April 2, 2021

Investing in Ag-Tech in the American Midwest and how it differs from other industries - with Grant Newlin

Investing in Ag-Tech in the American Midwest and how it differs from other industries - with Grant Newlin

Grant Newlin, Founder and General Partner at Newlin.vc tells us about investing in ag-tech and cross-border investing. We discuss how founders in ag-tech should approach fundraising and how their startup strategy should be different from SaaS startups.


Newlin.vc: https://newlin.vc/

Grant's LinkedIn: https://www.linkedin.com/in/grantnewlin/

The Full Ratchet: https://fullratchet.net/

Transcript

We'll talk about investing in West of the United States also talk about investing cross border and also about investing in.

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And how is different from investing in normal kind of starts solutions. So, brands, let's kick it off by giving us some background on yourself and on the only Ventures.

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Sure cause the team thanks again for having me. It's good to chat with you today.

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Bit about myself, I guess by day I'm either a dog doggy daddy with my golden Doodle or training for him a fights or on the golf course, but by night we're, we're working hard around the clock.

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At at New Adventures, where we've got the syndicate, which we spun up about 6 months ago.

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Up to about 150 folks on the platform.

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So, it's been just it's been amazing start Pre fund 1 I guess. I'd say so we'd be looking to that potentially in the next year.

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When the timing's right, but really started as a consulting advisory practice that I.

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Spun up in during my, during my MBA at Duke, so that, that was basically last year in 2020 and then.

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Realized I needed to get some amazing founders funded.

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And so I kind of I'd say about.

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Halfway through coven, we, we spend this up and now we're cranking out a deal about 1 a month or 1 every couple of months. So it's been fantastic.

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That is really cool and congrats on doing this to your independent a lot of new stuff happening. No 1 really knew how to do this stuff. So congrats on being able to figure it out, communicate work.

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So, 1st question is outstanding question that asks pretty much every single investor that comes out on fundraising radio, which is, would you like to investing in terms of fields? Stage, average check size.

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Yeah, well, in terms of fields we like, um.

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In short tech, we like consumer anything that touches the consumer. Even if it's B, to B to C food tech is really my bread and butter Internet of food food tech. Really?

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What I call from land to label could be anything starting from the agriculture side where we get a lot of deal flow all the way through, even to potentially potentially packaging on a CPG product, but really everything in between there. So we like technology.

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We like we like hardware software within the food tech space like preceed.

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Seed series, a, and in terms of geography, we're looking at North American South America right now it's a lot of overlap within the agriculture cultural markets.

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Some cultural overlap a lot of great founders between, between those 2, between those 2 continents, which we can talk about later. Sure, true, true.

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So, 1st, let's talk a little bit about the geography you've mentioned that you are generally starting January trying to stay away from the coastal areas. Why? So, I mean, California is huge in terms of agriculture.

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Why don't you like the hilarious in terms of investing and starts there?

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Sure, yeah, I guess I should probably clarify kind of more on an inbound versus outbound approach. We have done deals in New York and California and of course, if we get some great I get great deal flow from from that area.

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But if it's just a general, let's just call it. A consumer says business in. You're in the Bay, you've already got Andreessen, you've got already every firm out there. It's very well capitalized. Right? So, they're already knocking at your door before.

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I'm probably even going to get to see you so we're looking as we democratize venture. We democratize mentioned success. We're looking for areas that are undercapitalized. Parts of the middle of the country still are very undercapitalized part.

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A lot of South America is very undercapitalized. Brazil. There's only a few venture firms that even exist.

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And so, for those reasons, at least on an outbound strategy, we, we tend to.

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Uh, you know, have limited resources to go, go on the hunt. So, of course, when we're gathering and we're getting inbounds, we'll always take a look. It's not that we wouldn't do a deal there, but that's not where we're looking per se.

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Understood so, yeah, now let's talk about tech that's the field that we generally do not touch upon so let's talk a little more about it.

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So, 1st question while a valley starts in macrotek, are there any special things that you'll look into? That's software investors generally just completely ignore.

