Intro

Patrick: [00:01:21] My guest this week is David Tisch, who was instrumental in building and fostering venture capital investing in New York City. If you liked my conversation with Jerry Neumann, who incidentally introduce me to David, you're going to love this one. David was a co-founder at TechStars, New York's answer to Silicon Valley's famous tech incubator, Y Combinator. He now runs the Box Group, a prominent seed stage venture capital firm which has looked at thousands of startups and invested in more than 200. We explore tech investing outside of Silicon Valley, the tech accelerator model, the evolution of early stage investing, and why the best companies may start coming out of non-traditional venture hubs. David does a great job of explaining how things have changed for technology startups, and why certain strategies, especially those for acquiring customers, won't work nearly as well in the future. I learned a lot during this hour, and I think you will too. Please enjoy my conversation with David Tisch.

The New York Venture Scene

So I thought we would begin by talking about New York City. We're sitting here right in the heart of it, right south of Union Square and one of the things that one of the main reasons I wanted to talk to you was because of your role in building up the venture capital technology investment scene in New York, away from, I guess, Silicon Valley, maybe even Boston, as more traditional centers for venture type investing. So I want to open it up there. And just have you talk about, what were your motivations? How did you go about doing that? And I want to get into kind of what makes for a rich, fertile soil for venture investing to begin with?

David: [00:02:52] Well, thanks for having me. Great to do this.

You know, I think historically, if you go back in time and look at the types of businesses that venture capital was funding and that technology entrepreneurs were pursuing, it developed logically. You at first were building an infrastructure layer, and then you were building services to connect the infrastructure layer with other sort of more consumer facing services. And as those two sides of the technology world developed, it made sense that those were built in the valley where hard technology, and R&D, and all of the sort of big-brained tech development was happening.

I think what you've seen in the past, probably, seven to ten years is a huge shift in the types of companies that technology entrepreneurs are trying to build. And that's anything from brands, which are built through just distribution online, e-commerce, DTC brands, down to just consumer experiences and that could be in media, that can be in social they're less dependent on building the infrastructure. The infrastructure today is a service.

So when we funded a company called GroupMe back in 2009, GroupMe is a group text messaging service, it was before iMessage allowed you to do group, so is the best way to do a group text message. It got sold to Skype which then got sold to Microsoft, so it's part of Microsoft. It's ranked in the top 50 apps in the App Store, still, despite the fact that the functionality that they built, which at the time they literally needed to invent how to do group text messaging. Today, it's a lay up, you can do that on many services. So between 2009 and now, you've seen this huge shift where all you need to do is plug into the existing services, and really only focus on what is the core of what you're trying to build - the features.

And so if you think about that shift, it allows for just a wider array of companies, and the focus of the founders has shifted from deep tech to the actual consumer experiences that need to get built to touch a wider set of customers. That applies to healthcare, that applies to FinTech, it applies to consumer tech, and it applies to everything in between. And so you've seen a huge shift in where technology is impacting or, as we say disrupting, and it's happening in every industry.

The focus of the founders has shifted from deep tech to the actual consumer experiences that need to get built to touch a wider set of customers. That applies to healthcare, that applies to FinTech, it applies to consumer tech, and it applies to everything in between.

And so why New York? New York is the home of so many industries. This is where the fashion world is, this is where real estate and retail, every single sports league is based in New York, finance, the healthcare system in New York is fascinating and pretty diverse. Even just the metropolitan area, if you get off at every single subway stop, you can find a different demographic of people. So the complexity of the consumers in New York is a fascinating and fertile ground to test things on. It has allowed people who are in New York, who probably came here for something other than technology, to take whatever their backgrounds are, or just their personal interest, and build technology companies in and around those. Which, if you did that 10-15 years ago, it would have been impossible because you had to build too much tech to be able to build the consumer services or the consumer touching points that today are just a lot easier to build.

Patrick: [00:06:14] How was that early process fostered? So I'd love to talk a bit about TechStars, about the accelerator model but in the early days, where I don't know if it was your explicit mission to bring more attention to the New York-based tech ecosystem, but what were you actually doing to further that mission, if it was your mission?

David: [00:06:34] So I'll address that in one sec. I think there was a wave of startups that happened sort of right before 2008, so the crash and that wave of startups in New York were Etsy and Foursquare, I think was right, or Dodgeball, which was the first version of Foursquare - right before that crash. I think the real shift of talented people into this industry happened post-2008. People did not come to New York and view finance as a guarantee. They didn't view it as 100%, you know, I know how this works and I can just stay here for 20 years and it'll be a sort of step function to make more money. And so I think you saw a huge shift in talent that used to depend upon finance, who said, that's not a guarantee, I need to take this into my own hands. And so I think that's really the big shift that happened. I think, when that happened, it attracted other people to New York to do similar things.

And so the second wave, which was later on, was the opening of big technology companies offices in New York. And so at first it was Google and so if you go back to the early days of the New York startup scene, whether it was the founders or whether it was the sort of first 10 employees, a lot of it was ex-Google - just people leaving Google would feed the ecosystem. Today, you have Facebook, you have Google - as the two best - but you also have offices from Microsoft, or eBay, or Snapchat and Pinterest, and Uber and Square all have satellite engineering offices here. And so there's a lot of talent in these companies, who have more money to go on to college campuses, more money to relocate people, to bring the talent in New York, and when they get to these offices, some of offices are better than others and so they'll bleed talent down to the ecosystem.

Me personally, I joined TechStars in 2009. It started with a conversation with David Cohen, who founded TechStars. "Why aren't you in New York City?" And my impetus for that was, I was at a company from 2007 to 2009, a big non-tech company, where I was hired to be the head of internet, which is a sign that the company's probably not so modern. And I was there and we were early, at the time we were poaching away from Yahoo and Bloomberg in terms of the tech talent, and we were hiring these incredible engineers. And there was nobody else that we were able to network.

So early on in a New York tech meetup there were 20 people in a back room at that point, maybe it was 40 by the end, but it was a small cohort of people who were doing this. And Y Combinator and TechStars started elsewhere, and I looked I said that model is fascinating. It's not fascinating because of the economics, which are interesting. It's more interesting at scale but I think it was fascinating because of the community. It felt like you could foster shared learning, shared experiences that would make everybody better.

I Love New York, I wouldn't do anything anywhere else and so I saw that model. And I spent probably six months after I left this company, just doing as much research as I could, which was basically stalking online YC and TechStars to understand if I could just do it myself. I concluded, you know, YC was doing what they were doing. It wasn't going to come to New York and they weren't going to franchise it and TechStars was this mentor-driven model, which was totally different. It was how do we engage the whole community to help these companies. I thought that was fascinating. At the time, I didn't feel like I had a network of my own to be able to start it from scratch and so I sort of let it go. I went up to a conference in Boston, ironically, and David was there, I asked him that question and six weeks later, I got going on it.

