So they're they're trying to find ways to create optionality in that price. And so they might say to you, hey. We're willing to pay a hundred million dollars for your company. Yeah. Welcome to The Investor, a podcast where I, Joel Palafinkel, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation.
So join us on this journey as we explore these insights. All right, so excited for my guest this week. I've got Josh Payne, who's at OpenSky Ventures. So Josh, thanks for making time for me this week. You know, this week we, you know, excited to kind of just go deeper on what you're building. You know, I know you're in Nashville, so I want to learn a little more about that ecosystem, kind of learn about, you know, the the deals and kind of the sectors that you guys are excited about.
But why don't we start with just your early career? Where did you grow up? What did you study? Just walk us through how you got into venture and then we can go a little deeper into OpenSky. For sure. Wow. Going going way back. Yeah. So I grew up in Indiana, small town. You know, there really wasn't a ton of technology in the Midwest at the time. That being said, I grew up in the era of AOL messenger and just the early, early internet.
Thankfully, we had a computer that I could cut my teeth on really enjoyed that. When I went to college, went to undergrad at Indiana University. I studied computer information systems at a time when a lot of folks were really just going into finance. I kind of fell in love with technology. And from there, actually my, you know, I knew I grew up with the entrepreneurial bug, like a lot of folks say, you know, doing paper routes, cutting grass, that type of thing.
And then over college, actually started my first e comm business before, before e comm was really a thing, you know, this is sort of back in 1999, '2 thousand and '1 era and started that company during college, you know, stayed at school over Christmas break when other kids were going home type of, you know, thing. And then, didn't wasn't really making any money, so I ended up taking a job in big tech, at Intel in 02/2002 during the dot com sort of bust, if you will.
And was, you know, in that period, really trying to find, you know, as a business guy, as a non engineer, trying to find a way to break into startups. Even though I was in the Valley, it was still really tough to do that, not having the background and not really being from that scene. And so eventually, I actually tried to get into venture and, you know, not having gone to an Ivy League school, was told, hey, know, go get your MBA and then and then, you know, come back to us.
And so Yeah. Though I I don't really think that's what I necessarily needed to do, I did apply and got into Duke, went and got my MBA, kind of hustled there, was the president of the Venture Capital Club, did a one year associate internship at a fund in Raleigh Durham of of one of the larger funds in that area that had $250,000,000 under management. And then even then, so I graduated from MBA school in 02/2008, which was then the financial crisis. So yet again, kind of a tough period.
Ended up working for a startup instead, which I think was a real blessing in disguise because I think taking getting into venture as an associate is a a long haul. And I also don't know that it gives you all the requisite advantages that I think of starting your own company does. Yeah. So from there, couple years after after that experience, started my own company in 2011 called Stack Commerce.
I what I call seed strapped that business, took a small amount of funding, got profitable, scaled it to 9 figures in annual revenue, and sold it to TBG in late twenty twenty. Took some time off after my earn out there and started OpenSky with Josh Resnick in early twenty three. Josh had been one of those early investors in Stack Commerce. Everyone did really well in that in in in that, deal. And him and I had actually become friends over the years and and hung out quite a bit.
Josh is really known as a prolific, angel investor in the CPG and DDC world. I was more focused on what you would call commerce enablement or, commerce infrastructure investing in the software side of ecom. And so we thought it would be a really advantageous idea to bring those two areas together in a future of commerce fund focused on pre seed and seed. So that's when OpenSky was formed in early twenty three.
And, you know, fast forward a year, year and a half later, we've done about 15 deals, and it's it's up and running, doing great. So can you unpack how an earn out works just for the audience? Right? So I mean, you're building, you know, a company and then now, you know, there's a couple there's a couple pathways to get to an exit. Right?
So maybe you can you know, can you go a little deeper in terms of, like, you know, how you were thinking through possibly an exit strategy and then maybe just unpack how the earn out works? Yep. Absolutely. So every buyer is is looking to reduce the risk in the deal. So the more upfront, the riskier the deal. Right? So they're they're trying to find ways to create optionality in that price. And so they might say to you, hey. We're willing to pay a hundred million dollars for your company.
