Well, those I love those people. I mean, I call them the boomerangs. Those people have so much to offer because of what they learned in that experience. Matter of fact, they don't even understand how much they have to offer. Sure. They may even take it for granted. But that, to my point, that leadership and and growth experience is very rare. So we're creating a a program and a fund that's focused on sourcing that talent and then we call that x 15.
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. Okay, so really excited today. I am live with Tim Scheigle, who's a managing partner at Refinery Ventures.
They invest in tech companies with demonstrated product market fit. And he's also launched and managed Centrifuge, which is one of the best performing fund funds in the country. They've invested in the 15 top tier early stage funds across The US. Tim grew up in Cleveland as a son of a steel worker and a Vietnam veteran. He received his BS in electrical engineering, just like me from Case Western Reserve University. And he's a member of YPO and a global network of chief executives.
So YPO is a great organization. But Tim, excited to have you on the show. It's been great community building with you. You've been to my dinner. I've been to your dinners. So glad to get you on the pod and learn more about Tim. Awesome, Joel. Thanks for having me. So why don't we kick this off? Tell me a little more about who Tim is.
I know that you're as a son of a steelworker, but tell me a little more that was going on in your mind when you were a child and, you know, throughout your formative years and then starting your career. What did you think you would do? And, how do you think that's kind of pivoted as of now? Yeah. No. That's good. I I love it. When I'm asked to sometimes speak at, you know, some colleges or whatnot, they wanna know, like, your career path. I'm like, are you kidding me?
Like, how do how do you do that? What's a That's probably true for most people. They get an adventure. So I have a large family. So had 36 cousins on my mom's side, mostly boot collar or entrepreneurs, couple of uncles that had their own businesses. I was one of the few that went to college. I was either gonna go to Case Western Carnegie Mellon or Stanford. We didn't have much, Case was there locally, it's a great school.
My dad was actually an electrician, never went to college, but was very good. So he could build and fix TVs and radios, you name it. So I was already always around technology and to play guitar. So I was into all the music gadgets and amplifiers and processors and all that stuff. But basically all I knew, because you don't know anything when you're like high school kid, right? And I could have gone into anything. I just knew that the future was gonna be heavily based on technology. Yep. Right?
And electrical engineering is a great platform, a a great foundation that you can really do anything. Was your favorite class in engineering? Like, when you were in college, what was the favorite course that you took? Well, my favorite one that just beats your butt. And that's probably why it's my I I never took classes because I could ace them. Took classes if I was gonna learn something.
Sure. So I didn't always have the greatest grades, but satellites and antenna radio wave propagation or something like that. By a guy who like built the satellite array at MIT, he wrote the book. It was all Maxwell's equations and all this stuff and it was just like, you know, you're dealing with math that includes no numbers. So it was just fascinating. And it's like operating in a dimension or something like that. Not that I apply any of it directly anyway, but I do think it helped a lot.
And then my job in school, well, my job was I was a bartender at like a big Italian restaurant bar. And one of the professors would come there often, doctor Crottybe. Sure. And he took me under his wing and was my advisor for my senior project. So from a senior project, I actually created a digital signal processor for music. So I built the hardware, built the software in ThinkSee on a Mac, built the whole thing. That was my favorite class because I brought it all together into something.
That guy, Doctor. Farooq Khatibi went on to Qualcomm where he was basically the kind of founder of CDMA and cell phone networks as we know it today. Sure. Pretty darn cool. But I also blended, I was one of the students in a curriculum between the Cleveland Institute of Music Engineering School. So I was doing and learned how to do digital music production in the eighties, which was also very fun, but I was the only one that was engineering student, wasn't a music student.
I had to go across campus and the only way to get lab time at the studio was to get to the studio at like four in the morning. Studio four in the morning and then I could have all the toys at my disposal. And that's what led to my job. But like I said, I think engineering STEM degrees, I always tell young folks, students, my kids, just get a good degree, of all. Don't worry about what you're gonna do. I didn't know what I was gonna do, right? I had no idea.
Don't put that much pressure on yourself. Yeah. You'll figure it out later. My my kids all got to go through co op programs every other semester they get That's a great way to figure out what you don't wanna do. Right? Because you're only committed for three months and you figure it out. Luckily for me, I was interviewing one of these big companies, the IBMs and GMs and all these big companies, but it was a small company in Cincinnati that reached out to me because of the music connection.
And the co founder of this small fund went to Stanford. And a lot of his friends were at Apple and he's a musician, so he really liked the fact that I did this stuff with Apple, you know, with Max and was doing recording. And I worked with him and his brother, Rick, Mark and Rick, Only to find out later, several months later that it was Neil Armstrong's sons. Wow. And then so I got to know Neil and got to work with Neil and my kids got to grow up knowing Neil, which was unbelievable.