A Deep Dive on Techstars

Patrick: [00:10:11] So I've never actually explored, I have personally explored, but never on the podcast have I talk to someone so involved with, I guess the accelerator model is probably the right phrase that Y Combinator has maybe been the most famous in. So maybe start with what Y Combinator does, mostly to serve as a point of contrast to this mentor-driven model that you described for TechStars.

David: [00:10:34] Yeah, and I don't want to, you know, YC at this point is very different than it was in 2009. It's scaled and so because of their incredible alumni and the growth of their partnership, they have more of a mentor-driven model, it's just not expressed that way. There's just a lot of non active sort of companies in the program that are surrounding the active companies, helping them. So I think today's YC is very different.

You know, the best way to describe it to somebody outside of the tech world is it's a boot camp for startups. And so you apply through an application process, the application process back when I was doing TechStars, was 2000 companies. And we were looking for the best 10 to 14 companies. So it is a huge top of the funnel down to this very small class. At TechStars, all the companies would move into a shared office and work for three months. So it started on one day and it ended 90 days later. It normally ended with a Demo Day, that's evolved - when we were doing it, we did Demo Day at Webster Hall on a stage, there were 800 people in the audience, it was a rowdy and sort of incredible energy. It was cool. I think today's Demo Day has sort of played out and so a lot of the non YC accelerators have tried other things. YC still runs an incredible Demo Day, you know, they have I think, 400 to 500 people in the room. Amazing energy in that room, it's a little different.

But we at TechStars, we did these sort of big events, because at the time, the community needed that. And it felt like it was a great way to catalyze all the disparate energy that was all around into one room. People were flying in, we had Mayor Bloomberg, we had Tony Hsieh come and do keynotes at our Demo Days. And then our companies would present and try to raise money following that. And you know, what happened in those 90 days is really specific to what companies were in your batch. And so at TechStars, we had a small batch. At YC, they were growing in terms of their class size, every time. And so, you know, our view was that we could help a smaller amount of companies get through this batch versus try to help sort of everybody. It was more bespoke. I think today, TechStars is a pretty scaled model. I think they're incubating somewhere in the neighborhood of 150 to 200 companies a year and YC is a little bit bigger than that. So they're both scaled, when I was involved, it was a lot smaller of a model.

Patrick: [00:13:02] I want to go through each component of this process. Because as someone obviously that has never been through anything like this, it just seems so appealing, like this extreme focused effort in a discreet window of time surrounded by other people doing the same thing. It just sounds incredible. So first is the entrance, right? So you mentioned an extremely low admission rate. So what was...

David: [00:13:26] We used to say it's harder to get into than Harvard.

Patrick: [00:13:28] I mean, statistically it is, right?

David: [00:13:30] Yep.

Patrick: [00:13:30] So what is that process like? How in the world do you sort through, and I'm assuming most of these are like ideas, they really haven't gained much traction yet as businesses. So it's a founder or founders applying with an idea. So how do you sort through that many people? What were you looking for?

David: [00:13:47] So companies got in via two ways. One was they applied and we'd never heard or seen or known of them before. And so you had to vet them. The other one was finding companies and recruiting companies into this process. And so I think in the three - I did three different batches - 36 companies, I think it was 50/50 in terms of recruited versus applied. Recruited companies, that was the harder batch to find mainly because you had to go out and target companies and convince them to do this program. Sometimes they didn't think it was for them, they thought they were either too late, or they were better than that. And you had explained to them the value of the program. On the application side, it was important to me that I was the first eyes on every application.

And so we'd get 2,000 companies that would apply, I looked at all 2000 of them and I filtered them down personally because the biggest mistakes would be made in that first round of cuts. If you missed a gem it probably wasn't once you got deeper and spent some time with a company. It was blowing past an application that you just didn't realize was pretty special. So I looked at every application, the key to me was asking the right questions. You have to elicit the right information from people so that you understand the application, and what their vision is in a more in-depth way than is realistic through an application process.

We'd get 2,000 companies that would apply, I looked at all 2000 of them and I filtered them down personally because the biggest mistakes would be made in that first round of cuts. If you missed a gem it probably wasn't once you got deeper and spent some time with a company. It was blowing past an application that you just didn't realize was pretty special.

Patrick: [00:15:08] Meaning the questions on the application itself?

David: [00:15:11] Yes. Absolutely.

Patrick: [00:15:11] So what's an example or two of the penetrating kind of question that you were after?

David: [00:15:15] What are your next 10 hires? Just seeing how somebody thinks about building a company, it was a lot to me about the vision, and a lot less about what you have already done. In venture capital, you don't get money for what you've done. It's not a reward, right? You're getting money to go do the thing you want to do in the future. And so I think a lot of the times too many questions are about what have you done? And where are you at today? And not enough focus on what's the vision here? And we tweaked the application over and over and over to try to elicit more of that vision versus sort of history.

The other thing was the team dynamic and so asking a lot of questions about, what are the biggest fights that you as co-founders have gotten into? How do you solve those fights when you have a disagreement? Who normally wins? And you can do that in an application process and the other thing we had them do was make a one or two minute video of the team, and you take the answers that are written, and then you watch that team video. And you see if that chemistry is tangible on that video, and I think that was something else that was really important.

And it's not putting too much emphasis on sort of showmanship because as an entrepreneur, you are going to have to be a showman, you're going to have to convince people to give you money, you're going to have to convince customers to take risks on you, before your product is fully baked and ready. And so it's important to us, even sort of before this was trendy, that the founders were able to stand up on a stage, present themselves and attract other people to what they're doing. I think the other area where that's vital is hiring. And especially in this market, where hiring great engineers is as hard as ever, as a founder, you're going to have to convince somebody to jump on your train versus the other hundred options that they have. And so finding somebody who's dynamic enough to be able to attract people to their vision early on, was a big point of focus for me.

Patrick: [00:17:14] It may be hard given that you looked at thousands of them. But is there any most memorable application, not so much once it went through the process, but just at the application stage that jumps to mind?

David: [00:17:25] I mean, yeah, every time there were like 5 or 10 of them that were just wild, and they were wild because they just did something funky. And so an example is, at least three people, three companies wrote songs, and their video was just them singing some weird song with made up lyrics about how badly they wanted to get into TechStars. Another one was, it was a video company so it was okay. It was this highly produced video, they had flames, they had special effects. Like they had costumes, it was sort of this trippy minute video. And they ended up in the program. They came out of nowhere. I didn't know them. I just watched that video and I'm like, this is really weird, I hope their product is as interesting as this company, or as the video.