Yeah. But we wanna see we wanna see a few more cards be laid down over the next couple years. Sure. You know, let's just make up numbers. Here's $70,000,000 today, that 70,000,000 is gonna be comprised of either all cash, day one, or all equity, day one, or a mixture of the two. Most deals that I see are a mixture of the two. So potentially 70% cash, 30% equity, something like that. Mhmm. So that's sort of the first tranche.
Then depending on the the acquirer's plan for your company, they they may say to themselves, you know what? We wanna run this company. We have a person, a guy or a gal who we think is gonna take this hundred million dollar company to a billion. And the founder is great, but they're not the person to go from 100 to 1,000,000,000. And so they may say to the founder, hey. We just want you to stick around for six months or or even just a year.
And if you stick around for a year, you're gonna get x dollars more. And the x dollars more could literally be based on time. Just just if you're employed with us, if you don't quit in one year from now, you get an extra $5,000,000. And that's helped transition things out. Or they might say, Hey, we'll give you an extra 5 or even an extra 10 if your forecasts hit what you said they would hit. So you're telling us right now that a year from now, you're gonna grow 30% year over year.
And you're like, yep, I'm gonna do that. And they're like, great. If you do that, here's $10,000,000. If you don't, you get zero. Sure. Extra money, right? So that's generally how an earn out works. Again, it can be time based, it can be performance based. I'd say the average earn out is two years probably. Some acquirers push for three, some are fine with one. I had a one year earn out that was performance based.
And, yeah, that's how that's how Now what happens if you don't hit the performance? Do you just kinda stay in the in the shares pretty much until you kinda hit those goals? Or Yeah. I mean, so so the equity you're giving at the time of the deal is is baked. Like, that's Yeah. You own that equity. The earnout is just kind of cherry on top. It's Yeah. That potential to make a little bit extra. It's something that you hope you make, but you may not necessarily.
If you don't hit that earnout, you can still stick around as long as the management as long as the acquirer wants you to stick around. Or at that point, you might be really disincentivized. And you might just say to yourself, oh, wow. I missed that. I thought I was going to hit that. And I don't feel like the carrot for this opportunity is big enough, and it's time for me to find something new.
Yeah. Okay. And then tell me a little more about, you know, kind of how you how how maybe people can be emerging angel investors. You know, how can people start building their track record, you know, maybe early in their career in terms of sourcing. Know, a lot of people kind of are part of organizations and networks. Some people just jump in and just, you know, talk to founders, right?
So what would you recommend for someone just getting started out to, you know, to build that angel track record and then eventually what should they be thinking about as they're building an investment firm? Come back to that. I've seen kind of work for for first time angel investors and and for early angel investors is not what I'm seeing people do out there today, which is a lot of what I'm seeing people do out there today is is jumping into SPVs.
Even if, you know, it's a five k SPV or, you know, it's not about the dollar amount. It's about the quality of the deal flow. Yeah. And there's just so much deal flow out there right now. And to me, SPVs are really tough because you don't have any information rights. You probably don't really know what's going on there. It's a lot of secondhand information. Yeah. And so I think those are challenging. What I would recommend is investing in really smart people around you.
So for me, for example, one of my first investments was in a company called Teachable. The founder was someone that I had known for a number of years. His name's Encore. Yep. He's got Gary now. Right? That's his new business. That was actually my first angel investment was was teachable. Wow. That helps. You got in at like the seed or pre seed? Yep. That's good. Yeah. Yeah. Well, I think that I think his first round is from what I remember and I did the follow on round as well.
Yeah. And and the reason why I invested in him is because I was able to see that company before he started it, you know, told me the idea. He was already fairly successful at that point. Had already built, I believe, a Facebook app and sold that for, know, say, 7 figures. And then by the time I met him, I I watched him build the product. We became my company, StackCommerce became a user. So we saw the value. Right?
And so as as we and I think we might have been one of his largest users at the time. Assuming you kind of just to have some educational modules to kind of support your operations, guess. Because the teachable product they build like they're kind of like think different, they have all those were leveraging it a little bit Right? Yeah. We were we were leveraging it a little bit different than other people. We were using it as a as a as a content management system, as a warehouse to to show videos.
