March 15, 2021

Building and funding ventures with relatives and selling startups. By Rob Weber

Building and funding ventures with relatives and selling startups. By Rob Weber

Rob Weber, Co-Founder and Managing Partner at Great North Labs talks about his path into VC, how he managed to build and sell multiple businesses with his twin brother and how it affected their ability to raise money in the past. We've also discussed the startup ecosystem in Midwest and Rob's advice to founders there.


Great North Labs: http://www.greatnorthlabs.com

Rob's Twitter: http://twitter.com/robertjweber

Book on sales that I've mentioned - very old school examples, but very applicable to this day.

Transcript

And today's a guest speaker, we have Rob Webber managing partner at great North lapse. And in this episode we'll talk about how Rob got into VC after being a founder for over 20 years. How did this transition happen?

How is he running? He's fine. Right now, what does he investing and by the end, we'll also talk about fun stuff that Rob sees in his daily life specifically some fun pages that he heard from founders.

So, Rob, let's kick it off by you giving us some background on yourself and on great North Labs.

Yeah, thanks for having me today. I'm a avid podcast listener and I always think it's a great way to share insights. So, my name again is Rob. However, I, I have an identical twin brother Ryan.

We've just turned 41 years old. We've been building software companies since we started as teenagers, and when we were 1516 years old, and kind of 90 9596, and we kind of grew up lower middle income and.

Our 1st,

the Internet was just exploding onto the scene in the mid to late nineties is anyone who's a little older can attest to you and by the time we got to college in 2000,

we launched a publishing and advertising technology company and out of the dorm rooms of a university in Minnesota,

and we ended up raising a small change around 320 grand and then Ryan,

and I recruited a team and ended up taking this company through 16 years bootstrapped 70M in revenue and 10M.

We ended up having multiple exit events for ourselves. The 1st of which was in 2005, when we sold about a 3rd of the company do a fund out of Boston, and with the proceeds from selling that initial exit my brother right?

And at age 2526 were 1st exposed to the wonderful world of early stage tech investing, and we did continue to scale our operating business through its final exit in 2016.

and along the way, we started to not only make investments, but I have quite a bit of success. And so it's been really fun being on both sides of the tables for.

You know, the last sort of 15 years, and as an operator for more than 20 I'd have to say, also doing this full time and investing full time the last 3 and a half years. It's also been it's also been very different.

I guess running a venture fund versus being, you know, essentially an angel investor right? So, I, I really enjoyed it.

Yeah, well, I'm based here in the Twin cities, although we invest kind of have a bias towards investing in kind of a Midwest, although we do look at deals around the country.

Got it understood so, 1st question is about your entrepreneurial experience so you have banned your printer for pretty much over 20 years.

Your major takeaway from all those years of being a founder. Yourself? What's your major takeaway?

Well, I have to say that, I think some people try to fast track their careers, and they don't really invest in learning the skills that are required to do their job.

And that wasn't the case with my brother,
Ryan,
and I,
we by the time we started our business in 2000,
we had definitely logged our 10000 hours of sort of a US develop time for us, designing web graphics,

building,

websites,

really basic online systems and all that was kind of something that was a labor of love for us.

It's really hobby, but it really allowed us to hone our skills. And I think that's sort of true. Of almost anything. I think if you want to be good at it, you got to stick to it.

I think the main difference nowadays for founders, or even for there's just an abundance of insights that are traded online. That are traded pretty freely and social media.

I'm a big fan of Twitter, and I think it's never been easier to sort of develop the skills and insights that you need to grow your career if you just sort of self motivated and go after it.

Right and I think that was really the case with my brother and I think we were always very self motivated as identical twins were very competitive. So we always wanted to sort of improve our skills and be stronger than the other twin. Right?

So, I think that was a really healthy dynamic and I think whether you're running a fond or running a startup, I think, just committing yourself to sort of your own individual growth and leveling up your own skills. I think that's really the keys the long term success.

Nice yes, that's very accurate. And those 12000 hours that's something that's really important and something that people don't quite understand when they become startup founders. So.

Next question about your previous successes as a founder of the multiple startups so you had multiple acquisitions.

What do you think enables you to get there? You know, what do you think made this whole. You know, overall success, possible.

It's interesting, because I know this isn't like a popular opinion of how to build a software company, but the way I grew up and my brother grew up, like, we didn't understand, you could even raise money.