Then on the flip side, there was a company that we ended up taking into the program, they applied under the name Classtivity. Today, they're called ClassPass. It was the third batch that I did and when Payal, the founder, applied she was trying to build basically a search engine for classes. And in one of the questions it was how do you hope to acquire customers? Sort of what's your marketing plan? And sort of in the footnotes she's like, "And we want to launch a product that we call ClassPass which is going to allow people to subscribe to an unlimited amount of classes every month."

And I just distinctly remember writing her back, "Why don't you just do ClassPass?" And that was the only response I had to the application. And she wrote back this dissertation. It was like 30 paragraphs of like why that doesn't make sense and I wrote back; I go, "I think you should think hard about ClassPass." She didn't, we took her into the program, she went through it, tried to build a search engine, and she ended up pivoting about a year later into ClassPass and it just took off.

Patrick: [00:19:12] That's great.

David: [00:19:13] That was pretty memorable.

Patrick: [00:19:14] So once the batches are set, and people are in, talk about the actual boot camp incubator process. What is the focus, apart from getting thrown together and creating that energy and...

David: [00:19:26] I think that's half of it though. I think everybody in the same room, seeing how much progress everybody else is making inspires you to work harder. Seeing that you're not the last one in the office might light a bigger fire and so I took a very boot camp mentality. I was not kind, I was not warm. I was hard. And I knew that was my style, and I owned it and it was important to me to explain why that was important. They had 90 days and they had 90 days to jump. Take a huge leap forward and in 90 days, they're going to be standing in front of a room of 800 people having to share their vision, it better be good. And so we really did push hard to sort of feel that pressure.

On the flip side, what we did was we brought in hundreds of people from the community. And so that was anything from speakers to mentors. And so every company would get exposed to upwards of 100 people that they were meeting to try to track them to help them build their company. At the time, it was rare to sort of ask established entrepreneurs to get involved in a formal way so it was really easy. Today, a lot of entrepreneurs are constantly asked to mentor companies so it's a lot harder to get people's attention.

Patrick: [00:20:34] You mentioned at the beginning, for New York City specifically, this notion of not needing that tech infrastructure to build tech businesses, right? Because it's almost commoditized all the plugs that you need to build a business. How do you think that same trend affects the role of incubators in the future? So what should incubators, the big ones or upstart ones, be thinking about relative to what they focused on in the past, which my sense is it a very technical co-founders, a lot of programming, a lot of coding, versus now - and correct me if I'm wrong here - but it seems like the startup world is much more accessible to non technical founders.

David: [00:21:13] Absolutely. I think the key though, is to look at the idea and say, what are the dependencies here? What needs to happen to make this work? So there are a lot of ideas that still are dependent upon tech innovation and so when those ideas get pitched to you by non technical co-founders you can't spend another minute on it. They're not capable of executing the vision. So the key is to figure out what are the core competencies needed. Now, when three technical co-founders are pitching you on a marketing business, it's probably not a great thing to fund either. So you have to say, what is the one or two most important skills that are necessary to build this business? And are those skills present on the founding team? And if they're not present, is the founding team aware that those are the vital things and what steps have they taken to either add someone to the team, or to de-risk that portion of the business. And so I've said this probably for seven years now, there are just too many accelerators. An accelerator is an easy business to start and it's an easy business to fund because as a sort of financial instrument, you're raising minimal amount of money, you're investing a small amount of money or taking a lot of equity. And so it's a great business model if you find great companies.

You have to say, what is the one or two most important skills that are necessary to build this business? And are those skills present on the founding team?

The problem is, it's impossible to find great companies. Y Combinator is fantastic at it. They find probably the best companies in the accelerator model every year. TechStars, right after that, finding good companies. You come down the chain to Accelerator 70, there's zero chance that they're going to get a great company. And so while for the owner of the accelerator it might be a good business to try to sort of play the lottery, I'll take the under all day.

There's one exception to that, that's specialized accelerators. And so if you are doing something in biology, biotech, or you doing something even in FinTech where you need access to the banks, there are accelerators that have specialized networks and specialized expertise that can really be effective for companies in those sectors. And again, it's not all of them, it's the best ones are really good at what they do versus sort of everybody should open an accelerator. And you saw it happen geographically - every city saw the use of the accelerator as the way to sort of catalyze a community. And by the time they're on their third or fourth batch and nothing's working, they end up just winding down. So I don't believe that you're going to see this wave of new accelerators emerging, I think you have some really incredible companies and programs that have risen to the top and it's very hard to catch them at this point.

Box Group's Investment Philosophy

Patrick: [00:23:46] And this may be also evolving over time, it also will move us to the second part of the conversation, which is about your own Box and your own investments in a wide range of startups directly. But during that early phase of a startup, and again, this may be dependent on the kind of business it is - you talked about marketing versus more technical. Are there certain aspects of the business that you, in those days, would encourage companies to focus on? Is it product market fit? Is it the team? Is it the tech? Is there any one aspect? Or was it just always unique to the individual company?

David: [00:24:21] It has to be unique and I think that across this entire industry, it's a mistake that people make - just generalizing ideas or advice or sort of tactics. They are irrelevant if they're not specific to your company. So as a VC, as an accelerator, you're in a bespoke services business, you have to treat each customer individually and you have to figure out what's most important. That said, I think in 2000, sort of seven to twelve, probably, design was a standout skill and so if you had an incredibly designed product, the product itself could win. And it could win in the App Store. It could win on the web, and there was sort of a willingness amongst the broad consumer base to try new things. That's pretty, that's cool, I want to download it, I want to use it, it's elegant. So just building a great product was almost enough back then.

And so I think I really did look for incredible product design, when it wasn't a consumer facing product, it still mattered if it was trying to disrupt an established industry. Now, it didn't matter if it was a very technical product, where the people touching it were not interested in the design. But almost every single industry, where you were trying to touch non technical users, product design mattered. It was also during the wave when Facebook and Twitter were showing what a quality product looked like. And so you had people that were in retail going into work at a point-of-sale system. And it was from the 1970s or 80s, who would leave and go play with Facebook at night. So what happened was the enterprise software needed to catch up to what the consumer software was.

Starting in 2012, a great product was a prerequisite no matter what. It was a given, if you did not have a great product, you would lose. But it had nothing to do with your success. With every single company today, you need to have a great product and then hopefully it will work. And so I think you saw a huge shift probably around 2012 when it was easier to design on the web and on mobile. And also, I think the talent had just gotten better. There were more designers, more people in the sort of Arts and Design world were focusing on digital and focusing on user experience and user interactions. And so you saw a huge shift from this being a differentiator to this being prerequisite.

Patrick: [00:26:44] Table stakes?

David: [00:26:44] Yes. Exactly.