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Sure, totally.

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Well,

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I'd start by saying if we talk about agro tech,

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I really want to broaden that up for the audience and for the viewers in any startup founders that are out there because really agro tech is really just the seeds that blossom into the larger food tech ecosystem,

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which also,

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frankly,

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a lot of times feeds into consumer,

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because you're going to have a lot of people around where a lot of the food can be growing Chicago here in Texas and things like that.

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But the differences are the SAS company obviously you can spend 1 of those up, create an app 50000 dollars. You've got your app, and you're potentially have 100% gross margin and recurring revenue.

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A lot of times we're dealing with hardware and physical products, or if you're manufacturing as CPG, any consumable really consumer product out the gate. If you can't even get a positive gross margin. I've seen this happen.

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You can't even sell any product because you'll be using all of your funding for your operations and your marketing your HR to basically.

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Filling the gaps for and a product that's losing money. So, physical products are much it's a much tougher funding stack and you really have to be thoughtful on that gross margin number in particular.

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Nice to put aside the tech part of it. What do you think is the hardest part about the founders in the agro tech field specifically? What is the major problem that they're facing? Especially well, fundraising.

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Yeah, it's scaling right it's so it's much easier to scale a software business. You can like I said, you can just.

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You get network effects very easily you just download that boom, people can start, you can start monetizing it immediately when you're building physical products, if anything you don't have any scale in the beginning when you're starting out.

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So, you take a large CPG company, like Kraft Heinz, right? Where I work, they've got such massive scale that their costs are so much there's cost structure, even just their bargaining power everything when they're when they're negotiating ingredients, it's totally different.

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So.

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What a lot of these companies,

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but a lot of these companies have,

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which is good is they've got unique brands and,

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you know,

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totally a lot of times better for you products,

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things like this and they're able to innovate such faster so much faster than.

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Than the large CPG companies, but then again, they're Co manufacturing, they're outsourcing, they're having to outsource their manufacturing. They lose control over the product when that happens.

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I've seen labels be flipped upside down because they have been sent to a cool man and they don't even and they're unable to kind of see until they product gets on the shelf. So, that's where that that's where that synergy can come in later where you can.

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Find the right partner that already has scale that doesn't have the kind of innovative.

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Mindset as much.

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Potentially, then then you can create a great combination where you seeing these.

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These brands being gobbled up for 150M or much, much more.

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Just because they, these large companies want access to those brands, and those brands are going to need those larger companies because it's sometimes almost.

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Impossible not impossible, but it's very hard to really over the long run get to that scale point.

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Where you're producing, you know, you just.

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Getting to that stage, it's it's very challenging as a startup. So you see a lot of exits um.

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2 large, large companies, and you might see them a little bit earlier than you might for a size business.

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A, very, very true. Perfect observation. Seen it multiple times in the past as well. So and what's your condition to founders toward doing agro tech Midwest in the Midwest regions of the United States?

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Should they try to move to the coastal areas where there might be more investors but at the same time, those investors are less focused on deck or should they try to stay? Can Midwest and try to network their way there?

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Sure, I mean, they can, I would say.

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A couple things 1 is as as.

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The entrepreneurs listening right now as they're looking for funding.

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Definitely hit up folks on the coast. Definitely. Hit up. There are going to be some great firms you could be in the Midwest you could be in Brazil, you could be anywhere and not and in a no name town but if you, if you build the right outbound strategy, you can, you can find venture.

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Firms that are willing to fund you where you're located. The flip of it is really that the, these companies have such a lower cost of doing business and even in Brazil, you can buy land it.

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In some cases, at the 10th, the cost on farmland, then you can in the US.

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And so it's, it's actually sometimes much cheaper to operate your business where you currently are, where you're in the ecosystem of whatever your building is. And then usually also you'll see.

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Some venture funding folks like myself in later stage folks that are going to pop up naturally in your area in your part of the world as a result of.