And so we would only really invest the money that we would generate and that just sort of was limiting to our growth. And when you're sitting in, we're at the time in St cloud, Minnesota, there was no such thing as venture capital let alone.

There were really known angel investors, so it was, I think sometimes there's a little too much pressure.

Founders think they have to raise money. I honestly the advice I would give to founders is, you're in a much better position of strength if you have developed your skills and you can you sort of have a

default option of staying alive without raising money.

You know, it's great in certain business models.

You know, potentially to raise money to grow faster. Maybe there's some inherent network effects or switching costs or what have you. But I think at the end of the day, if you're sort of default to live with your startup, because you can sort of, you know, you can drive the execution.

You're in a much stronger position. And I know that's easier said than done. But we did it with 0T money to start with.

I really think anyone can do it if they really commit their minds to it not to say you should never raise money, but I think it's important to demonstrate execution too. Right? So.

Absolutely, our present education, everything is based on execution. If Nothing's happening in the company, if the company is not generating money, why the hell should investors invest? So that's very accurate. So.

Speaking of investors moving on to the next question. How did this transition of yours from a, from a founder to a VC? How did this happen?

It was, it wasn't actually a really obvious 1. I spent after we sold our company in 2016.

I spent about a year, just mapping out what should the next chapter of sort of my career be, and I, you know, I had always enjoyed investing and providing support to other founders.

Uh, we had made a number of comparable investments to what we're doing. The great North Labs through our personal balance sheet and I guess so, for me.

I guess 1 of the things I learned about running a company is I'm much more of a startup guy. Our company scaled to 170 employees in Minnesota and San Francisco. We had clients all around the world, but I really enjoyed.

I really enjoyed that sort of like even the team size from 0T to say 20 or 0T to 50 those early days of getting a company started. I've learned a lot about management and leadership.

So, then, when I started mapping out options, that could keep me in that stage. I thought, well, running an early stage fund would map to that. That would sort of ensure. I would stay in that stage. Right that's sort of the curse of being a successful founder.

Unless you walk away from your business, you might be in that business for 10 or 20 years, if you keep growing it or whatever.

And so I felt like if I wanted to stay involved in startups than running an early stage fund would allow me to be a good platform to do. So and so that's what really.

You know, led us to 2017, founding great North Labs. It was a 23.7M dollar fund 1, 1 of the largest Navy seed funds in the history of the Midwest.

Really proud we have a many of the most successful founders and operators who are sort of friends of mine who, you know, quickly came in and supported us.

And really, I think these other founders and operators really understand the value of strong execution. And I think I think this is more comment on the coast saying, the Bay area or maybe we have X founders, kind of go on to start funds.

Sally. That hasn't really been as much the case in the middle of the country and I think it's, it's kind of

a little bit of a unique origin story to do that here.

True. So, before we move on and talk about how you manage to run your businesses with your twin brother and how you're on the fund with your twin brother again 1 more question why Midwest? Why did you decide to start investing in Midwest?

I have a great question. I think.

You know, we don't want to be real insular, but we do believe.

You know, in the Midwest, I think I pulled some data from crunch base.

They did a report on this in terms of the median return on invested capital the Midwest exits of all the regions in the US actually produce the highest return.

I am happy to share the link if Michelle notes or something, if you're interested. So, I think inherently, there's a little there's although there is capital here. There's other funds, you know, it's not as an abundant and say New York or maybe San Francisco, let's say, or Boston.

And so I think because of that.

Uh, there tends to be a bit more capital efficiency here and I think that leads to better investor returns. And then, I guess the other side of that is.

You know, we just have an incredible network of founders and operators as investors, and that just gives us incredible early deal flow.

Oftentimes the place that founders go to 1st, when setting out on that new start up journey.

Is seeking the Council of founders who have not just started the company, but if scaled a company and so we've got this tremendous partnership of some of the most successful founders who they can provide their capital.

They're also very interested in providing guidance and mentorship, which is kind of something we were really fortunate to have with.

Although we,

we bootstrapped our company,

we did raise an angel round,

and we're really lucky,

you know,

investors and my brother and I are our prior startup,

but we consider ourselves very lucky to get the s*** to angels who just joined our board and mentored us for 10 plus years.

Nice so again, before moving on to the next topic, I just can ask the full question onto mentorship. I think I feel like this is extremely important, especially on early stages, especially for 1st time entrepreneurs.

