that was one of our portfolio companies.
Peter:Yeah. Yeah. Yeah. I agree. I think it should be celebrated.
Taylor:Yeah.
Peter:Yeah. I think it's great. It's a great outcome. And look, I mean, even the growth stage investors, you know, barring any like, lack of protective terms, they're probably okay too.
Taylor:Yeah.
Peter:Right? I mean, they're probably at least getting their cash back and
Taylor:Totally.
Peter:You know, this this is probably a pretty solid win all the way around. I mean, you look at the other news this week, which was convoy shutting down Yep. And how much money they raised, you know, pushing a $4,000,000,000 valuation last growth stage investors would look at that, you know, those two outcomes would be like I will take Loom all day long Yeah. Especially in this environment. So, I think there's also kind of that aspect of it.
Peter:And I think a lot of companies, I mean, I don't know what what your thoughts are, what you guys are seeing, but it won't surprise me if Convoy is not the last, you know, high profile, well funded company that kinda hits a bit of a wall here.
Taylor:Yeah. Yeah. Yeah. I don't feel like I'm totally informed. I know there's the freight market.
Taylor:It's been it's been wow. What a roller coaster. Right? Like, up and down. And so it sounds like, you know, revenue was suppressed a lot.
Taylor:And then if you don't have a profitable model, you're in a really tough spot. I think there was more willingness before if if you if the rev it was kind of like the one metric before is revenue growth. And if that was solid, there'd be investors to to step up and continue to fund your business. I think if it's not profitable burning a lot of cash, I think that's one of the big lessons from the public markets is, like, rule of 40 is a thing again, meaning Yep. You know, rule of 40 is your, your growth rate plus your cash flow, cash flow rate or cash flow percentage or EBITDA.
Taylor:So that's a thing again. And I think, that's a lot of how I think, the world's, oriented or or rotated to that. And, yeah, I do think there's probably some, some growth stage companies who don't haven't found the efficiency yet and might be in a tough spot to have the next capital provider step up when they're not hitting those, those both growth but and efficiency metrics, which is a new orientation for a lot of founders.
Peter:Yeah. Efficiency. Like, you know, we think a lot about, like, unit economics. Right? It's, like, well, if you've got an efficient business where the unit economics are are profitable, you can make cuts to push the business into profitability.
Taylor:Yeah.
Peter:But if you're still in the, like, hey, we're gonna spend a lot of money to acquire market share, and then we'll figure it out with scale. Or we're trying fundamentally change customer behaviors, and and spending against that. That's really challenging in a capital constrained market. Yeah. And, yeah, I do not envy those founders No.
Peter:In that position.
Taylor:Yeah. Yeah. And I think that's, you know, that's probably maybe part of the symptoms we're seeing in the market right now is I you know, it it was kinda growth at all costs. Maybe there's less focus on are the unit economic solid, CAC, LTV, retention numbers, etcetera. So I think now when the growth is harder and, you know, efficiency is more important than ever, you know, there's gonna definitely gonna be some companies that are gonna be in that spot.
Peter:So Yeah. You know, one of the things that I've thought a lot about with Convoy, and and this is partly related to some of our other investments that I I don't know. One of my takeaways, I guess, is that Convoy because we've done a decent amount in the logistics space for investors and, like, flex port and stuff. And convoy really focuses on this, like, call it 5 to 15% of the market that fluctuates a lot, the spot market.
Jon:Yeah.
Peter:And, you know, I think what happens is when freight is, you know, in high demand and, you know, that piece of the market grows a ton. Right? But when it contracts, it's the first thing to disappear.
Taylor:Yeah.
Peter:And so when evaluating similar lead type businesses, it's like marketplace is gonna be super powerful. But if they're not sitting at the core of the pain point and, you know, with the with the core customer, do they end up being some of the first things to go?
Taylor:Yeah.
Peter:Right? And so just like having that mentality because yeah, they had product market fit when times are good.
Taylor:Yeah.
Peter:Right? But what happens when times are are bad? Are they really the the critical solution
Taylor:Yeah.
Peter:In in the value chain?