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The kind of companies that are being produced in those areas. So that's why I see a lot of CPG consumer focus funds here in Austin, or in Chicago, et cetera. So.

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Right, right? So you already mentioned Brazil specifically multiple times. It's because he did make an investment in Brazil King's also a little more about that. How did you discover this company?

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Did they reach out to you or did you find out about them from referral or how did this happen? Yeah, this is great.

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It's a camp says to the name at right now, but basically you can think of cameo here in the US and you can think of simply similar like that in Brazil and very specific to the local market. There.

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And it was an inbound, which was awesome, because I don't know if they caught me on the website or where they pick me up. But.

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Um,

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I was so happy to get this 1 and it's amazing team and,

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you know,

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I did a very small check because I'm dipping my toe just in the water there and want to make sure I'm staying in my lane and,

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and not going overboard but yeah.

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It's interesting because they did build an onshore entity,

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Delaware,

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and I had to have my legal team,

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take a look at it and frankly deal based a lot on just trust in my belief in the team and what they're building and their strategy around it.

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Because, yeah, having, not met them and being in a different country, and, you know, who knows how things will go, but I have full confidence in the team. And it's great to finally do my 1st deal down there and get more ingrained in the ecosystems.

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And what is the 2nd, largest agriculture market in in the world? So.

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Very true, very good point. By the way. What's was the number 1 agriculture market in the world? I'm just curious now.

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Uh, it's, it's us Yep. Oh, I have no idea.

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You haven't impressed us? No, not not necessarily. In terms of consumers right? You'd probably think China, but in terms of producing. Yeah. So yeah.

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I'm very surprised actually, I had a.

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I thought it was definitely not the book. Well, get to know. Good to know. So let's talk a little bit more about Brazil and the difference between Brazil and startups and the United States based RPS.

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I recently interviewed the founder who moved from Brazil studies company in Brazil who sold his company in Brazil, and then moved to the United States and he's answer to the question. Yeah.

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What's major difference between the US founders and presuming founders is that Brazil and founders having this insane.

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Resilience what do you think is the major difference between Qs based founders and Brazilian founders.

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I think that I would totally agree with that point. I love the resiliency. I think you've got a country that's 1 of the brick nations, right? It's developed. It's developing still. It's very much 1st world, but it's also got so much room to grow.

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And so they've got to prove and to show, they've got this massive, massive country, 200, plus 1M people very, very diverse country full of natural resources and yeah, I think that's spot on assessment. And they've.

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They're like, we talked about being undercapitalized, but it's also like, we talked as well about being super, super cheap versus here. So you've got really hustler founders, which is what we love. We love very diverse.

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You know,

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there's lots of high immigrant population,

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very diverse founders down in Brazil that that have also,

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maybe even some national pride that that need to come up to the market and kind of become closer to parity with,

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with,

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with some of the other more developed countries.

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So, there's, there's so much going on down there. It's great to see.

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Very true. Very true. And yeah. Again agreed fully agreed. So now let's talk a little bit more about.

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Uh, actually, nevermind, 1, 1, more question about the immigration so.

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That's the question I would like to discuss because I'm an immigrant myself, but also we have about 20. I would say 20% of our really centers are non. He has based founders. So, for those people.

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Sorry, who are not based in the United States, but who are trying to race, at least some portion of their mind from the US based investors. Would you recommend them moving to the United States? Or is it still possible to stay in their home country and try to raise money from the US investors?

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That's a great question. This comes up all the time and I also I'll often see some split teams where they'll maybe have if they can, they might, you know.

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Keep some put in the ground at home, but then then open an office in the us if they can look for for any of those for any of those immigrant founders, those 20%, we love you. And even if.

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For us, and and even if you're not per se on thesis, and some of my other kind of check the box.

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You know, areas that we invest, we just love to hustle and look, I mean, if you, if you are able to come right then.

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I think it definitely opens up a new world of opportunity for you just being closer to where a lot of the capital is right? So you can actually go and meet with folks, you know, let's say, in a, in a Pre or post coven world, you can go meet with investors much more easily.