How would you recommend those founders who are just joined this star portals? How would you recommend them finding? Those managers could be those guys for.

The 1st, especially the 1st, 5 years.

Oh, that's a great question. No. For us organic. I think I actually, if I just looped, if I just sort of grouped together, all the service providers.

So,

thanks,

accountants and lawyers,

and we were in St cloud,

Minnesota,

not exactly the hotbed of technology,

but I've gotten to know a local business attorney,

and he introduced me to a friend who lived on late central Minnesota as him and it turned out.

This guy was a public company tech C. O in Silicon Valley name of Young's phone young, fast forward. Now youngest currently the chief strategy officer at Samsung.

So, he is mentored by a pretty impressive guy, you know, and at a young age, he actually brought a friend along from the Bay area predicament on.

We've been a long friend of his from college, at Wharton and he, they although they both started their careers after warden at Intel and product roles, and, you know, 30, plus years ago, whatever it was.

And so the, it was sort of very accidental is just kind of.

But I think it's just sort of, you got to put your name out there. You gotta make sure you want as an entrepreneur. You want people to be aware of what you're building. It's so hard and no, 1 can do it on their own.

You want to get advice from people, and even even in these more rural or smaller communities, you'll be surprised at what kind of people might step up to try to help you.

And that's 1 of the reasons we launched a fund is to kind of pay it forward. Like, that was a very kind of coincidental. Can actually be Frank. We were never even trying to raise money. We didn't really need the money at the time.

We're already kicking off 50 grand a month and free cash flow for my happy businesses, but we were just really excited to connect with people who could kind of.

No, just had that kind of experience, so pretty actually became the 3rd partner in our venture fund. So it's kind of a full circle moment. You know, we had known each other through our board and then he's now, uh, as he sort of moved on in his career, he kind of called us up.

And here we are launching a fund and we already had many, many years of experience together. So, he joined us from Silicon Valley is our 3rd partner.

That's really cool. And that's just perfect story. I'll manager, he absolutely loved. It sounds extremely optimistic. Love it. So now let's move on to the topic that wants to discuss from the very beginning, which is running a company running.

If I'm running any kind of vendor price together with your sibling or any other relative, how does it work where the major posing cones and the major question is,
how do investors react to this when they see on the beach deck the CO,
founder or some kind of execute easier brother,

your sisters or any other relative it's a really good in the whole family dynamics.

I think it is actually not that uncommon in business. I would say, though, Twain, starting a funder startup together clearly on common. Sure.

And I guess at least from a siblings, identical twins standpoint, we have this burning, we've been competitive since birth. We are above the most competitive people you could ever meet. And I think this inherent.

Healthy competition that we create among us. You know, really is a pretty, it's a.

Wonderful motivating factor. I think the other opportunity, you know, in a family business is, you know, often the biggest 1 of the biggest risk factors, whether it be in a fund or a startup is that, you know, you might have the founding partners of a business.

Let's say, just have some kind of, you know.

Your irreconcilable differences and they break apart and then the business or fun goes sideways. Right?

Well, I would like to think that if you have a trusting relationship with a brother, let's say, the odds of that happening, and you leaving your brother hanging or something that the bonds form is not likely to happen. So I think there are strengths.

I think you need to also understand which you have on your family had, is it your work had if you were to talk to our why? My wife's name is Jesse. My brother's wife. ryan's name is Melissa.

We're constantly talking about work and every, we call each other probably 5 times a day.

Or, you know, every family gathering, we're talking about work I think we've gotten better as we've age at.

You know, it's sort of shutting that off at times, but I'd say, that's probably the, the greater weakness is just how, you know, entrepreneurs tend to get pretty consumed in what they're doing if they're good at, you know, I think that's a common trade.

And, you know, when you start mixing the family, I think that is the risk that you just have to try to be self aware of that and try to try to create at least some separation as much as possible. There's probably more risk of.

Maybe even burning out a little bit if you're always, you know, if your own family is surrounding your, you know, your business activity, there's less of a shot of leaving it at the door when you come home or whatever. So.

Absolutely, and that, but I think it's positive. Yeah, yeah. Yeah you've touched on to an extremely valid point. That's something.

A lot of people forget, and that's something I personally forgot back in the days when I was trying to start myself with my brother that was a big to 24 7 that you talk about the same exact thing and half a year into this.

You're like, oh, no way I'm dying here. Okay. So be careful. This tried to figure out how to separate work and business. Even if you're writing business with someone who is part of your family. So definitely pay attention to this.