We're kinda building our own version of Udemy leveraging teachable on the back end, but that's how I found it. And my point is to say that you should be investing in in in people that you know in your network, things that you're a customer of, I would highly recommend if you if you know that it's good. I I wouldn't recommend, you know, investing in things willy nilly that just, you know, you come across this deal. Hey. Here's this SPV. I just I just don't think that's great.
The second thing second deal that I did was I invested in Postscript, and the two founders worked at Stack Commerce with me, one for seven years and the other for three in product. And so I knew those guys really well. And it was really a bet on them. And so that postscript is obviously done really well. So those were my early angel investment deals.
I would recommend making sure that you're hanging out with really high quality people in in your work environment and and then probably taking bets on that. Another interesting story is my first job out of MBA school that I mentioned earlier was at a company called Mebo, and I set a couple desks away from a guy named Mikey Krieger, who is the co founder of Instagram. So yeah, we worked together for a year. Was employee number 30. I think he was either right before or right after me.
Yeah. And you know, a year after that, he co founded Instagram. So bummer for me that I didn't get a chance to know him better and be able to be a part of that. But, know, again, just another example of what you can do. That's great. And then tell me how people can kind of I guess, what do you think it takes to switch? Because a lot of people say there's a difference between being an investor and a fund manager, right?
So in your opinion, what does it take to be a fund manager versus just an investor? Yeah, that's a good question. So luckily, I have a partner in Josh Resnick and Josh is really what I would call our fund manager. He is really great at all the back end stuff and helps us set up Carta, us with LP management. You know, there's a lot of things around thinking through just legalities and LP updates and things like that. I think the biggest thing around fund management is just raising the fund.
That is the most challenging part. The and being an investor start of it part of it is acquiring deal flow, making decisions on what to invest in, and Yeah. Definitely the most fun part, I would say, for for most folks. And I think a lot of really good investors, angel investors, or or otherwise, when they go to create a fund, they see it is a good amount of hassle and it is a good amount of management and not always as fun as the investing part. So, and you're signing up for a ten year journey.
So, that's the other thing to forget. You you can't forget. When you're doing one off deals, there's there's really no yes, it's the the the startup or the investment is still going to take ten years to really come to fruition probably. Yeah. But there's no managing limited partners or other people's money. It's a lot less of a hassle. So, yeah. Got it. And then, what would you recommend in terms of building an LP pipeline, you know, for for new emerging managers?
What's kind of things that you think have worked, what what does not work, what should you not do? Because it's so difficult to find LPs. It's so difficult to obviously connect with them. And then you also want to kind of make sure that you're differentiating yourself. Right? So what what are some things that maybe you've heard from mentors and then maybe just along the process of kind of building a firm that you'd maybe advise on? Yeah. I've sort of seen two things.
One is you have someone who is just incredibly networked and they are someone who knows how to sell a vision and can put themselves out there and get people to really fundamentally believe in not only them, but but also their their vision. And those are great storytellers. Those are great, again, visionaries. And it doesn't really matter your age or experience.
If you can sell and people are buying what you're selling like you can raise a fund sure I would say those people are pretty far and few between you know IIII think you know LP sniff out really easily. This is not about selling a fake story. This is not, you know, about just saying what you think, but but actually, know, you gotta have a lot of gravitas behind all of what I just said. Yeah. The other side of it, if it's not that, it's really just based on tracker, right?
So you've built and sold a $500,000,000 company. Well, you probably had a lot of investors along the way who are gonna wanna back you again. Yeah. Or if you've been doing product development for thirty and everyone at all the big tech companies knows you and you grew up with them and all their shares invested, they trust you. You can, you know, pretty easily reach out to your network of of Googlers or whoever it is and raise 10 to $50,000,000.
And then maybe from there go to institutions and raise another 50, like then that's the other way. But I think it's sort of one of two paths. And I think more often it's people that have experience, have a track record, but even then, that's no guarantee that you're able to raise a fund. I mean, I think you really almost need to have an audience. You need to. Yeah. Have a a personal brand in in some way, shape, or form where people trust you.
Yeah. And what have you learned in terms of brand building? What should funds think about as they're building their brand, their franchise? Yeah. I think it's incredibly important. I mean, our first, you know, 10 or so deals really have just been a combination of, people that, Josh Resnick and I have worked with over the past two decades. Yeah. And so that I think that all came really naturally.
