Jan. 28, 2021

Using operational experience in investing. By Laurent Grill.

Using operational experience in investing. By Laurent Grill.

Laurent Grill, partner at Luma Launch and we spoke about the use of operational experience in startup investing. We also discussed which companies shouldn't try to raise money from VCs, what are the alternative sources of capital and what are the major mistakes that Laurent sees student founders making.


Laurent's LinkedIn: https://www.linkedin.com/in/laurentgrill/

Luma Launch: https://www.luma.inc/launch

USC Marshall Venture Fund: https://www.marshall.usc.edu/

Episodes about alternative sources of capital: https://www.fundraisingradio.com/category/alternative-sources-of-capital/

Transcript

And today is a guest speaker, we'll have Ron grill partner at Loma lounge and today we'll talk about the use of operational experience in the world and specifically in the investment side.

Also we'll talk about which company shouldn't even try to raise money from disease.

And what are the major mistakes that Ron sees student founders making really early on so, let's kick it out by you giving us some background on yourself and on a Luma lounge.

Yeah, thank you for having me today so I started off, uh. Intact back in 2010 uh.

As an operator I joined up with my brother, and we were building a company in the music education technology space.

Which, you know, this is the time when the iPhone had come out only 3 years earlier. Um, and, you know, there was really an opportunity to democratize.

Sort of education across a variety of sectors, but coming from a musical background. My, my family's both my mother and father were musicians and, you know, it was a really interesting opportunity to bring music and tech together.

And so it was great to be able to join him and in this endeavor and we had a lot of. Amazing successes, but that was my kickoff to.

To getting into tech and, uh, you know, kind of never looked back and so from there, when it started a company.

In video, streaming in 2012 a little bit early. Honestly, a lot of reasons actually didn't work, but it was definitely an insight into what 2000 twenty's exploded as we see zoom and some of these other platforms that have done incredibly well.

But that might have been a little bit early for the adoption cycle.

And after that, I went over to a wonderful company called eat club, which was a corporate catering service tech, enabled corporate catering service.

Based out of Palo Alto and learned a lot in that process and was in charge of expansion. So got to do a lot of different things. And we're a lot of different hats.

And worked for some really amazing people and then from there joined another great company called zeal.

Based out of New York, which is a massage on demand company and once again came in very early and was.

Uh, open up our LA market and help us expand beyond, you know, a couple metros and.

Finally, brought me to Luma launch where this is about 5 years ago, where I met the team here, and our visions were aligned and really looking to be a real leader in the early stage tech ecosystem here in L. A.

you know, in 2015, despite the fact that we had some good momentum coming from some companies that were really taking the next level, we're, we're still.

A fairly nascent community compared to some of the bigger players, like New York and San Francisco and.

And I saw an opportunity that was to be a leader and plant our flag at the time, was sort of the intersection of media and tech, but has evolved tremendously over the last few years.

And since then we've made over 30 investments in a variety of different, amazing software companies ranging across a whole litany of verticals and.

You know, brought brought us here today. 2021 still, still kicking.
That was that was my spark notes version of my career. So I know I kind of details.

That's perfect, perfect description of your background. Love it. By the way. Before we move on. 1st question is can be belt Los Angeles on based in Los Angeles. I personally love Los Angeles.

I believe it's much better than San Francisco, but just this morning, I was talking with another investor and he was not in the US and he was thinking, should I go to San Francisco or should I go to Los Angeles? I was like, every depends on what you invest in.

So what do you think what kind of investors should actually consider moving to Los Angeles instead of San Francisco.

Well, I think there's actually a broader question right now that's happening. You know, I think the shift of decentralization, and the need to be in a single location is proven that people are moving all over the country. It's not.

I don't know what the longevity is. I think this is a discussion that is.
A little bit longer, but, you know, as we see more and more investors actually leaving.

Not just San Francisco, but Los Angeles and New York, and some of these bigger Metropolitans moving to the Miami's of the world in Austin and frankly, all over the place. I know people who are in Montana because finally, you know, we're in a place right now where.