So, now let's talk a little more about great North lamps. Can you tell us a little bit more what you like to invest in? What stage? What fields? And we already know whichever Midwest.

Yeah, it's a great North Labs. Uh, we.
The preferred well, we're in an early stage. Fun. Our sweet spot is kind of entering at seed stage.

Very rarely, we'll invest a little bit earlier kind of like, Pre product and then from time to time, we'll kind of enter a new business that series a series.

B, but typically we like to invest that sort of seed stage are typical check sizes in the past for more like.

You know, for 1st checks, we're kind of like 250 grand to a 1M dollars. Now that, uh.

Uh, we're kind of growing our, our fund a little bit, you know, our typical 1st check will be more like.

You know, 500000 dollars that may be a 1M or a little more than that even. And so, if you think about a typical like, seed round often, they're between, say, half a 4M we're in a good position to lead more often than I think we've led half the rounds. We're in we've Co, invested in the other half.

So we're pretty in different. And I'd say with the size of checks, we're investing in often waiting on seed funds to participate with us in rounds.

We lead as well as from time to time there's availability for smaller syndicates or angels to invest with us in terms of the markets.

We're a,
we're more of a generalist fund we have probably more of a bias towards, you know,
software enabled businesses although we do have 3 or 4 of our 1st,
24 investments have some kind of device of some kind,
uh,
with that said,
I would say,
the business models were very,
we find ourselves most commonly into,
like,

enterprise SAS,

online marketplaces and then also with my prior background,

we're really interested into social applications and online communities.

So, as a journal is fun, we're very interested in different business models.

I would say in terms of verticals, we've been pretty active in supply chain and logistics, hospitality and property tech, real estate tech as well as.

A certain enterprise, uh, related applications kind of future of work. We've done very well with kind of like, uh.

These sort of gig economy type of business models or HR tech. It's been a really good, good business for us to be in.

Yeah, I don't know, I guess we're pretty pretty diversified. We'll kind of look at anything we stay. I would say 1 of the prerequisites we like to be in businesses and have a fast path to commercialization.

So, we're not going to be doing medical devices or other kinds of business models that might take 5 or 10 years before they reach commercialization. We really like to get into businesses that can scale fast. Once we were a part of them.

Nice, yes, it does sound like you're well diversified. I like this.

I personally like journalist investors so now that we've touched on to this, going back to something that we'll discuss in our preinterview called, which is the fact that you are very heavily focused on the customer feedback.

So, for founders, it's.

Sometimes, it's challenging to assemble all this customer feedback, especially in the beginning of their journey when they have very, very few customers. So, how would you recommend those founders?

You approach this problem of gathering feedback collecting it and presenting to investors in the easily understandable form? Yeah, I'll give 2 answers of that number 1.

if your Pre product launch.
I'll tell you, what is your fault? This is 1 by 1 and see.

I want to see he founders who are practicing discipline, approached entrepreneurship. And what I mean, by that is.

If you want to get me excited about your sort of Pre product launch startup show me, your customer interview notes,
you know,
hopefully,

it's not to either,

you know,

and send me the send me a zip file with your 10 or 20 customer interviews or more.

And then maybe summarize for me what you see as the.

You know, the feedback from these customer interviews, what are you learning? How is it shaping? How is that? How you map the problem you're trying to solve?

How have you done any,
have you had conversations around solution and solution testing,

and kind of let me see your disciplined approach to mapping out this startup that you're about to build or you are in the process of building that's number 1,

number 2.
if you're sort of post product launch.

I would recommend for 1, most PCs are going to do reference calls on your customer if you want to fast track, you know, a decision and you can, you know, that I'm going to call your some of your customers anyway.

Why not prepare a series of.

You know, maybe maybe the same kind of customer interviews. Maybe you can interview your customers as references, and just share me your notes. You know, there's no reason I can make those 10 calls, or you can make the calls and make it faster for me to just read it. Right?

If you want to accelerate your fundraising customer references are super valuable. I'd say the other kind of, I guess maybe the 3rd thing, I would say.

Would be no, the core kind of KPI of success for your type of business and your type of business model. And what I mean by that, I'll give you an example.

I recently wrote a blog post on how to invest in consumer startups for the Chicago part of the Chicago business Journal. And the reason I wrote that post is I've come across a lot of consumer startups in the middle of the country.