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I've had 1, 1, founder from India, and he would literally have to fly from India to the US and it was.

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It was that was just a lot so he ended up opening a.

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In office, in, in in the States, and I think he's working, he's got a team here and so sometimes you can make it split and a lot of times, you know, it used to be that.

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We say, like, oh, we don't want, you know, the traditional, a lot of traditional. Oh, don't.

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Offshore your dev team, you got to keep sure you've got to keep them all together because you want the dev team talking with product and leadership and all that. But frankly, just with how.

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I've seen some great quality of dev teams in Eastern Europe in parts of Asia and South America that can do just as quota quality work. They can work also.

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Uh, much cheaper cost a lot of times, and they can often be working when the onshore team is asleep. So you can have a team that's constantly working potentially nights between the 2. so, it's a lot to man.

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It's a lot to manage, but if you can do it, I think you have a lot of different options.

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Very true, and again Cray Cray observation there so now let's move on to the next part of these episode, which is deal flow discussion and discussion of how startups can get in touch with the investors seeing the best possible way.

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So, you were the head of deal flow, add new stack Ventures can you 1st tell us a little more about the position itself? What was your major role there?

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New stack is a great firm based in Chicago they focus on.

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Nick around the over there, I've learned a lot of what I know.

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It's not everything I know to some extent from my time working there.

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Back in 2017, but, uh.

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With new stack I was looking at, I was, I was basically playing, I'm playing the role with a lot of hats. It was looking at 300 deals a month.

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About we'd make and then, you know, filtering those down, writing, deal memos and making helping make the decision. Obviously it makes the final call, but.

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I'm investing in deals about about 1 a month. Like I said, and, uh.

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But on top of that, it was engagement working with investors, helping to spin up the syndicate that he was running at the times. Now, the 2nd largest syndicate in the country. So it was, it was playing out a lot of.

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My prior experiences between consulting and banking doing deals and kind of running finance and running models and but, you know, when you're doing it.

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At a much smaller scale you just, it's not like your pigeonholed into 1 roll per se with a lot of these smaller venture firms you have to kind of be able to.

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Be a Jack of all trades kind of utility player to.

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To do more than just just managing deal flow. I think the biggest thing I learned from there was.

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That the importance of building an outbound strategy so it's 1 thing and this, this would be great for folks listening that.

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Are wanting to work and venture at some point or going to be analysts or associates is that. It's 1 thing to take an existing proprietary inbound funnel and run it through a scorecard or run it through a process. And, you know, kind of do all that.

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But if you can you really add value if you can find a way to build an outbound flow by going and reaching out to the accelerators and reaching out to founders and making yourself available and make yourself known in finding.

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And doing that hunting, rather than just the gathering strategy, because that's something that.

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That you'll have for yourself, that's really proprietary. And that will add a ton of value.

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To an early stage venture firm let's actually talk about the outbound strategy 1st of all love hearing how investors are actually spending more and more time on the outbound and actually hunting,

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as you said,

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for great deals.

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And so just harvesting those from the existing pipelines can sell us a little more how that works. How can founders increase their chance of being met noticed by the investor and actually investor reaching out to them instead of the other way around.

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Yeah, this is always the tough 1 and I think every firm's probably got different strategies and you find that the reasons of the world, and they've got.

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Probably all kinds of teams and armies and algorithms that will go and hot and so, but for someone like me, you know.

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You know, if I had if I had more resources, I'd be having, you know, you could have like.

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You know, 1 person, just hunting in a particular state, or a particular country, because there's that deals out there. But we like to do is really build relationships. There's conferences. You can go to even the virtual conferences are fine. These days.

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They work deal flow their accelerators. Are great even getting in, with universities. I've got relationships with U. S. C. U. T. Austin here, Illinois Champaign.

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I mean, where I went to school or undergrad. I mean, there are a lot of great ideas coming out of universities. Great founders that maybe even if they're a little green or young now, they may not be this startup that they.