You don't necessarily need to be and want to load these locations in order to do this job. I would argue that, you know, I think this is still relatively short term. I think there's going to be massive values.

Around being in these locations, long term for a variety of reasons, I think cultural I think, you know, when you have multiple industries and these bigger Metro is, it really creates.

Fascinating intersections that that leads to innovation.

Um, but ultimately, you know, I don't know what the future holds. I think it's been shaken up pretty heavily in the last the last year. And so I'm very bullish on La myself. A lot of opportunity here.

But I'm definitely curious to see what will happen in the future.

100%, I hope they will date San Francisco in terms of the density of investors and start founders. So a 100% bullshit as well. So glad we're aligned. All right so now let's talk a little more about a Luma lounge.

So you mentioned that you invest across pretty much, all different sectors, mostly focused on the Li, but to tell us a little bit more. So, what stage do you like to invest in which field or what major field you're investing and what's the average size?

Yeah, so, you know, for when we 1st started this off, I think we were sort of figuring things out we, for the 1st.

4 years of of our existence we invested.

Very broadly in tech specifically software tech, but in the last year, we've actually shifted our focus a little bit, you know, and I think it's, it's, it's been an important shift.

So we're now investing in company solving problems and a handful of categories, including. The future of work, health care education uh.

You know, environmental solutions, anything that we feel like is solving a real significant problem in our communities. And, and frankly, if you want to be really macro about in humanity.

But this shift in focus really came from a variety of different factors. You know, this was. Actually, before the lockdowns happened in in the US, but we were kind of looking at the whole.

Nature of where things were going and we felt like we had an opportunity to invest in companies that were really solving.

The the most important problems that we want to support those companies. So.
It's still broad. There's no question that the, the actual function of how we're investing is broad, but.

You know, with a little bit more of a narrow lens around being socially conscious in our in our investments, and making sure that we're spending time on the things that are probably the most important.

And that's and that's what we do now, we do focus super early so we're still preceded seed round sizes are generally anywhere between 4500000.

In total I know it's a little bit broad, but seed has definitely expanded and our average check size is anywhere between.

20500000 dollars at least initial check size and then we we reserve for follow on. So.

You know, that's that's what we're looking at.

And just 1 more thing about Luma that that makes is very unique.

We're actually a, technically we're a corporate venture, so we're associated to 1 of the larger independent creative studios in the world called.

Luma Luma is actually doing the parent business actually does work with visual effects and original pictures and a variety of other things that.

Is very unique to who we are, and we've kind of taken this.

Approach to our investments to help companies with their storytelling product design and really helping their narrative move forward, whether it's positioning themselves for future investment or speaking to their customers in a more poignant way. So.

That's that's who we are as a whole. It's, you know, it's it's a bit broad, but, you know, we, we've really been effective in in the way that we're actually investing and helping our portfolio companies.

Nice. That's really cool. And support for founders who have no idea how to present themselves. That's just super important. So, on this notes, let's actually move on to talk about another investment thing that you are doing, which is being.

On the investment committee off, you see, martial venture fund. So can you tell us a little more about the fund itself? How does it work? Is it like a student ground program? When is it a theme that sponsored by university or how does it work?

Yeah, so it is, it is actually a university sponsored platform. There are a couple of people early on that that's been a long time putting it together. A guy named David Glasgow and Michael Rivera.

There were a handful of other people, and it was a very unique effort.

When you look at a lot of there's not there's not many schools that have done this, but they were able to to create a real venture platform to invest real dollars in companies that are run by either students, alumni or faculty and.

You know, it's, it's been a really interesting program to be a part of I think it's been, I don't know, it's been 3 years, 4 years since since it accepted. But, um.

They incorporate an actual class through the business school.
That will do heavy diligence on these companies and then sift through all of the deal flow. And.

And the students are learning venture capital by actually doing it, which is fantastic. And then they brought in.

Uh, which I've been a part of since the beginning, we have a nice group of amazing investors across a variety of different sectors and stages.

