Give us a brief recap of your career since you graduated from Owen:
Following graduation, I was fortunate enough to be hired by a Private Equity group in the NYC area. I spent just over a year at the PE group looking at new investments, working directly with existing portfolio companies, and guiding one of our companies through an acquisition. I became close to our major LPs, a prominent Swedish family, and co-founded an early-stage venture capital firm with the family and the person who was running the PE group in 2013. We made 27 early-stage investments over a 3 year period and were fortunate enough to experience early success. Our 2013 fund is currently in the top decile for our vintage year. In 2016 I started Max Ventures and the family is my anchor investor.
Since you have been working at Max Ventures what have been the challenges and what were the big wins?
The biggest challenge was starting from scratch in the NYC tech ecosystem and being top of mind for founders. I’ve worked extremely hard to build close relationships with people in the ecosystem – including other VCs, angel investors, and as many smart founders as possible. On a personal level, the biggest challenge is understanding who I am as an investor and developing my unique personal approach. In early-stage investing, you need to do two things to be wildly successful: think differently than everyone else and be right. It’s really really hard to execute on both. If you follow everyone else then your returns will revert to the mean over time. After 3 years, I feel like I’m finally understanding where I have a very unique vantage point and what I’m specifically looking for in a founding team. I’m also learning when to quickly bow out of a deal that isn’t a personal fit.
Big Wins: we’ve invested in 27 companies and the best early indicator of getting wins is when the best founders introduce us to their friends that are starting companies. When that happens, we know we’ve worked hard for those companies and added value.
-From a returns perspective, early investments in Boxed Wholesale and Zoomcar are our biggest winners on paper. We invested in Boxed when they had 6 people and no live product. 3 years later they’re doing well over $100 million in annual revenue and have raised over $130 million from the best investors in the world such as Digital Sky and GGV Capital. We were the first VCs to invest in Zoomcar and several people told me I was crazy to invest in the company. Following our investment, the company increased revenues by 10x in the next 12 months and Sequoia led their Series A.
Is there an example of something that you learned at Owen that you apply in your business?
Yes – a very successful Owen alum told me building deep relationships with Owen classmates & alumni will pay off more long-term then getting the best grades. I couldn’t agree more. Learning in the classroom is obviously very important, but don’t sacrifice the opportunity to spend time with other students and build lasting relationships to marginally increase your GPA. Spend time with a wide range of students and genuinely get to know them. Be a good person and look for opportunities to help or collaborate with other people without expecting anything in return. A deep network of trusted relationships is invaluable.
The classes that personally stand out for me are MicroEconomics and Strategy. Froeb’s entire curriculum is based on understanding how everyone in a particular ecosystem is incentivized and predicting how they will react in different situations. Understanding incentives and anticipating how everyone will react is important when investing in a company that is launching a product in a competitive ecosystem, helping a portfolio company hire an early employee or finalize a business development deal, or fundraising for my fund, among many other things. At a high level, Brian McCann’s Strategy class focused on the characteristics of businesses that create long-term strategic value (and ones that don’t). Before investing in a start-up, I think deeply about the strategic advantages and defensibility the company can build over time if they’re successful, e.g. network effects, data moat, etc?
What are a couple examples of portfolio companies that you have invested in?
As mentioned earlier, Boxed Wholesale is a company that has performed extremely well for us. We were one of the first investors and the investment could return over 1x of our entire first fund. I always try to find a unique edge within the founding team that could be valuable. The Boxed team didn’t have e-commerce experience, but they were proven design and gaming guys. The product skills they developed in the gaming world is what led them to create one of the best commerce apps on the market (and drive major growth & engagement). Several VCs didn’t invest because the team didn’t have e-commerce experience, but I thought their gaming and product experience was more valuable.
Drone Racing League is probably the most fun investment to talk about. The team has a background in the industry and is trying to build a new sport from scratch, which isn’t done very often. The custom drones they’ve built go 90+ mph and the first person view is amazing. The concept wasn’t possible from a technology perspective until a few years ago. I invested before anyone knew about them because I believed they had the best team, tech, and a very unique product. ESPN is currently airing the entire first season. Young people are getting into the league and the large brands are following them.
Quilt Insurance, a company in a boring space, but attacking a massive opportunity that has been largely unaffected by software. Quilt is a digital insurance brand that is focusing on the millennial segment. Product categories such as term life are written almost exclusively by human brokers and account for well over $100 billion of premiums written every year. The technology stacks for incumbent carriers are antiquated and one of the biggest line items is the human broker expense. There is also a lot of friction in finalizing a term life policy. Quilt makes it easy for anyone to complete the process online. The team has a proven marketing & design background and will offer unique products over time.
What have you learned about what to look for in a management team before making an investment?
Since we invest at the seed stage, I spend the vast majority of my time evaluating the team. I initially break the founders down into two buckets – personal skills and professional skills. Professional skills are built over time based on what the person specifically accomplished in the past. For example, someone who has previously run digital marketing at a successful consumer-facing start-up should be in a good position to build a digital brand and efficiently acquire users online. Typically, the best early-stage founders are product oriented; have unique insights into their target segment; have developed a message that is concise, positive, and easy to remember; and have a track record of high performance.
On a personal level, I want to understand who they are as people, what type of situations they have been exposed to in the past, and what truly motivates them.
At the end of the evaluation process, I need to feel like this is the best team to build this specific company.
How has the Owen community been helpful in the process?
I’ve had several classmates from Owen invest in my fund 🙂
Knowing what you know now, what advice do you have for current Owen students that want to start a company?
Focus on problems/ideas where you have a very unique insight. It can be an area you’ve spent time professionally, a problem you’ve personally experienced, something you’re especially passionate about, or something within a community you know well. You should care about the problem you are trying to solve because running a start-up is exhausting – both mentally and physically. If you don’t genuinely care about the business, there is a good chance you’ll flame out before you achieve success. Shoe Dog (Phil Knight’s book) is a perfect example of why being passionate about the product increases the likelihood of building a successful business. Phil Knight was a passionate runner and cared deeply about selling the best running shoes. Before designing shoes in-house under the Nike brand, Knight’s company distributed Japanese running shoes for ~15 years and it was a terrible business that should have been shut down very quickly. But, he endured because he was extremely passionate about the product and eventually built the shoe distributor into Nike – an $85 billion company.