Patrick: [00:26:45] So I want to move to your own investment strategy, and really pick that from a lot of different angles. But first to ask what experience or set of experiences it was, however early on, that got you interested in investing in the first place?

David: [00:26:58] So I was into computers from the age of probably 10 on. I got an Apple 2GS and I was an Apple guy from age 10 to about 16. And that was rare back then, everybody else was on PCs. I didn't know how to use a PC, I didn't understand Windows, or DOS, I loved Apple, it was this magical software product. I learned AppleScript, which was their own proprietary language. And I wrote little hacker programs on AOL that allowed you to do bad things that I probably shouldn't talk about. But that was what started me in technology. I think, when I went to college, I went to college in '99 and I left in '03 and the internet collapsed. And so the idea of going into the internet as a career was pretty hard to understand. I would have loved to, I didn't understand how as a non technical person, (a) I could get there and, (b) even if I was technical if this was going to sort of bounce back. But it was always my personal interest.

I ended up going to law school and upon leaving law school, it was 2006 and the beginnings of what was happening in New York were starting and I was in a real estate finance job at Vornado for just under a year. And I found myself at nights and weekends just going home and reading everything I could about the startup scene. And I started getting much more interested in what was going on. I left, all my friends looked at me and said, "What are you doing?" Like startups internet, like you're making a mistake. Every single one of those friends today is trying to figure out how to get into it themselves. I was relatively early in my cohort. But it's a personal passion. You know, when I'm on vacation, I sit there and I just read about startups, I sit there and I read about new products or ideas or interviews or podcasts from startup people because it's what I care about. Basically, tech, startups, and sports are the three things that I find myself gravitating towards.

Patrick: [00:28:46] So let's talk about your investment strategy in a very forward looking way. I think that's the sort of discrete time period you described, the 2012 line of demarcation passed which a great product was just table stakes, since now a lot more mattered.

David: [00:29:00] And also, I mean, the other sort of point to make here is mobile, right? And mobile started 2007. By 2012 and in 2010, everybody would wake up every day, open the App Store and be like, "What new apps can I get? I'm so excited for more apps." That doesn't happen today, the average user downloads 0.0 apps per month. So if you are a new app trying to figure out how to get somebody who has no interest in trying new things, to try your new thing. That's a daunting proposition. The other side of it is people got used to trying something and throwing it out immediately. So as a new company, you're in a world where you have one shot to win somebody over. The lean startup, the iteration process, the MVP process of sort of that 2007 to 2012 period is totally irrelevant. A user has no tolerance for mistakes, a user has no tolerance for bad product.

And so that first time, and this is daunting, because you're a three person startup and you launch your app on the App Store and somebody touches it, if it's not almost perfect and by perfect, I don't mean it looks and feels perfect, but the value prop that you are promising, if the user doesn't feel that value, they're gone. And you're never getting them back. The only way you get them back today, if you lost them already, is I think it's like five friends, five friends have to say you have to download this. That's the only way you're going to get somebody to try again, or even try for the first time. That's really daunting. So I think that's the biggest sort of fundamental shift. Everybody download apps, everybody has apps on their phone, everybody's on Facebook, and Instagram, and maybe Snapchat, and then they're sort of done, they're not looking for more. And so if you want to be on people's home screen, you really have to rise to a level of like, this is either magically fun, or this is magically useful.

Everybody has apps on their phone, everybody's on Facebook, and Instagram, and maybe Snapchat, and then they're sort of done, they're not looking for more. And so if you want to be on people's home screen, you really have to rise to a level of like, this is either magically fun, or this is magically useful.

Patrick: [00:31:04] So my friend Kevin Simler described this wave of companies as colonizing different parts of people's identity. So LinkedIn colonized your work identity, Instagram, Facebook, your kind of personal identity, and on down the list. And that was an enormous opportunity, a frontier, but now that's done - like that opportunity is largely taken.

David: [00:31:25] And these companies today are good. Whereas before if you had looked at something like MySpace, or Friendster and said, "Well, social networking is done." The mistake there was that those companies were not in a position to build out the future roadmap that they needed to stay on top of users. If you look at Facebook today, they're really good, if you look at Google today, they are positioned to do the future, not to be disrupted. And I think that's the biggest change on the big co-side is you have big cos that are stronger now than ever, that are inventing new and important things before a startup can go build a little feature to disrupt that big co.

Patrick: [00:32:04] So now thinking about your own investing strategy, describe first at a high level, kind of the stage that you like to invest in, how many companies across the portfolio, and then we'll get into the very specifics.

David: [00:32:17] So the fund we run is called BoxGroup. We're team of four people here, four corners box... We're seed stage investors, we like to be the first check in, it's harder and harder and harder because of the amount of early stage investors to see everything first and make that first commitment. But that's our intention, we want to be early, we want to be there almost at the company formation point. Sometimes it's pre-product, just looking at a deck. Normally, the biggest correlation I found in our investments is, the longer I've known somebody, the earlier we'll be willing to invest. A stranger coming off the street with an idea, you need to see what they're able to execute. So if they just have an idea, and they have no history or background of execution, it's impossible to fund that person today. Because there are too many free tools and sort of easy ways to get something off the ground, that if they haven't done every single thing they can do before they show up in your office, you wonder why and you wonder can they?

So we focus on that earlier stage of a company, we write about a $200,000 to $500,000 check and we do that across 30 to 40 companies a year. So in order to make 30 to 40 investments a year, we see between 3000 and 4000 companies a year. Now, we don't physically meet with three to 4000 but if you look at the accelerators, for instance, there are 250 companies that go through YC. There's 200, some odd companies through TechStars. We want to make sure that we're getting exposure to every single one of those just on like, can we get a little bit of something. We look at every other sort of natural place that companies come from. So whether that's Harvard Business School, which produces some amazing companies, it's Wharton, it's ex-Google, it's ex-Facebook, it's other colleges where they have incredible entrepreneurship programs. And then it's sort of our own network. And so sourcing those 3000 to 4000 deals is the most important part of our job, because if we don't see it, that doesn't enable us to make a mistake.

So I would prefer to make a mistake and to never have seen something. And then of those 30 to 40 companies, they're across every single industry. So we have in the portfolio today, about 250 companies, they are across consumer, e-comm, healthcare is a big focus for us over the past sort of four to five years. FinTech is also a pretty big focus for us. My passion personally is mainly in consumer internet, but consumer is really hard to invest in, and especially at the early stage and so I've diversified a little bit in terms of my willingness to find something exciting but my partners Adam and Nimi tend to focus on healthcare, FinTech and my other partner, Greg, is deep in the crypto world and sort of the fringe technologies. And so across the four of us, we have a pretty well-rounded focus that allows us to be generalists.