To come in and not only work with the students throughout the semester.

But also, you know, upon actually making investments, we then come in and give our feedback and vote on things and.

And and give some guidance so it's, it's a great program. You know, it's it's, I think it's.
Really proven to be very popular and.
Hopefully will result in some actual great returns that can then be reinvested from that. The students. Nice. That's really cool. And yes, I hope to to.

Definitely have heard a lot of great stuff about startups that are coming out of. You. See, personally, I have seen a bunch of those are doing great so good luck there. Um, so, yeah, let's talk a little more about the students founders.

But what are the major mistakes that you see them doing? So, you know, when you're working with those student, founders was just like the top 3 major problems that you see with them.

What are the top 3 major problems that I see with student? Founders? Well, you know.

But 1 of the biggest problems is just the, the living in a bubble, right? I think that we.

And when we all go to college, or if you go to college, it's, it's very easy to distort reality around your world. And.

You know, when when building a product for.

Sort of the masses, whether it's a consumer product or a business product, or whatever you're building. It's very often difficult to recognize what the challenges truly are outside of your, your Micro world right? Colleges its own world.

It's own Micro. So, there's a lot of challenges that come from.

Really understanding your consumer based when you're not part of that consumer base yet that's 1 thing.

You know, I think look when you're starting a company super, super early that being naive is is incredibly important. I think I think that's a great.

It's actually a great asset as a student founder because I think the.

Um, sort of the naivete that comes with being young and and ambitious is is really, really valuable when you're going to face the hardships of entrepreneurship.

But it can also not understanding.
The or not having the experience, I think that's better. We're looking at not having the experience of.

Of being someone who's been through a trials and tribulations of whether they're was starting another company or working in companies and seeing how experienced leaders navigated.

It all very often comes back to bite them. And so I think that the obvious answers are sort of lack of experience is real.

The student founders that I've seen that have done the best are the ones who are students and what I mean, by students are.

They listen and they, they, they work on and understand that they don't know everything. And I think that we all face this a little bit. I face this as a young young finder myself. We're.

I genuinely felt like I knew enough to do what I was doing, but the reality is I should have been spending, far, more time, learning, and being a student of my industry and really trying to surround myself with people who have been there, done that. And I think there's often a.

Lack of there's often a lack of humility that comes with with being a young founder.

And it's because, and it's not because they're necessarily arrogant or, you know, it's not coming from a bad place but.

I think it's coming from a, a place of.
Of insecurity, and wanting to present themselves as a bigger player than they are. Should be,
because the reality is,

if you are open to criticism, if you're open to support,

there's amazing people that can help you with things that you don't know and you can be a great founder as a 2020 year old,

21 year old,

22 year old but unfortunately,

I think we all learn the hard way and it takes a little bit of.

I'm getting kicked on our a** to, to, to get to that point. Always always. That's true. I can tell that as a seeing myself. So, what's your advice of those students?

Know to those early stage entrepreneurs who are still maybe in college? Maybe even high school. What's your advice to them in terms of learning more from the industry? Maybe they need to find specific mentors.

Maybe there is a place where they can find those mentors, or what would you recommend them doing to avoid those mistakes to learn more actively.

I think it's simply listening, right? It's not. There's a lot of things you can do.

You can obviously go and find mentors advisors just have conversations as much as possible with people that.

Whenever you can get access to them in whatever capacity, I mean,

we live in a world right now where there is so much access to having conversations with leaders in their space,

whether it's through social media or through all of the content that you can see on YouTube or Spotify,

or whatever the amount of content overload that exists today was not even there 10 years ago. So you see these new platforms popping up that allow.

Allow you to have access to some of the most interesting people in your various industries, like clubhouse or Twitter and some of these other platforms utilizing those 2.

Really learn more about your industry is a great way to to do this. Even if you don't have direct access to people.

You know, and I think, look again surrounding yourself, if you can find a mentor or a handful of advisors to really help you along your journey.