I think for the next, you know, ten, twenty, 30 deals, from here, it's gonna be about ensuring that we get the OpenSky name out there and we get our own personal brands out there. And so that's that's a journey that I've started on just recently. I'd say, think I'm in month two now. Mhmm. And it's been really eye opening. I mean, amount of deal flow that we've gotten from that has been unbelievable. Sure. And then how do you how should managers source and screen deals? Right?
So you met, you know, teachable as a obviously a really successful founder. You know, what would you recommend for emerging managers in terms of kind of vetting sourcing screening quality deal flow? What what are some things that you think is, you know, an indicative of of a high quality founder and a potential great deal? Yeah. I mean, I think when I think about obviously, I I I think it's pretty true across the board that you're investing in the team first and foremost.
I think most I think most investors would say that. So when I look at teams that that have been most successful for us, oftentimes, you know, I kinda think of it like, why is this person the best in the world to do this? Yeah. What gives them that unique advantage that that they're able to do this? And and usually, they've had some semblance of success beforehand, or at least they've had multiple attempts, and they've they've learned along a lot along the way.
So if you look at Encore, for example, like I said prior to teachable, he'd already built and sold a Facebook app for a decent amount right and and he had shown his entrepreneurial chops and his ability to execute at a very early age. When you look at you know, Postscript and the founders there, one of them had built a business prior, and and I had worked with both of them, so I knew them really well.
So the point is, I think founders that have obviously, if they're second time founders, serial entrepreneurs who have been successful, that's one thing. I I think those can be hard to those guys can be hard to to or girls can be hard to to catch, you know, hard to get a hold of. Mhmm. So oftentimes, it's someone who is a yes, a second time founder, but their first thing was mildly successful. Right? And they still have that chip on their shoulder.
They still wanna, like, make their mark, but they've kinda demonstrated their ability to to start and build something. Got it. Then what I'm excited about is to learn a little more about the ecosystem in Nashville. What has evolved in the last few years? I mean, lot of big companies, I know a few people that worked at Alliance Bernstein and and now they they've all moved to Nashville, right? So what what are what do you think is kind of in the future and what have you seen evolve recently?
I mean, I I know there's an amazing food and music culture there, but I just see it as a burgeoning tech and PC ecosystem as well. Yeah. Absolutely. So I moved here, like I said, late twenty twenty, early '20 '1. And when I moved at that time, there really wasn't a lot of tech here. There were there were no not a not a lot of big players. Yeah. But it's crazy how much has just changed in the last three or four years.
Yeah. You know, wrote a post about this recently about, you know, there was there was someone on Twitter with a big following that was sort of bagging on Nashville because they ran into an investor group that gave them really poor terms. And look. I I I think that's probably a legacy group here that, is used to the old old old ways.
But what's happened, like I said, in the last couple years is you've had, a lot of people from SF, from a from New York, Miami, Chicago, Toronto coming in to Nashville, and these are really heavy hitters. And what's I think what's been interesting about it to me at this point, it's not that wholesale companies are moving here. Mhmm. It's just that the the founder of an incredible company now lives in Nashville. Yeah. That company happens to be remote.
Mhmm. But from there, those those people are now investing in this community, and and we're we're building a network around that and we're starting to see in my mind the semblance of sort of the next Austin, Texas. Know, I I I think Austin has done an incredible job in the last ten years plus of becoming, you know, a real player in the space And I think Nashville has has moved up from what you would call, you know, third tier to to essentially what I would say second tier. Right?
Where Nashville is you know, it's no it's not definitely not in LASF New York, but I would probably say it's in the same group as in Austin, just a little bit further behind. Then what are some of the main sectors that are the focus areas in Nashville? Yeah, so Nashville has traditionally been a healthcare market, that's been by far its number one focus. There's a little bit of FinTech is here as well. And now you're just starting to see general technology founders. I'll give you an example.
So OpenSky definitely when we, you know, founded it, had no intentions of investing in anyone in Nashville at the time. There just wasn't there wasn't anyone that I kind of assumed would be here that would reach the bar. But about a year ago, I met a founder, Matt Peltier, who founded Community.com in Los Angeles. He raised a hundred and $50,000,000 for that business. It's done really well.