Sourcing those 3000 to 4000 deals is the most important part of our job, because if we don't see it, that doesn't enable us to make a mistake. So I would prefer to make a mistake and to never have seen something.

We don't come in with theses on spaces, we have views of the future and so it's not that we're looking for something specific but we want a company's vision to play into how we believe the future will evolve. And so it's really important for all of us to have opinions as to what 10, 15, 50 years from now will look like in order to be able to fund things that we know need to play into that future world. Because you're not again, funding something for what they've done, you're funding something for where it's going. And if it's not going to the place that you believe the world is going you can't fund it.

Patrick: [00:35:44] Talk about that obsession, and maybe touch on Spring, the business that you founded with consumer brand, consumer facing internet.

David: [00:35:50] I think people are bored, I think people are not satisfied with what's on their phone. And they're opening their phones hundreds of times a day. And so, to me, you're at a point right now where it's ripe to create great consumer experiences. The problem is, it's really hard for any one of those things to stick because creating something that is magically fun or entertaining or happy for somebody is not trivial. And then doing that for a scale that actually matters on the internet, which today is you know, 5, 10, 100 million people, you have to get to that scale. That's daunting, right? So the niche-happy products don't scale in terms of venture returns. And so that's really the biggest challenge is; how do you create a consumer company that can cut through and actually scale to a level of interest?

And then finding that consumer company when they are two people with an idea or early product. And when every single other venture capitalist is mining the App Store for any momentum and every company sort of raising from the people around them or the people in their network, getting exposure to a company that's transformative and focus on the broad set of consumers early is daunting.

I think the other side of it is, it's hard to believe that the next wave of consumer companies is going to come from Silicon Valley, or from a traditional sort of tech startup landscape. The broad set of consumers today who are touching Facebook and Instagram every day, they're not interested in the sort of tech, they're interested in having fun, probably meeting other people, doing cool things with that technology. And so that to me is why LA has been such an interesting development. LA is a town that's built on storytelling. It's built on imagination, and creativity and that's the feature set to me that allows for great consumer experiences to be built. And I think New York has a different sort of tone and feel to that. But there's a sort of realness and functionality in the mentality in New York, everybody here's running and hustling and scrambling. And I think that those two energies are a lot more interesting than a pure technology energy in terms of creating consumer experiences.

Patrick: [00:38:04] What, you know, you mentioned having to scale to five plus million...

David: [00:38:08] And five is low.

Patrick: [00:38:09] Five's low. What do you think the key here we're getting into the very specifics, the key ingredients are for that chicken and egg problem that face any network effect dependent business? So what have you seen that works or from personal experience founding businesses? Is there anything we can extract other than just pure like hustle iteration?

David: [00:38:31] I think you have to plan to the core sins that people care about, right? It's money, it's sex, it's happiness, it's, you know, filling boredom. It has to be one of those things, you have to give somebody value through your product that they really deeply appreciate. Otherwise, you're a novelty and novelties tend not to sort of last and I think that's why you've seen companies that launch go way up the App Store or go viral, get onto CNN and are dead three days later, is they just didn't capture enough of that...

You have to plan to the core sins that people care about, right? It's money, it's sex, it's happiness, it's, you know, filling boredom. It has to be one of those things, you have to give somebody value through your product that they really deeply appreciate. Otherwise, you're a novelty.

Patrick: [00:39:07] Repeatability.

David: [00:39:08] Exactly. And that's hard to do. And it's hard to do that for one person. And it's really hard to do that for a diverse set of people that can scale to 10, 100 million people touching that product every day.

Patrick: [00:39:19] So when it comes to repeatability, that obviously is something that in the case of the famous social networks, maybe the solution there is that the producers of the product are the users themselves in this kind of platform business model, or two-sided business model. How do you think about different business models when making seed venture investments? Are there ones that you shy away from or prefer relative to say, like the population average?

David: [00:39:49] I think it's vital, there was this meme for a while that like companies will figure out their business model later. I think that's nonsense. I think companies don't need to focus on it necessarily day one, but they have to be able to articulate how they are going to make money and sort of when. Now, if you are a company that says I'm going to lose a ton of money before I make any money, that's okay. You need to understand that, you need to own that, and you need to explain how you are going to get enough money to last that long, right? Amazon is not sitting here making wild profit, they're doing just fine. And so I think what you need to be able to do is explain if you are going to be an ad-based business, how are you going to fund getting to scale, and it might be, we're going to get to 100 million users before we turn on our business model, that's great. You better raise $500 million to a billion dollars. And if you as a founder are not able to articulate that, explain that, and explain how you're going to be the person that stands in a room and can capture $200 million checks, you're in trouble.

Patrick: [00:40:53] Let's talk about some of those other industries or segments of the market that that you focus on in the seed stage. Maybe we'll start with FinTech. So that's been obviously a very popular area to talk about, just because it's an industry that is so entrenched, right? There's a lot of entrenched interest, typically that's a good sign for maybe potential to be - to use that word - disrupted. And so talk about what you've seen in the FinTech space that's important.

David: [00:41:19] So I think in each of these sort of sectors, you have to differentiate between infrastructure layer and the sort of the stuff that touches the end consumer. The end consumer has a different demand. When they go to the bank's website, it's not good enough and so that allows for different consumer experiences around finance to be created. And so whether that's something like a Betterment or a Wealthfront, in terms of investing, all you're doing there is replacing a telephone call and sort of an individual advisor with technology in a way that a normal consumer can feel and touch and be more confident in how that company is going to manage their money.

On the flip side, if you're building something on the infrastructure side of FinTech, you do not need to worry about that sort of end consumer. And so if you think about the banks and the way that their technology has worked, and regulation has forced them to sort of limit their technology innovation inside of each bank, and each bank needing to do it individually, and so it's this homegrown tech stack that got built within all the big banks and how they communicate with each other, and the fact that you can't wire money, other than during business hours. These are things that will be gone in the near, near future and so you can find ability to innovate in every single step of the stack, or level of the stack, but you have to understand where you are innovating and how that is going to sort of cut through the noise of whatever exists today.

And so if you're doing something on the infrastructure layer in FinTech, you have to have deep relationships within the big players. If you're doing something on the consumer level, you can plug into a lot of the API's that exist within the existing big bank infrastructure to leverage that. And so I think all of the layers are able to be innovated on, I just think you have, as a founder, to marry yourself to understanding your layer. A good example, is a company we invested in called Plaid. They are an API that allows consumer finance services to be built on top of it, because they've built all the connections into all the services behind it. So that's a really interesting opportunity they're sort of bringing the two layers together.