That's pretty amazing. But through that company, that started my Silicon Valley connection. Mhmm. So we were doing we were one of two software development firms that did custom, basically, level software development for Apple's biggest corporate customers. Sure. And one of the biggest ones was here in Cincinnati, Procter and Gamble. So I I literally helped build Procter and Gamble's computer network and put in their email and all those sorts of things.
Mhmm. So it's amazing where it led, all all from just having that engineering electrical engineering base. Sure. And then tell me what happened after that. So tell me a little more about Yeah. Your time in Silicon Valley. Yeah. So I was doing a lot of work for Apple. I also I I basically became a Did you meet Steve Jobs? I never met Steve Jobs. Met Wozniak, met Mhmm. Ershan Sidhu, the founder of AppleTalk, folks folks like that. I John Scully.
We were actually we did we did one of the applications kind of a use case for the Newton, if you remember the Newton. I remember the Newton. Yeah. Those who don't know, the Newton was the personal digital PDA handheld device kinda precursor to phones. Did that have the the the the Stylus. The pen? The stylus, or was that Palm? Palm had one too. Yeah. So did the Newton. Newton had a flip top cover. It was bigger. And the was at so so Apple asked us to build an application for Monsanto.
Okay. We wanted to show precision farming and how they could scout fields Sure. Field with this handheld device. And, we demoed it at the Newton launch Mhmm. With which was which was really cool. So we did a lot of fascinating projects because Apple at the time was not big into enterprise. Right? So, anyway, that I worked with somebody at the time when I was at that small company that basically taught me about customer driven product design.
Sure. Kind of as it was developed from Japan and then carried over here to places like market. So things house of quality, if you've heard that term, house of quality, QFD, which is Mhmm. Quality function deployment. There are all these techniques for drawing out what customers really need and want Sure. And applying it to strategy and products.
So I kinda became a guru on that, and that ended up I did some independent consulting through a couple other firms and did work for Hitachi and the high speed laser printers in Japan, did work for Samsung and Daiwoo in Korea. So I was traveling all the time. And ultimately, particularly because of the Apple work, and I had an office at Apple, but we were having kids relatively early. Kids at 25, have three kids. So we're setting down roots here in Cincinnati.
So I was happy to travel, but we never had to move. Some people think I lived out in Silicon Valley. I've had a rental house there for a number of years, but never lived there permanently. But very kind of at home there as well as in New York. But I really wanted to get into venture capital and just thought, just was into ideas, right? Ideas, technology and I thought, well, the best way to get into venture capital either go to like Harvard Business School.
I felt like I was a little too late for that. You had kids, making good money, didn't feel like that was right or be a founder of a company and develop relationship with venture firms and end up there one day. And so I did, I started up an internet company in the 90s that ended up failing, but it got me noticed by a venture firm who asked me to join them. So I joined a firm in '98. We had four funds, 600,000,000 under management.
And, literally, the deal I worked on It's a large fund, I mean, today. Right? But I mean, in '96 So so the yeah. The fund was $2.30. So the total was Total. Yeah. Even today, you know, it's Cincinnati based. Yeah. I mean, even even today, 200 is a lot. You know? I mean, for venture. Right? Hedge funds, an emerging manager for a hedge fund is 400,000,000. Right? So. Yeah. No. It was it definitely was. The founder of that firm did a great job.
Got, all the big like a a number of big pension funds in. That's kinda what did it. Had some good success, with the fund. I came in at the tail end of the fund. Mhmm. And literally the night at work, was still in the office, it's like seven, 07:30 at night, and he asked me to do a phone call with one of the CEOs that they previously backed who came from like telecom and media industries. And he pitched me on this idea. This is my day as a junior venture capitalist.
Sure. And he described this idea of taking enterprise software and instead of buying it and, you know, buying the software and installing it on computers and servers at your company, he would host it at a data center and you could rent the software. Wow. I was like, what? Mhmm. And I wrote down, you know, ESP, enterprise service provider. Well, that became known as ASP, application service provider.
And the company was called US Center Networking, and it was really the one that what led to today the cloud. And that company, we basically did a and this is crazy to think about. So this is '98. We did a seed round. It our firm Blue Chip, it's called Grow Tech and Venrock, Ray Rothrock from Venrock. We did a $33,000,000 seed round. '98. Wow. Now part of that's because everybody knew this guy, the operator, the CEO and founder of Chris McCurry.
The round came less than a year later of 62,000,000. So it was like one of the largest public tech companies that went public that was worth 3 to 4,000,000,000. Sure. And we were limited to how much we could sell, but we did sell enough to still have a great return. And the company was kind of a high flyer for a moment until the.com came and everything changed. Right? So it was a heck of a experience getting into venture capital.