He moved to Nashville, I think a little bit after me, sort of two, three years ago, and now he's starting a new thing with a lot of folks from that team. It's an incredibly ambitious idea in the AI sector. His ability to execute in terms of fundraising and pulling a great team together is just incredibly impressive. And so it's not about whether he lives in Nashville or New York or LA, it doesn't matter. He's just a great founder and we wanted to back him and so we did.
So we just did our first deal in Nashville and very serendipitous and exciting. No, that's exciting. And then, you know, as far as like, you know, expanding of the brand, you know, what are some ways that people can build an ecosystem? Because I mean, guys kind of have built an ecosystem around your brand. So how can people kind of build community? You've seen this with founders and there's a lot of fund managers that are kind of using the medium that they feel comfortable with. Right?
Some people, you know, build a brand on Twitter. Some people have podcasts. So, you know, what what do you think works for you guys, and what what do you think is a way for people to kinda approach that? Yeah. You know, to to be totally frank, I wouldn't say this is an area of expertise for me and one that, like, I'm trying to take cues from other people. Yeah. One of our investments is in a in a company called Sienna. Sure. Sienna. CX and and they do AI for customer service.
And one of their founders, Lisa, has just been incredible at community building in the direct to consumer brand world. Yeah. And just thinking about some of the things they've done, everything from building Slack communities with with people, not just their customers, but people in the network or creating a run group in in for folks in New York City that that live in and around there with her.
And and there's just so many other things in in terms of, you know, obviously events and whatnot, but it's it's definitely a whole motion of activities. And, yeah, I think it's about just bringing people together across a different way, a number of different ways. Everything from online communities like Slack to in person Yeah. Hobby events to actual events in the space. No. Absolutely. And then I love to double click a little more on OpenSky. So you guys are looking at a lot of consumer brands.
Right? Consumer products, consumer brands. It's yeah. It's about like to say about 70% software and 30% consumer brands. Got it. And what are some of the KPIs that you're looking for in software? I'm assuming you guys are mostly doing, like, c to series a. Or earlier. So pre seed and c is really are yeah. We try to we try to stay really early. Yeah. And and yeah. Yeah. So that's been a new insight that I've gotten recently, you know, from a bunch of fund managers that are doing pre seed.
I mean, the main feedback is like, you know, they have to go pre seed because once you get to seed, it's just those deals are so competitive. They're so over subscribed. It's too late. Right? So I think there's some opportunity to kind of identify these founders super early. I don't know if there's ever going to be anything earlier than pre seed where it's like, idea, hypothetical idea stage, right? Yeah. Think you would call that, like, an incubator. Right?
Yeah. That that's, like, almost like Y Combinator or Techstars. I mean, those guys are essentially pre pre seed. Right? Like, they're ahead of pre seed now. Mhmm. But, you're right. I mean, the only place that we, you know well, not the only place, but one of the best places we can add alpha to a deal is in that pre seed area Yeah. Era and finding people before they get bigger. You know, our check sizes are smaller given our our fund size, So we can kinda fit into c deals. No problem.
But, obviously, the valuations go up. And I think for us, you know, in order to provide a better return for our LPs, we wanna get into deals a little bit earlier at lower valuations. Got it. Yeah. That makes sense. And then what are some KPIs that you're looking for for pre seed versus seed?
I mean, I I would assume at the pre seed stage, you're really just kind of building conviction around the founder, maybe the background of the founder, and then maybe just the market and, you know, maybe competitors in the market. I guess, I don't know if I'm heading the right direction, but what what are some other, you know, filtering criteria that you look for?
Because, because obviously, you know, you needed that's that's a special craft to be able to really find the, the winners at the pre seed level. Yeah. So I think like you said earlier, first and foremost, it is about the team. I'd say secondarily, it's about the market. So what space are they attacking? Do we think it has a big TAM? Do we think it's growing? A good example is that I can give there is the headless CMS market in in e commerce, right? So, yeah.
About a year, a couple years ago, there was this push for a lot of Shopify stores go headless and we came really close to making some investments in the space and one in particular but ultimately decided against it categorically. And I think we were right on that. Like, I I think most QC brands are not moving to headless and, in fact, moving away from it. So that that was an example of of one where the market was really important.