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Are successful in,

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but you're building the relationship and you're,

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you're meeting with early,

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young,

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smart entrepreneurs that are in great environments,

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safe,

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safe places,

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and,

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you know,

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awesome research universities that you can again build those relationships with and over time kind of watch them and be there for them,

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and you'd be surprised how many times they'll just call you up and ask for advice and then,

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oh,

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when they do start that 2nd company,

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and they're ready,

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and they need funding who's going to get on the cap table?

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I'm going to be. Right? And so that's another way as well. So just kind of making yourself.

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You know, and go out there meet with folks. Like I said, accelerators are an easy way to start.

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And just over time, it kind of just naturally develops and you'll kind of naturally develop your own.

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Flow with it. True. True. Are definitely a great option. Especially for 1st time founders who don't really have network. That's literally I would say.

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70% of what accelerator brings into the game, which is their networks so yes, if your 1st time founder, and definitely take a look at different accelerators 3rd ton of them.

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What and yes, definitely going to be helpful for you. So moving on to the next question.

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A little bit more about the deal flow. So, for founders, trying to get in touch with the funds, what's the best way to do? Is how, from your perspective, you know, as previously the head of deal flow new stack Ventures.

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Having a warm intro versus having a person coming in through the calling application that's on. Your website was what's the difference there?

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Totally, yeah, with warm intros if you can get them there, like you said, and totally agree with that analysis you just gave, I mean.

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That are hard to get,

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but if you can warm intros,

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I almost,

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I almost always take meetings just out of respect of whoever's making the introduction versus if I just get a cold inbound on my LinkedIn,

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I may even miss it because I'm managing things out of my in my in my email,

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so if you're going to do.

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Cold emails it's fine. It's great. Actually, if you can find a little nugget or something about that firm or that person that you're.

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You know, sending it to that kind of catches a little hook or, you know, common interest or something that that kind of sticks you out just a little bit versus.

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Every other, you know, 1020, decks I get a day and that's that's that's really helpful. And really, I'd say the most important thing on that, though, is that as you're looking for.

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Send a kids early stage funds any of these investors, right?

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Think about and it's honestly sometimes as easy as just using a simple Google search crunch base search, and there's a lot of free stuff where you can kind of scrape this. But.

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Be thoughtful about who you're reaching out to 1. it's going to save you a lot of time. For instance, let's say.

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Let's just say you're working, you're just starting a health healthcare startup. Okay, you really want to go find the vc's that really focus on healthcare and they're going to be probably in certain cities, but you can at least kind of start to filter.

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Because if you send me 1 of those deals, I'm not even going to know what to even how to look at it. So it just immediately goes in the flight past been. So it's kind of it waste the founder's time. Because there's so many, there's so many investors out there.

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So, to the extent that you can really try to.

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Focus it down to really just folks that are kind of.

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On thesis, and that look like a good fit and it just takes go to websites and just see what they invest in and even better bonus points. If you can if you've got, like, say a larger firm that's got a huge team. And you have the time. And you can find.

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The right person or people within that.

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Group right that leads the specific practice that just does.

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This health care, med tech stuff that you happen to do.

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Then, boom, you've got your right person because everyone kind of has their niches and their thesis. And so I'm just kind of spring and praying and just, you know, going out and sending it out cold a bunch of people. And, like.

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Hey, look at my deck, we invest and, you know, there's nothing no thought to it. It's.

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You're going to spend more time spinning your wheels doing that and then you just going to northern VC. So, my advice there. Yeah. Yeah. Great advice. Just some follow up on this as you said, there are tons of free resources. 1 of them is Google.

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So, if you feel like, you know, there is investor that you want to have on your cap table, just Google, their name.

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I would say there is a 97% chance that they did participate on some kind of podcast, or wrote some kind of article. So what you do, you're just.

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Copy paste the title of the podcast. See.

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Then you find their email, then you send them an email with a headline saying, hey, heard your podcast on.

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I heard you on the spot test would love to talk to you about my company, because X Y, Z and then if they do respond, you actually do listen to this episode and you come in prepared.