The interesting thing is that Ray Rothrock from Venrock who I met, like I said, in my deal, is now a co investor with us in a deal in Silicon Valley. He's retired from And so we're working together again, whatever it is, twenty some years later. Sure. So that I was in that firm for nine years, nine, ten years. Company that I believe, by the way, I believe in venture capital, it takes ten years to learn venture capital, and you need to kinda go through that economic cycle like I did for the
.com bubble and burst. But I led an investment in what became our most successful company just from an operating metric standpoint, which was advertising.com. And advertising.com was acquired by AOL in 02/2004. Sure. And they went from zero to like 135,000,000 in five years, something like that. So it was a big success. We we became known because of that and a number of other deals like Nielsen Buzzmetrics and App Plan and Buddy Media not Buddy Media. I'm sorry.
Tom Burgess, one of the mobile advertising companies in Boston, third screen media. We kinda had really good deal flow in the ad tech space. And I felt like there was something new that was emerging that was going to be kind of a new era in how we navigate information. And I had this theory of creating I'm a big like complexity theory fan, so the Institute and all that kind of stuff, right? I used to read all those books and meet some of those people.
And so I had this concept that I cold call the guy, Doctor. David Goldberg, who's a professor at University of Illinois, and he's kind of considered the father of genetic algorithms, which is one of the early machine learning techniques. Sure. Doctor. John Holland was really the founder of it. David Goldberg was a PhD student at Michigan. Mhmm. So John Holland is the one who imagined it. Dave Goldberg put it into practice.
Sure. And I didn't know this guy, but I reached out to him and I had this thesis for building what I call the consumer chromosome, which is like the ultimate cookie, you know, the ultimate way to understand people's preferences online. And we incubated this company and did some research and discovered that most people did not find information from Google search. Everybody thinks they find information that they know they're looking for in Google search.
Sure. But information that they weren't expecting to find, they get from links people share with them. Mhmm. And that became very clear, so I created something called share this. So I'll get a little card here. So whenever you share something on the Internet I don't know if I got the right direction. You see that little symbol? I created that. Mhmm. Oh, nice. Okay. And it became the stand it is the standard. I mean, it's For sharing. It's the it's a share icon.
It's the it's the I guess it's a string of code that enables the sharing capability. Right? It enables the sharing. It also enables the tracking that that the publisher can use for advertising. And so it was one of the early companies in social media and social media marketing and advertising. Mhmm. So I left the venture firm, became CEO, ultimately hit set up headquarters in Palo Alto. Draper Fisher led a series a. I went from zero to 50,000,000 in revenue in less than four years.
Wow. Yeah, it was fast. So we had office in Palo Alto, LA, Chicago, New York, now London. So it was an amazing experience. Ultimately, the investors wanted the CEO to live on the West Coast. I didn't want to move my family at the time. Kids were like high school. And so I became chairman and wasn't involved in day to day. Soon after that happened, in Cincinnati, the CEO of Procter and Gamble and the other CEOs of big companies here said, we want more venture activity in Cincinnati.
And they asked me to help start something called Syntrifuse Yep. I n t r I f u s e, and create a fund of funds. And I'm like Why and and let me ask you this. So why did they prefer to have a fund to fund structure Right. Versus just investing directly into into portfolio companies? And when I think about it, I think it's very strategic because if you're at the top of the food chain and you're the fund to fund, you attract all the other funds too. Right?
Because they're trying to they're trying to raise. But I feel like the the capital will follow. But that's my thought. Again, I'm not trying to, like, complete your sentence here, but No. You're just curious. No, that makes sense. It wasn't it wasn't necessarily a no brainer because it's not it's it is counterintuitive. They they actually borrowed from a model called Renaissance Fund in Michigan. That might Oh, yeah. I know them. They're they're yeah. They're a pretty big fund to fund as well.
Yep. It's Chris Reisic, and I knew Chris. I called him up. Not not Renaissance Technologies. That's Jim Snyder's. Right? Yeah. They're in the whole state of Michigan. Syntrafuse was just the region. So there's a little difference So they were trying to learn from so what did they learn from their playbook? That they basically were able to attract other venture firms from around the country to Michigan.
Yep. You know, the you know, and it's being able to leverage the venture experience of other managers, other GPs, right? And not expect that all the best investors are gonna be in Cincinnati, right? So that's the good news. You build this great network. For I did that for four years. For a good three years of it, I bet we had averaged, I think, two or three venture firms per week visiting Cincinnati. Mhmm. Right? Because it was one of fund to fund, so they're they're fundraising, of course.