Taylor:Yep.
Peter:Or are they the first to go?
Taylor:Yeah. Yeah.
Peter:So I don't know. That's just something that, you know, I've been thinking a lot the last few days since watching them, go under is like when we're evaluating businesses ensuring that, like, they the business, the product is solving kind of that core need for the core customer
Taylor:Yeah. So you
Peter:don't get caught up in that Yeah. That marginal layer.
Taylor:Yeah. It's really interesting. I think there's both a macro perspective you can look at, like you're saying, like, if Yeah. How does this business shift as the as macro conditions change? I think we, you know, we do fintech investing.
Taylor:We've done a little alternative lending investing, and, you know, those are things we think about. PropTech Mhmm. Mhmm.
Peter:I think
Taylor:sometimes you really need to think about that. Like, how is this gonna be effective if the market turns? We've had some hard lessons there for sure. And then I think at the at the micro level too, we talk a lot about ROI. Like, is there a real is this a nice to have product or a must have product or mission critical product?
Peter:Yep.
Taylor:And, you know, is it an operating system in the sense, or is it a core system that they it's not gonna be the first thing to cut when the, the CFO says we need to get more lean as a company. And so we talk about that a lot. Like, where does this fit in the value chain, if especially when thinking about SaaS or b two b solutions.
Peter:Yeah. Somebody mentioned this to me the other day. I don't know if I 100% agree, but I think it's, like, directionally correct. And they were, like, I feel like product market fit is when if if my company goes out of business, my customer's company goes out of business.
Taylor:Yeah. Right? It's really interesting. Yeah. I remembered, Elon Musk talking about when he was thinking about starting Tesla, there was some electric car that was produced by one of the big big auto companies
Peter:Mhmm.
Taylor:And they shut it down. And he remembers hearing about, like, there was almost like a funeral for the peep the owners. They loved it so much. They had, like, a a fake funeral for this car that was no longer gonna be produced. He was like, oh, there's, like, a there's a market here.
Taylor:There's people want an electric car. So I think that's really interesting. Like, if I if this, you know, if it went away tomorrow, how would how would other how would people be affected? So Yeah. It's a great way to think about it.
Jon:Yeah. Well, I think it was a great podcast.
Peter:Yeah. Super fun.
Taylor:Thanks for having me. It's been great. It was fun talking to you guys.
Jon:Alright. Well, thank you. So this is, again, Jason Taylor with Petersen Partners. You can subscribe. Go to venturecapital.fm.
Jon:All the links are there. Itunes, Spotify, YouTube. We'll see you soon. And we'll see you at Money 2020. Yeah.
Taylor:I can't wait.
Jon:What are you looking excited for Money 2020?
Taylor:It's my first time. I've never been.
Jon:You've never been.
Taylor:I'd actually didn't buy a pass, and it it seems like there's enough going on around something
Peter:for Like, 2 thirds of the people that go buy
Taylor:a pass. Yeah. You know, know, if you want, we
Jon:can try to see if we need another media pass.
Peter:Yeah. There you go.
Taylor:Hey. Hey. Whatever access you could give me. It was a late a late decision for me to go, but it seems like there's a lot happening. So, any tips, tricks, advice?
Taylor:We'd love to love to hear about it.
Jon:This is your 2. My my goal is just you find a person who knows the scene and just tag along.
Taylor:K. Well, maybe if you find that person But you know Jordan. Right?
Jon:Did you guys invest in Atomic?
Taylor:Unfortunately, no. But I didn't know Jordan.
Jon:Yeah. Jordan dominates that
Taylor:that that
Jon:that arena.
Taylor:K. Well, if you find the person, maybe it's Jordan, I'll follow you and we'll be in a good place.
Jon:I mean, Jordan's good to follow. Landon Glenn knows everyone in the in the Fintech space. K.
Taylor:I know Landon too. That's great. Yeah.
Peter:But, yeah, let's stay in touch. K. It'd be fun to hang out and do some stuff together.
Taylor:Totally. Alright. Thanks. See you guys.
Jon:See you guys. K. Bye.