And then lastly, I would say, in particular for ecommerce software b to b, your annual contract values, your ACVs are really important. So b to b software businesses that have an a low annual contract value really, in my opinion, don't have a lot of rationale to be raising venture capital. It's those are end up really being lifestyle business unless unless it's just, you know, the next Slack, right, or the next Asana. And and those are just so, so hard to build.
But, you know, we're we're a little bit more focused on ones that have a higher annual contract value and are attacking what we call either the mid market or the enterprise type of brands. And then on the DTC side, I was going to say the DTC side, I'm assuming there's probably some type of revenue to probably just the burn rate to revenue ROAS that you could probably look at over time, right? I mean, they're spending a certain amount.
I've seen some interesting DTC companies that have been, you know, spending a certain amount of money and then they're getting a certain amount of revenue. They're still not profitable, but looking at that multiple has been kind of interesting to see. But I would love to hear your take on just KPIs you look for for DTC. Yeah. Mean, first and foremost, I think we would rarely invest in a brand that doesn't have any traction.
And I think surprisingly, we do see a good amount of brands kind of trying to get funded before they've launched. And I always think that's a bit curious. I think in today's day and age, you can really get going with very little money. I know there's an inventory aspect to it, but you should really be able to get live and get your first iteration of customers before taking any money in my opinion.
And then in terms of what we look for, you know, I think obviously margins are big, but not just gross margins, Contribution margins are very important.
So, you see a brand come and say, oh hey, we have, you know, 75% gross margins and we're like, okay, well, what is it after fulfillment, shipping, returns, and all the other kind of baked in costs and you know, might get down to 25% and you're like, well, that's not fundable, you know, it's tough because they're like, well, hey, it's gonna be 55% in eighteen months.
And that's, you know, sometimes you're willing to take that bet that it will get there based on the information you have and other times not. So I think margins are important. I think more and more, we're kind of looking to invest in omni channel brands, brands that can succeed not only on DTC, but also in wholesale, also in Amazon, and potentially even, retail. So looking at a brand that can actually, build across all all channels. Sure. And then what have you seen in terms of the ad spend?
Know, like, I mean, have you seen different variations with DTC in terms of like people using TikTok versus Meta versus email? I mean, it probably depends on the product, but we'll love some, you know, just some case studies on like if you're doing a beverage company, do people usually do like a blend between like Facebook and Meta and TikTok or people do an email?
I guess what are some of the growth channels that you are seeing that founders are getting success with and then maybe grow channels that like founders are burning money with? Right. I think most brands it it's very brand specific. Just some brands it seems like everyone can work on Facebook generally, and everyone's trying Facebook. But the algo is brutal and changing all the time. And people are trying so so hard and and and with varying levels of of success.
So, it will work for a month or two and then it won't work at all and it'll work for a couple weeks like incredibly and they'll think, oh my god, like, here we go And then the algo or whatever, you know, the creative might get stale and just constantly sort of this whack a mole, game around efficiency and and seasonality, and you have varying levels of inventory. Like, it's just it's such a complex game. And then search is like a little more literal, right?
Because probably searching, but that's so competitive and it's so expensive to probably get a conversion using This is why it's so this is why it's so important that you're not so dependent on paid. I've just seen a a number of folks kind of come to us and say, wow, look at how fast we're growing.
But when you look at it, you know, 6070% driven from paid and you're like, well, hey, like at some point as you scale from a million in annual revenues to 10, that whole thing is going to change and you're going to need to be able to do, you know, 20% from paid and 80% not. And if we don't have confidence that you're building a good enough brand to do that, then that's gonna be a challenge for you.
But to answer your question about TikTok, some of the most profitable brands I've seen have built an organic following on TikTok that has just been incredibly impressive. One of which is Passion Footwear, female founder, who's just done a great job. I think she has, I wanna say about a million followers on TikTok now.
Wow. And she just does drops on TikTok And I mean, it's really enabled her to control her own destiny because she's not in that meta rhythm of like almost running out of money constantly. Right? And you may be spending money for production, but you know, that's all owned media that you own. You're not kind of running those ads and then those ads are fatiguing. You're building kind of an organic library of content that could be evergreen, right?