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So, try Google, just Google, find that ice breaker and get in touch with investors that that kind of cold outreach actually does work proven by myself. So.

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Question before we move on to the very last question, it's about the immigrants again love this topic cannot stop myself from talking about it. So most of the founders that you've invested in are immigrants, why is that?

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Is there something very special about immigrants that brings your attention there?

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Totally, yes and it's.

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Basically comes down to the basic premise. I mean, if you even take it further back to back in the day, when they were coming on boats, and they had rats on the boats, and they had 18 hundreds, and they go to L, a silent disease and everything.

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I mean, for someone to pick up their home with their family and risk at all.

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With nothing in their pockets to come to a new place.

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You don't really have other options and to succeed. They're just not going to make it. And so that creates anytime you do something like that.

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Yeah, it creates it creates a culture and it creates a, the resiliency that we talked about it within within you to go do something. And, you know, if there's.

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Not that there aren't great founders, you know, locally stateside that are been here for generations. But, you know.

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You could also have, you could argue, there's could be a bit of complacency that kind of sets in when, you know, when you don't, you know, humans adapt. I was just in this.

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We had no power for and no heat to. No, I had no food. Really? For 5 days down. Here is cold in Austin. We had this.

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Sister, I don't know if you heard about it, but it creates resiliency and, like.

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I have a home perspective on life after having 5 days of nothing and so a small example, but when humans are or anytime we're faced with challenges, that's when we really shine and that's when we have an opportunity to really grow.

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And that's what we're looking for. We're looking for the hustle, we love the hustle of immigrant founders and so.

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Um, it's it's no coincidence that you see so many of them and see so many of them do. So well.

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Sure, sure. Very good points there and to be fair, I'm glad that at least we don't face this challenge of.

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Cold weather in Los Angeles, so hopefully will not face that anytime soon, but yeah great points. Ingrid founders are great. A local founders are agree as well. Just, you know.

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Look out for them founders, if you feel that you are the 1, who is great, reach out to fat to investors. Explain why you're great but being humble at the same time and then hopefully they're getting themselves.

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So, now that we've discussed that, let's move on to the last question of today's episode, we chose a call to action. So grant, what do you want to listen to do as soon as the episode is over.

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True. Will any any startups or founders out there feel free to you can.

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You can send a deck right through our website do a cold.

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There's a pitch button, I'll also give you my email address. It's grant.

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i1st name at neulander dot PC feel free to send me an email.

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I'll try to respond to everyone. I usually do, but sometimes it takes a little time. There's a bit of a queue, but, yeah, I would say, I would say the but more generally than that whether it's for me or or another investor, it's going out there.

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It's that hunting strategy essentially for.

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For founders, you're going to get some inbound from.

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You're going to get some inbound interest from from.

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Okay, you will, especially if you're really good, but again, you want to go out and target the right ones that you think will be the best fit.

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Culturally that you just feel is good that it's going to provide you the most value strategically and so you got to go out and be proactive to go to go find that.

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And so it can take a lot of time, and it can distract sometimes from the actual running of the business. But if you can find the time, I think it'll be totally well worth the time. Well, spent if you can go out and find the right partners to upgrade business.

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Absolutely, and yes, it will require a ton of time. Some founders think that now fundraising shouldn't be that hard.

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I'm just saying a bunch of emails it takes a ton of time so I would highly recommend taking 1 of the CO, founders and forth to gain them to the fundraising while the others run the actual business. So, yes. Follow grants advice, make sure to check out the description of this episode.

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I'll leave the links to newly Ventures. They're also leave a link to the.

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Grants LinkedIn, and also I'll leave the link to.

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The full record, because, I mean, we mentioned some new stack Ventures. We mentioned to make more N, and they're full stack. I mean, the full wretched is just a great show. I personally love it 1 of the few other podcasts other than fundraising radio.

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The actual listen to so checkout description says episodes listen to Grant's advice and as usual have a good day.