That are some though. And what I found is the vc's, the middle of country really don't understand the metrics for success and what drives social networks or consumer Internet companies.

And so I wrote this blog post, and I'd say the same is true for most of the founders. What they come to me with is all these cumulative stats. My mobile app, Scott 7000 downloads.

We have 4000 monthly, active users, and it's like, all these vanity metrics in the early stages of consumer, what really matters most are the input and output metrics.

For example,
if you're building a camera,
how how many of the users how many users upload at least 1 photo, how many users up with a 10 photo and then,

how does that translate into your retention and engagement measures if you could put it means to say I got this camera app and I have 10000 downloads.

Really invest. I'm just either. You don't know the metrics of success for your business.

Or you do, and they're not good and you're just don't want to so either way. That's not good. Right? The same can be said for enterprise, very different metrics for an enterprise startup and similarly, maybe for online marketplaces, which may be a 2 sided market or more.

And by the way, if you don't know what those metrics are, it's freely available on the Internet. You know, this is something that wasn't true. 20 years ago you can find the metrics of success for every kind of business model.

And if you, I mean, if you want to get faster decisions on from investors, I would say, just understand those metrics by stage and make sure that you, you're speaking to what the venture firms want to see right.

Nice, yes, a very expert a love, especially the part where you're meant that founders actually need to run customer interviews by themselves, and just share those with investors.

So that's all those investors don't have to meet those calls individually by themselves each and every 1 of them. Yeah, that's a great advice right there.

So, now that we've discussed all the serious questions, all got all these great advice from you, let's move on to the fun part of it.

What is the craziest or funniest speech that you've ever heard in your career? Know if it's really funny, but I found it really interesting.
The former fan do a CO founder started a new company called Star stock,
which was sort of this hybrid of basically it's for the sports card industry and I'm a, as a hobby,

my brother,
Ryan,
and I are pretty serious sports card collectors, so star stock legacy industry of trading cards.

I have to say, I think back of some of the early analytical skills that we developed that kind of were precursors to launching a startup and then eventually have fun. We learned a lot by buying and trading sports cards.

There's maybe a handful of companies like this, that are creating new models,
new startup models around,
like,

collectibles and training and I just love it because I kind of, I think,

for a lot of there's not enough sales for people who grew up collecting why there was comic books or stamps or coins or sports cars I think,

for anyone who has kids.
I think that's a really great.

You know, if you're to encourage your kids to kind of develop these kind of business skills or analytical skills, I think, getting your kids involved in that kind of a hobby.

Well, I just love to see these startup founders who are, uh, you know, are starting to emerge in the in this category because it's kind of not a lot of innovation over the last 20, 30 years.

True. That's actually really cool. I'm not that much into sports cars per se, but I love strategic board games that involve a lot of statistical stuff. So yes, that's actually a really cool advice. And.

Yeah, on this positive optimistic note, we're moving on to the last question of today's app is which is a call to action. So Rob, what do you want the listener to do? As soon as this episode is over.

I would say, follow me on Twitter, Robert really looking to meet our people and it's probably the best way to stay engaged with me. And I guess maybe beyond that is.

And if you follow me on Twitter, let me know of a book that has that has changed.

You know, some aspect for you, you know, in your career, or some skill development. I'm a pretty a pretty avid reader.

I would credit a lot of my successes just constantly.

Reading about new business practices are, and I also love to read, like, the hero story of other entrepreneurs. So I'm always looking for a good book.

And if you're an emerging entrepreneur VC, and you're interested in a few book recommendations, drop me a Tweet.

And I'll tell you a few by where the most sort of like, core to my, I think, to my own success, in terms of influences on my own sort of thought process.

Nice yeah, I certainly, I recently read a book on sales, which seemed to be pretty good. So I'll check in with you to see if you read this.

And if not, I'll I highly recommend you this anyhow on this optimistic and useful note, we're going to wrap it up. My call to action is going to be check. The description is this episode I'll leave a link to in it.

So, if you're curious to talk more about what they at, a great North lifts are up to, or what Rob is working on right now, or any questions, or.

Whatever it is check out the descriptions episode, he's contact. Information is going to be there. Also linked to great North Labs is gonna be there and.

Maybe I will leave a link to that book that I just mentioned all sales as well.
Just for those who are trying to figure it out yes. I'm pretty sure I'll do this. So yes go to the description

of this episode check out all the links and as you usually have a good day.