Because there could be a really interesting post that tons of people pin and they reshare it or they discover it later. They can repurpose that. But you're right. That's the holy grail. If you've got really amazing organic content that's super valuable. I think if you get to that point, you may not even have to sell your product. People will just kind of consume your content and then just click on your link in bio.
And then from there, maybe they can book a meeting or maybe purchase a sample of your product or something like that. I think something like that. I think you're getting to like, how do you get eyeballs, more eyeballs for less, right? And it's, you're right. It's about building, I think someone has to see your product. I can't remember what the study is, but like eight to 12 times. Before they buy it. Right?
So, like Yeah. If if all seven of those times cost you money, then that's gonna be a a purchase that's probably barely profitable or not profitable at all. So how many of those seven times can you have be a a quote unquote free impression? You know, maybe it's email, maybe it's a retention ping on SMS or you know, hopefully it's an organic reach on one of the social channels. Yeah. And then I've heard too a lot of people use Substack and they use some of those other newsletter templates.
I've heard it's valuable to actually build a blog which is an extension of your website, right? Because you're optimizing the SEO on your website. People go to beverage.com/blog, they know the actual domain. They go back and they navigate through the website. I know HubSpot does that. I mean, the major brands have their own integrated blog content and that's all just SEO best practices.
I follow Neil Patel. Neil Patel has a lot of great content on marketing and he recommends tools to use too because I think you can look at certain trends and kind of have relevant content that's like current as well. So I've seen that too as far as organic, just building that SEO footprint over time too. So I like to nerd out about some marketing stuff because there's just so many dynamic changes in terms of just user acquisition. Yeah, absolutely.
And I think the thing with SEO and a lot of these different channels is really time and iteration. I don't care how good you are at SEO. II really don't think you'll see a significant impact in your business for six to twelve months minimum right.
Yeah. So it's it's about like in the same with content building and posting on Twitter or LinkedIn if you're trying to build your personal brand, it's it's not about you know I've gone I guess in two months from you know roughly I think 10 or 11,000 followers on LinkedIn to to maybe 15, which is you know in in some respects great. I've you know grown at 4050% in the last two months, but still 15,000 isn't you know, it's not a hundred thousand. Right?
So, like, you know, you can't post for two months and have the expectations that you're gonna have a hundred thousand followers. Right? It's gonna it might take five years. It might take ten. Yeah. You know? And it's just about consistency. I think that's something that founders and companies forget all the time. Like, you have to just do it over and over and over. And then after years, then you should be seeing that benefit. Yeah, no, that's true.
Mean, was just And that's kind of what you have to prioritize, right? There's kind of the long term back end, SEO building and kind of building that brand, which will kind of persist. But then you also need direct sales, right? So you need to kind of get a It's almost like being an investment portfolio manager, right? There's some people that are allocating, there's a CMO, right? That kind of is managing kind of the overall budget.
And they're kind of like thinking through how they allocate the certain percentage of budget to different channels, right? To kind of manage their risk. Because if you put everything in meta and meta is not working, you don't really have a backup, right?
Because the issue with meta too sometimes is like if your creative is not working or your creative fatigues, there's a whole lead time to update the creative, warm up the creative, optimize it, change the copy, and that take you about a month and then you're just kind of sitting there. But if you had some backup traffic coming from maybe some Google search or some TikTok ads, that helps.
I think it's I don't know what your thoughts are in terms of like the some of these early stage companies, right? They probably have like one growth person that could be probably versatile. But like, you know, eventually you're gonna graduate, I'm assuming to like a CMO or something that's managing a growth team. So can you talk about that in terms of like maybe how you've seen the teams evolve, not only in growth, but maybe in product and operations and in engineering as well?
Yeah, just to reiterate how a company would leverage a CMO to grow. So I think I started talking about CMO and then I was like, wow, it'd be interesting to get your insights on the other team members. So I think my question is to to help, maybe clarify if it was confusing. You know, where have you how have you seen the teams evolve?
Maybe from pre seed to seed to series a. You know, usually at the pre seed, I'm assuming there's probably, like, one or two cofounders are doing everything, and then you probably see them kind of dial up, they get some funding, maybe they hire some people. So I was curious from your perspective because you've got the DTC experience and then you've also been doing a lot of software.