You know, if if entrepreneurship is what you're, you're just destined and passion to do as a young, young individual, then.

That's the way to do it, but honestly, the reality is that most of the time you're going to learn through mistakes and I think that's a great thing. I think, you know, going going to try to start something and

and make the mistakes because those mistakes will then.
Lead to a a real learning experience that will hopefully make that mistake in the future.

Absolutely, and yes, that's right. I would like to just 1 more thing to add to what you just said. It's I think that.

Going into that venture with the feeling, like, you know, it's okay to fail. That's the most important. Because a lot of founders get burned out very, very fast because they fail so many times and they were just not not Mallory for that. So be ready for failure.

And go out and have fun there. So, let's talk about your operational experience. Now,
a lot of founders who I spoke to,
even on the fundraising radio,

they all said that when they were choosing their investor,
when they were picking their VC or when they were talking to investors,

they were always looking to make sure that they have some operational background some background actually running a startup.

So do you think that's an actual requirement? Are that's not as important as many think. I mean, look 1 of the, there's a, there's a.

I'm an investor that I look up to in L. A. that is considered 1 of the best investors and online. He's an incredibly well, and he never was an operator.

Got a mark moment at bonfire Ventures, you know, great, great investor and. Uh, and and someone that I learned from, you know.

All the time, so I don't I won't ever say that you cannot be a great investor. If you have not been a good operator, or have not been an operator.

However, I think there is a ton of value.

To experience experiencing the operating side I think there's a ton of value to being an entrepreneur or to being a VC. And the reason for that is because.

I think a large part of.

Being a supportive, early stage investor and again I'm speaking more from a seed and maybe Series a stage investor.

I think what's really important is to understand empathy, you know, the challenges of being an entrepreneur and list as you mentioned before you're going to fail many times you're going to have some successes you and have.

Days when you're, you're feeling very lonely.
And when having partners and investors that understand that struggle, it makes it a lot easier to to

reach out for support. And actually.

Take that support and converted into actionable items. So, I think as a former founder myself as someone who's worked in early stage companies and kind of been through the struggle, I'm able to understand a lot of the things that these companies are going through these founders, frankly. Are going through.

Um, to help them on a more personal level, and that's. Vital to a lot of not just the relationship that.
But, but the successes and I hope.
You know,

more and more people will transfer from being entrepreneurs to because I think that the more empathetic type of investors that we have in the space,

the more advancement will be able to have in the way that we actually function.

That that sounds.

Inspiring love it and yeah, when you're after the episode, we'll definitely talk about more about more.

Maybe I would love to talk to that guy, because I've definitely heard bonfire Ventures before multiple times. Yeah, that's definitely something I'm interested in talking to. So, let's talk about.

And TBC side so, you know, a lot of founders feel like, you know, if you don't raise, we see money, then basically you're not running a startup, which is a horrible misunderstanding. The start world. So.

Who do you think should not raise money? What are the criteria for to start that should not raise money? Is it like the.

Speed of their growth, or the retention rates, or the number of users that they have, or what are the major metrics that the founders should look at and be like, okay, I.

I do not need the VC money. Yeah, I think it's less about that. You know, there's companies that raise VC money without having.

A deck which happens, right? Yeah, I don't think we should be looking at a blanket statement at. And what defines raising VC money. I think the conversation is whether or not your business should be a VC backed business.

We talk about this all the time and.

You just sort of try to decide what is a VC business and I think, you know, there's a couple different contrary and points of view on this. You know, the, the general statement is that.

Uh, your company has the ability to call it 50 plus X, or I don't know, you make up a number because every, every fund has different expectations for what they want their investments to return.

But ultimately, it's Ken, your company multiply.

And an exponential way, and return and have an exit right? And an exit is important here because not every company has clear exit paths you know can you get to an, can you get to an acquisition? Is your company going to be hot enough?

That we could sell secondary and I series Steve.

And selling secondary, meaning selling into later stage investors who will buy our equity for a multiple.