We're in a different company that is helping sort of the modernization of taxes and so a H&R Block competitor, but just using software. And so TurboTax is an old, sort of antiquated, relatively ugly piece of software, H&R Block is this bizarre green logo, doors in strip malls around America. Neither one feels like the right answer and so you can innovate but you have to be great at customer acquisition, you have to be great at product so that when somebody uses it, it works.

And I think in tax, there are so many complications that the amount of software, and the sort of the customization that they're going to have to build before they're able to actually work is daunting versus something like a budgeting software, which is really easy. You're sort of making some pie charts, you're giving some people some advice and that's why none of those companies have scaled to the level of transformative is because they're easy to do. And sort of harder to grab built-in user base that's going to continue to come back to it. And so you see 25, 30 interesting products in this sort of personal budget space, but none of them are sort of winning.

Patrick: [00:44:41] You've talked a lot about discrete periods of time and sort of things happening, it makes me think about cycles. So if there is a cycle first, do you think there is a cycle to venture investing and kind of what that looks like? Where do you think we are in that phase? Do you think that the opportunity set is lesser now because we've had this sort of explosion of the big internet, internet 2.0, or web 2.0 companies and that low hanging fruit is taken? Where do you think we are?

David: [00:45:10] I don't know, I wish I knew. I'd been doing this for this exact job for 10 years. When I started, I was told just stick with it for 10 years, and in 10 years you'll see a cycle play out and I don't think I have. I think we're somewhere I have no idea where we are. I was a history major so I appreciate history. I also don't think history sort of tells the future and I think technology's probably the biggest disruption of history. Because as technology gets invented, the course of society changes and, you know, Uber is a perfect example. when Uber trains society that you can press a button on your iPhone and something will happen offline, that opens up every other door to somebody pressing a button and something happening offline.

And it takes a transformative technology, right Facebook, or maybe a couple of precursors to Facebook, allowed you to believe that you can meet people on the internet, and you can use your real identity to meet people on the internet. And you could say blogs sort of hinted at that but blogs were not what Facebook is in terms of identity and bringing real names and real identity to the forefront. And so every time there's a transformative scaled technology company, it opens up so many other doors. So I think you're in a cycle where the long tail of opportunities is enormous. But that fat head, those top 10 companies are really, really strong today. It is hard to find vulnerabilities in any of the sort of best technology companies. I think the biggest question to me is the M&A market. And so if you're not exiting through an IPO or today an ICO...

Patrick: [00:46:49] Or SoftBank.

David: [00:46:52] Right. Yeah. Exactly. But the liquidity opportunities for... And there are so many more companies today, and there's less M&A. Facebook and Google are not buying 50 different cute startups a year like they were in sort of 2008/9/10. Airbnb, Uber are not buying 50 companies on their way up, the way that Facebook and Google did. And so Facebook, Google, Twitter, even, were buying so many different companies as they grew to become huge. That didn't happen with this next wave of companies. That's daunting.

On the sort of other side of this, what I do expect to happen, but it's not happening at the rate that I would expect it to happen, is older companies are buying modern companies in order to modernize. And so-

Patrick: [00:47:36] Sure. Dollar Shave Club.

David: [00:47:37] Yeah, every company needs to become a software company. If you're not using software to drive your business, you're in trouble. And so the challenge to me is that the public markets are so volatile on a quarter by quarter basis that they're judging profitability and sort of where that company is at that moment and not vision, they're not interested in long-term. And so you get punished for taking risk and I think that that's a daunting M&A environment. And then if you sort of think about the incentives, the public company CEO is not incentivized for 20 years out anymore, the way that sort of the, I think, history says that the older founders of 1950 and on were thinking about legacy and sort of long standing company building. You can't think about company building that way today, as easily. And so I think there's less risk taking.

And then the other piece of this is valuations. I think every non tech company says tech companies are overvalued, yet, if you look at the public markets, like tech companies are pretty good and they get a lot of value, and they get that network effect. And so there's this balance when you look at a startup or sort of a five-year old tech company that thinks it's worth something but the established non tech player says, "Come on, you're, you know..." And Tesla is an interesting example, right? Tesla versus the established car companies in terms of valuation, Tesla has nowhere near the sales, but is a bigger market cap than the huge car companies. I think that is the sort of tension that you feel when a old established company is not buying a tech company. And then there's the integration and the culture and all of those other pieces. If we do buy this, do we know what to do with it? How can we actually use it and I think you saw John Deere today bought an AI-driven farming company that's going to impact the way their tractors work. That's the stuff that I think is going to happen rapidly, and it's going to happen for every company where those companies die.

Patrick: [00:49:37] How big of a consideration is the avenue for potential exit when you're making the seed investment? Are you thinking that far ahead?

David: [00:49:43] I don't want the founder to put a slide in that says exits and here are the six common...

Patrick: [00:49:48] Unilever is going to buy me.

David: [00:49:49] Terrible, right? Now on the flip side, if I can't figure out how they're going to exit and if the only opportunity you can sort of come up with is like, I guess they'll scale to be a public company. That's daunting. And so you need to have some hope that there is some sort of set of acquirers out there for a company. I don't want the founder to focus on that in the meeting, I want to be able to quickly just get some comfort that like somebody might want this one day.

Patrick: [00:50:18] How do you think about the portfolio and the construction of it? So 30 to 40 a year, that's a lot of companies in a single fund. And I'm curious how you think about like your minimum standards when investing? So a lot of times when I've talked to venture capital investors, specifically, they've said, it needs to have the potential to be an X bagger, just because there'll be a small handful that drive returns, do you agree with that kind of mindset?

David: [00:50:42] Theoretically, but I don't think I'm smart enough to truly identify that this can or can't be a certain scale. I think when everybody invested in Uber, and nobody said like, this is a hundred billion dollar opportunity. I think it was like, okay, the black car market is pretty big and interesting. So I think I'm doing myself a disservice if I sit here and have confidence in my ability to do that. I think the key to making 30 to 40 investments a year is a willingness to just be wrong and lose horrifically. Like we lose a lot and the losses are less personal for us than they are for the founders that we're investing in, they put their life into this. And so I think people are trivializing loss too much in our business. It affects people, it affects people's lives, it affects their livelihood, it affects their mental and sort of emotional states in a deep way.

We lose a lot and the losses are less personal for us than they are for the founders that we're investing in, they put their life into this. And so I think people are trivializing loss too much in our business. It affects people, it affects people's lives, it affects their livelihood, it affects their mental and sort of emotional states in a deep way.

And so, despite losing significant amount of investments over the years, every time you lose, it hurts, and it hurts because this is a person that you met once, and you believed it, and you thought that they had it and so did they. And so I think you have to have a risk tolerance in this business that's abnormal. My sports analogy is that an NFL cornerback, the person who guards the wide receiver, they're trained from day one, that they give up a huge touchdown, their next thought is move on, next play. And if you can't do that in venture, you're going to get caught in some bad mental rut, where you're just thinking too hard about what happened in the past and you miss that big thing. I think I'm in a business of hits, you have to get the big hits, the big hits are going to outweigh every single miss.