We'd love to hear your insights in terms of like the evolution of the teams and then just kind of like maybe advice on red flags, right? These teams like, you know, you definitely don't need like a CMO or a COO like at the seed level, right? So like how should these teams kind of prudently grow? And I know there's not, a one size fits all answer, but, like, kinda what have you seen in terms of some of the companies that have been successful? I mean, Teachable could be one. Right?
I don't know where where Encore was when you invested, but I'm sure over time as he slowly raised more money, slowly gets more KPIs, he probably evolved to say, look, now we need a CMO, now we need a head of engineering that's gonna bring in an iOS engineer and other engineers with different expertise. Right. It's so specific to each startup. And I think in the past, default used to be raise as much as you can, spend as much as you can, grow as fast as you can. Blanket across Grow the cost.
Right? Right, across everyone it was just like, hey, let's just do whatever we need to do. And I think that's just the wrong strategy for so many startups. And where I think it helps a lot, where I think it's really good is in in startups that are obviously well funded, but but have a big TAM.
And and, like so if you're Brex and, you know, Ramp has raised 500,000,000 and you raised 50, and you're going after the same customer, and by the way, you're the TAM of your market is just massive and the opportunity is massive, well, then you're at a disadvantage if you don't have that full team and you're not, you know, spending as much as you can, and and RAMP is gonna probably eat your lunch just purely based on on how much how fast how much faster
they can move than you based on the dollars. But most startups do not actually have that problem. Yeah. I think the TAM of a lot of startups is is much smaller than what they know it to be, and I think they could be much more efficient, raising less money, executing more resourcefully and and more efficiently, and being more patient.
I I actually think a lot of these markets are are fairly big and and and and sometimes folks rush to capture a market only to have them churn out and and and lose them, or rush to capture a market, burn through a ton of cash, be completely unprofitable doing so, and then at the end of it, trying to maintain that growth rate is almost impossible. So then even if they do raise more money, the growth rates come down. The the people that work at that startup see that. They don't understand why.
They just see that they're growing slower. They become sort of disillusioned or disappointed. So, you know, that could be one of those j curves that kind of flattens out. And even though it's a big company, people are disappointed. Right? And so I think we're kind of in an era of efficient growth, which just means really consistent up into the right growth over time.
So if you can maintain, let's say, 30% to 40% year over year growth for the next eight years, I mean, to me, that's more impressive than doubling every year for the first four and then growing 10% for the next four. Yeah. No, that's helpful. That's, yeah, that was really helpful. I just kind of going through just those, those best practices and KPIs. I think, a lot has happened in the last few years, right?
So I would say looking back on Q1 and I've got a bunch of learnings just that I pick up every week, right? But like what are some learnings that you guys have learned maybe in Q1, in terms of just building the firm, team building, and just overall being, growing into this institutional investor?
Let me think about, yeah, I mean, I think, yeah, it's sort of about I think the big thing for us is, you know, we are a smaller fund, it's, you know, ensuring we're continuously getting that great deal flow over time. Yeah. And so how do how do Josh and I get the word out? You know, being on this podcast is a great example and just meeting new people and then making sure people understand our thesis and and how we work. Building the personal brand on Twitter and LinkedIn is a big part of it.
Finding a good investor syndicate of other venture capital investors who are willing to share great deal flow with us because it it might be at a stage that they don't invest in, or we just have a complementary strategy. So I think that's been a huge part of it is finding partners, I think, in the venture community who we respect and who respect us back and and Yeah. Can share a great deal flow. That's that's probably been another big one. Yeah. No. That's helpful.
Well, hey, Josh. You know, I know you and your team are super busy, so really appreciate you making time to, you know, share all this wisdom and and unpack all these details. And it was really great to learn about your career path as well and, you know, just hear about just the great things that are happening in Nashville. Hopefully, I get to see you in New York at some point. If I head your way, would love to catch up and grab coffee at some point.
Again, really appreciate you sharing all the learnings. Awesome. Thanks, man. I appreciate you having me. Yeah. Of course. Take care. Have a good one. Awesome. You too. Yeah. Bye.