That's a hard question and I think that the reality is it's dependent on industries. I think that there are certain industries very rarely see major venture investment in service businesses, agencies, things like that.

Because realistically we're looking for investments that can scale exponentially in a lot of these businesses that require massive human capital are just not as easily scalable.

And so, you know, we happen to be a software investor and so we're looking for companies that can scale with with.

Relatively low capital intensity and so that's a big part of what we look at, but every fund is going to be a little bit different.

And what defines whether or not, you should raise venture capital again. I'm speaking in the light other venture capitalists, not raising capital because there is, there is many. There are many different other avenues that you can take to raise.

Money cause some businesses need a little bit of capital to to get off the ground or to to get to the next stage but that doesn't necessarily need to be from a UC. Right? There's angels. There's strategics. There's grants. There's crowdfunding. There's, there's a lot of ways that you can raise money for different types of companies.

But what we look for is extremely easily scalable businesses.

And ones that we feel like, have a massive market opportunity in the, ideally, in the billions.

Right. 100% perfect definition. So, you know, after the founder.

Him or herself, all those questions, and they realize that may BBC is not the most ideal option for their financing. What do you think.

For you personally, what is the best filtering source of capsule other than the C or angel money? The best alternative well.

Again, that's a broad statement. That's hard to answer. You know what? We've seen an increase in the ability to crowd fund.

Uh, with some of the new laws, so you can raise a good amount of money. I think it's up to 5M dollars through crowd crowd funding.

And I'll be curious to see how that all plays out.

I think the stigmatization of crowd funding is is on the horizon, which is huge because in the last few years, if you raise crowdfunding, it often put a little bit of a stink on your company.

Which I don't think is fair. I just, I think that that's just the nature of how that industry was looked at.

Right, I think I think crowdfunding crowdfunding is an interesting platform. Look, the reality is there's, there's not a blanket statement for that, right? Like, it just depends on your company. I don't think there's a lot of creative ways that people raise money.

Absolutely, absolutely right. And by the way for those who would think that VC is not for them or you can angel funding is not for them.

We do have a section on our official fundraising radio website that is called literally alternative sources of capital for and.

Pretty much all of that stuff is there wherever you can think of, it's like, 99%.

I'm I'm sure it's there, so definitely take a look at that section of our website. I will leave a link into description this episode. So, yeah, if you think is not for, you definitely click on that link. So, on this.

Point we're moving on to last question of today's episode. We chose a call to action solar runs. What do you think? What do you want the listener to do? As soon as the app is over.

What do I want them to do? Well, I mean.

You're talking about to contact me. Can you clarify that question? Yeah, yeah. Call to action. I mean, you know, like.

In ads you have to input call to action for a user to do you know.

Click to download, or I now click to get free promotion, or I know something that they have to do immediately after the app is always done has to be something, you know, not like too time consuming.

So you can say, go build your company but.

Something short something that they can do like right after that is always done.

Oh, yeah, I mean, for me, it's go learn more about your industry.

Go spend time listening to experts in your field, go read books specifically about the things that you're interested in.

Become an expert in what's hard to become an expert without doing, but try to learn from the experts. About what you're trying to go after the more learned you are in your space.

And we're going to be capable of identifying the holes and if you can do that, you're going to be in a much better place. When starting a company.

Absolutely, that's a great cultivation. Ad sexual can be by.

My is that conversation so whatever field you're in there is 100% podcast on that field and most likely there are multiple podcasts on that field. Just go there. Listen to those episodes most likely. You'll hear something. Interesting.

You'll hear some interesting speakers and once you reach out to a speaker, saying, like, hey, I've heard your episode on.

Podcast X, Y, Z, the chance of them respond is like, 95% that's just guaranteed from personal experience and from many of my own cold outreach to have done that way. So definitely that's gonna be.

My acculturation follow Lawrence cultivation also leave few links to Laurence LinkedIn and a Luma. Launch, and also to the section of fun reason radio about alternative sources of capital.

So do that listen to other podcasts, reach out to people get mentors, repeat mistakes and as usually have a good date.