And the other thing is you can't miss an investment that you see. So if you see a great company, and you pass on it, that's the omission that cost you the fund. That's the omission that cost you the returns, those are the ones that I lose sleep over more than the ones that like, I don't lose sleep over the ones that we invest in and don't work. I feel bad for the founders, I try to help them and support them after the fail. I lose sleep over the ones that we saw and didn't invest.

Patrick: [00:52:49] What's your biggest sin of omission?

David: [00:52:51] All of them. Every one of the ones. I mean, we saw Casper, the mattress company early and we decided not to invest. Huge mistake. I theoretically saw Zynga early on when Mark was telling me that people were going to play poker on Facebook and I thought it was insane and that was wrong. We saw a company called Via, which is sort of a transportation carpool company, they just raised $250 million, like probably should have invested in that.

They haunt me and at TechStars there was a company called Remind101 at the time that applied, I got them through the first wave, it was my first batch, I saw it, I'm like there's something interesting here. I was new, I really didn't know what I was doing, I got them pretty far in the process but we ended up not taking them. I looked at the App Store today and they're the third ranked free app in the App Store. They built an incredible company, two brothers started the company and those are the ones that haunt me, I just look and I'm like, "Man, we should have invested in it." And I would rather be in everything and have it go sideways, then later on after it goes up and not be in the things that go up.

Evaluating Founders

Patrick: [00:53:57] Of the founders that you've found that you're most interested in investing in, or those that have been most successful, maybe some survivorship bias in the answer, are there common personality traits or things that you explicitly look for?

David: [00:54:10] More now than ever, leadership. Again, it's this focus on the future. I think too many investors are focused on the present. I need to know this person scales, I need to know the second a founder walks into my office, my mental image is that person standing in front of their hundred person company leading the all hands. Is this somebody that's going to attract 100 people to their company, and is this somebody that's going to be able to motivate and inspire 100 people to show up at work every day and work harder than everybody else? So leadership and sort of ability to recruit are those core factors and then you get back to that conversation we had before around, what's the core dependency? What's the core thing this company needs to be great at and is that sitting in the room with me today?

And so that's again, the easiest one to point out is marketing because I think too many tech companies ignore marketing and the meme for so long was marketing is not for tech. But I mean, you look on television, you look on podcasts, every single ad today is for a tech company, you have to be great at marketing. And you have to be able to tell your brand story quickly, efficiently and get people to, again, download something that they don't have any interest in downloading.

Patrick: [00:55:24] Do you think that storytelling is relevant on the enterprise side?

David: [00:55:27] Yes, it is so relevant on the enterprise side because you go ask any business how many companies are pitching them on some nonsense every day? It's hundreds, right? It's not even like 10, they are getting inundated. My wife runs a fashion company and they get inundated with all these tech companies that are going to magically help them. And she reads all of them, she's very nice, and she reads every one of these emails and I'm like, "Just archive it, it's a spam." She like, "But they said they can help me." And I think you have to be able to rise up above the noise, or figure out a sales channel that you are able to, again, through storytelling, through your narrative, rise up above everybody else.

Patrick: [00:56:07] What story do you tell founders? So I'm assuming in some cases with the best founders, it's competitive to get that early allocation, so what is your story?

David: [00:56:17] You better have multiple stories, and you better connect with the people. So I don't think there's a generic story that we're trying to tell at BoxGroup versus let me understand who you are and what you are looking for and let me tell you how I can fit into that. I think we write a small check and we try to under promise and over deliver. So what I hate doing is explaining why our money is better than other people's money, because it's not. And I think every investor sits there and talks about all the introductions they can make. An introduction takes about eight seconds of my day. So, if that's my value add I suck. And so instead, you need to figure out like, what does this founder want, and where do I fit into their puzzle.

Every investor sits there and talks about all the introductions they can make. An introduction takes about eight seconds of my day. So, if that's my value add I suck. And so instead, you need to figure out like, what does this founder want, and where do I fit into their puzzle.

And so if they're raising a round, where there are 20 different investors involved, they want something specific from all 20. Let me figure out which piece of what they want I can fulfill. If we're taking a bigger stake and leading a deal, I need the chemistry to be there. For a lot of the companies that have scaled and grown, I built personal relationships with the founders where at this point the main role I play is sort of shrink, and they'll call me up and complain and tell me things that they're not telling any of their other investors. We don't have a big enough stake, we're not on a board, we don't care about every investment because I'm okay with the losses, so I end up getting a much more honest conversation with my founders than I think a lot of other investors tend to get, just because I speak directly, I don't hold back. And I think the more founder can appreciate that style, the more chemistry we can build.

Patrick: [00:57:49] Very recently, what have been the biggest mistakes that you've seen founders make in this kind of evolve technology...

David: [00:57:57] Not raising enough money, which is counter to what every other investor tends to say is that everything's over funded. I think every single tech company is underfunded, truly. Like to reach the American consumer, it costs about 100 million bucks, to actually get your name out there. The old stat is it costs $60 million to get 30% of the country to hear your name three times. That number has probably grown and the scale of being able to reach those people is grown. So if you are building anything that is touching consumers, and you're trying to raise like $4 million to go viral, good luck.

I think every single tech company is underfunded, truly. Like to reach the American consumer, it costs about 100 million bucks, to actually get your name out there.

And I think the other sort of under talked about point on the internet is, this is the first time in the internet's history that there is not an immature customer acquisition channel. So there is no magical arbitrage sitting on the internet today, because the newest platforms are not allowing new companies to build off of them. So as Snapchat rises, there is no other company that won because of Snapchat. Whereas if you look at Facebook, Facebook created so many other companies on the back of Facebook. If you look at Twitter, people use Twitter as a distribution channel for their own company. Google today, mature, five years ago there was still arbitrage within the Google ecosystem whether it was SEO or SEM, or, you know, the Google PLA ads, the product listing ads. There was arbitrage within the Google ecosystem to build your company off the backs of these giants.

Every single acquisition channel is crowded and sort of mature. When Snapchat and Instagram open up their ad platform, the CPAs and the CPCs are equal to what Facebook's and Google's are. So there's not this channel where you can sort of live off of somebody else's growth in the way that it... And the App Store is another example of that right? The App Store early on was another magical ability to just sort of arbitrage. Today it's mature, you can't just magically sort of win the App Store. If Apple features you, I think if you go back like 10 years or 7 years at the beginning of the App Store, if you've got that Apple like hero feature, you won. Today that doesn't create your company for you.

Patrick: [01:00:12] Does that mean that the marketing or acquisition strategy now is more about conversion and awareness?

David: [01:00:19] It matters what you're doing and I think it's both, right? The cheapest way to acquire users is word of mouth. So if you can create any semblance of virality, and get people talking about you, and that could be anything from a stunt, to just a magical product, that's the cheapest way to acquire users. I think after that, you better be great at performance and you better be great at understanding how to find small pockets of arbitrage, how to target your customers, how to be where they are. And I forgot a big one - social, right? You can't, as a new company, just open up an Instagram account and expect like to win, right?

Patrick: [01:00:53] Build and they will come.

David: [01:00:54] Right, and I don't think you can find a period on the internet where this was true, where there wasn't an ability to sort of hack someone else's scale to your benefit.

Patrick: [01:01:04] Right. A ton of these kind of startup blog posts or books or whatever, there are all these examples of, and I like the Airbnb one hijacking Craigslist's network.

David: [01:01:14] And they did it.

Patrick: [01:01:15] They did, but that's gone.

David: [01:01:16] Correct.

Patrick: [01:01:16] That avenue is gone.

David: [01:01:18] Yeah. And maybe there's new ones that are about to happen. But I think the newest sort of scaled companies either are smart enough or just protective of what they've created that they're not opening up to sort of allowing people to do that. I think Instagram is probably the best platform to try to develop and create an audience. And beyond that, Snapchat has not opened up in the way from a discovery standpoint, that allows that to happen. And then you go to the other ones, and they're just mature.

Patrick: [01:01:47] It seems like people's time has been completely mined and podcasts are actually a good example where there was kind of this last bastion of time where maybe you're on somewhere with no Wi-Fi like an airplane, or you're working out or commuting or whatever. And you can't have a screen in front of you but even that now, podcasts are growing like hotcakes. So even that has become mined. What do you think about that just from a general health standpoint? It's something I think about quite a bit and am somewhat concerned about just the fact that we spend so much of our time in these different channels, do you think that that will change?

David: [01:02:22] I think it's fine. I think it's just how the world has evolved. I think everybody's bored and wants to consume things and like to sort of be entertained or be happier, be educated. And so like, there is a picture I saw. I forget where, probably a blog the other day, and it was a picture of like 100 people standing in a line looking at their cell phone. And then it said, "Nothing has changed." And it was 100 people staring at a newspaper. And so I don't think this is all that new. I think the access to information, the scale of that information, the speed, the pace and the news cycles all those things have significantly changed. But I don't think people's sort of voracious appetite for content or entertainment is in any way different. Like am I shoving my iPhone down my daughter's throat and being like, look at every video. No. And I think, you know, as children, there's sort of child development that probably should not be iPad dependent. But I think at some point when people are mature, if they're addicted to their phone like...

Patrick: [01:03:24] Will want to be entertained.

David: [01:03:24] Yeah. Makes no difference and I don't think that's going to change. I think you're going to get to autonomous cars, and what are you going to do in that car? You're going to sit there and like...

Patrick: [01:03:34] Stare out of the window?

David: [01:03:35] Talk to people or go to sleep? No, you're going to watch videos, and you're going to play games. And so I don't think this is bad and I think most people want something that isn't easily accessible or easily affordable. And technology is allowing all of that to happen a lot easier. And so whether it's seeing things or experiencing things, technology's brought that to a large group of people who would never have had that before.

Patrick: [01:03:59] What trends and it could be expressed as an individual company has you most excited right now looking forward?

David: [01:04:04] I keep coming back to it. I think that companies without a heart are dead. I think if you are a brand, and you don't actually have a meaning or a connection, and it doesn't mean social good, and it doesn't mean, you know, we are changing the world. But if you don't stand for something, and if your customers don't have that depth of relationship with you, you are dead. And so what that means to me is all of these... And I, at Spring, I look at retail, right? And I look at the sort of major shift in retail, and whether that's offline stores or sort of old established brands. If there's not a modernization of what this brand is and sort of a consumer's ability to connect to that brand. It's dead because the millennial dollar, 90 cents of every dollar is spent on brands that they believe they have a connection with. That is a stunning number and the other 10% is probably food.

And so every dollar that a consumer spends today is going to something that they believe in, it's not going to something that they need or want or sort of casually get exposed to. It's something that they feel a connection to. And I think that has created this enormous opportunity for old established brands to die overnight, by not understanding and appreciating their customer. I think the area that you're going to see that the most and it hasn't affected the businesses yet, because there's monopolies and sort of barriers to entry but airlines and you see it as these memes of hatred around these airlines, there will be something that cuts through that noise - it might be a company reinventing who they are and delivering better customer service. But it's every single industry, if you are not building that actual relationship with your customer, you're dead.

Every dollar that a consumer spends today is going to something that they believe in, it's not going to something that they need or want or sort of casually get exposed to. It's something that they feel a connection to. And I think that has created this enormous opportunity for old established brands to die overnight

Patrick: [01:05:54] I had a conversation with a public market investor and one of his litmus tests, he calls it the snap test, is if this thing - a brand, service product, whatever literally just disappeared tomorrow would I care? And that kind of applies there, too. I think it's a good litmus test.

David: [01:06:09] Right and look at fast food. McDonald's is fine. I get that their same store sales go down and people aren't eating fattening food. But McDonald's is like the best. If I am Wendy's, or like one of these long tail fast food joints that doesn't stand for something unlike Shake Shack and In-N-Out - they're great - they mean a lot, but Arby's, I don't know how many people are waking up and just feeling a connection to Arby's today. And so I think you can look at these established companies and they are in trouble and the pace of their trouble is accelerating.

Patrick: [01:06:44] Last question I always ask everybody which is always a nice place to close is for the kindest thing that anyone's ever done for you?

David: [01:06:49] I know and I've been thinking about it for four days and I couldn't come up with like, I didn't have a narrative and I'm going to take a counter approach to your question.

Patrick: [01:06:58] Do it.

David: [01:06:59] The kindest thing that ever happened to me, I referenced that company from 2007 to 2009 that I worked at - I was aggressively fired from that company, with a security guard escorting me out of the door. And I was running a division at the company I had 30 people that I personally hired, that I inspired to work there. I had a fire in my belly before that but that lit me up, it hasn't dwindled in any way since and I think that it wasn't a good moment. I sat in my house depressed for a good six months after that, and that was when I was studying the accelerator model because I was just depressed and sitting there but I think without knowing it, the guy who fired me did the kindest thing anybody could have done for me.

Patrick: [01:07:44] Fantastic. Well, I've learned a ton in this conversation. So thank you for all the time and we'll have to do round two someday.

David: [01:07:58] Awesome. Thanks so much for having me.

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