But two, it was from strategic investors like Procter and Gamble and others. Mhmm. And so it was a great, I call it honeypot, if you will, to get people And we invested in Techstars and part of that deal was that they would host the FounderCon here, which was a huge success. And so Cincinnati was really rocking and other cities all wanted to know how we did it. The the negative to it, as I said, is kind of counterintuitive. There's no guarantee that those funds are gonna invest here.
We wanted to invest in regional venture funds. There's just not a whole lot of them. And we had When I was being hired, they specifically wanted somebody who was, as they said, had a strong backbone because they knew that the requirements had to be performance and regional engagement. Sure. Because attempts by other economic development groups flip that, right? If you make a token investment in the region, then they'll invest in your fund, It doesn't mean you're a good fund.
Sure. So they said, we're gonna reverse that, which I liked. We had 120,000,000 under management. We did not have any state money for the fund. So we were free to do whatever we thought was best, and we would do we would do follow on later It was just from Cincinnati. It wasn't from Ohio is what you're saying. Right? That's Cincinnati. Right. Got it. Most corporate. Mhmm. We could do some directs.
We only did a handful of directs for local companies usually to if we were adding on to a larger, you know, $10,000,000 round or so. Right? Sure. But we did not want to one of the other key guiding principles was we were not competing with the local venture ecosystem. Yeah. We were trying to be additive, helpful. Absolutely. I would do portfolio reviews with all the local firms every quarter and say, okay, what do we got? Who are the best companies?
Who can we show off to coastal investors, etcetera, etcetera. And so there's definitely things from that that work really well. There's also some things I would tweak and the group that runs it now, JB Propp's currently the CEO, he actually worked for me at ShareThis. He's allocating more to local, including to refinery. So he's changing the mix and trying to learn and adapt, which is good, smart thing to do.
But through that time, I learned, I wasn't sure, people would ask me, what are you going to do? What do you want to do next? When I took that job, I did not want to do it forever. It's sort of quasi economic development. I wanted to help out. I'm more of an operator. I always say, I identify as a tech entrepreneur at the end of the day regardless of what hat I'm wearing. Sure. And And I mean, look. I mean, launching a fund is a is a business. Right? You got a website.
You're you're Oh, no. Got you've five different types of customers. Right? So, you know, it's the entrepreneurship of capital creation, right? And capital deployment. But I hear you. Yeah, I mean, look, I work for the you know, we talked about this in dinner. I worked for the DOD for four years, you know, so I get my hand. You get your wrist slapped and you have to kind of follow a certain protocol and like a process, which, you know, a serial entrepreneur may sometimes have problems with.
Yeah. Exactly. Exactly. I was people would say, well, do you wanna do a venture wanna do a venture again or do you wanna do a startup? And my honest answer was, I don't know. Yeah. And, you know, career tip. I felt guilty saying, don't know for a while, then I embraced it and said, no, I'm in I'm in a I'm in a discovery period. I'm in a exploration period. I'm just gonna network and help people where I can and see where that Sure.
And where that went through that experience with centrifuge was my next big moment. Like share this was my big moment when I came up with something that nobody had ever done on the internet. Right? Nobody thought to capture shared links before. This was my big moment is I met with hundreds of entrepreneurs throughout the Midwest in this time and I didn't have a fund, I couldn't invest directly, could introduce them, I couldn't invest.
They come to me and let's say they had half a million or a million in revenue. Sure. Alright. I'd start asking this one question over and over again, which is what has to be true to do 10,000,000 next year? And they looked at me like I was asking them to go tomorrow. Like they had, you could tell they never thought of the question.
Well, though, you know, here here's a unique thought you know, everyone's probably heard this before but Elon Musk said, look, if you give yourself thirty days to clean your room, you give it thirty day you give it you'll do it in thirty days. Alright. Right. You give yourself three hours to do it, you'll do it in three hours. Right? That's so one of my I know one of my I know somebody that works directly for Elon. I met Elon years ago, but I know somebody who works in finance for for Elon.
We talk about this. Sure. And what he calls it is right to left thinking. Mhmm. Not left to right. Like get yourself out of the spreadsheet. Don't say, oh, assuming 20% month over month growth. No, no, no, no. What's the number need to be at the end of the year? When does the rocket need to launch? And what do you have to do to make it launch in that window? Sure. Period.
And so after asking this question 100 different times, I realized that the entrepreneurs aren't asking that question and neither are their seed stage investors, by the way. And so why aren't they asking that question? They're smart people, went to great schools, They have good ideas. Why aren't they asking that question? I reflected on my own experience. And when I was building Share This, I took pages out of the playbook from advertising.com where I was in all the board meetings.
I I had all my notes from all the board meetings. Mhmm. And I looked and I said, if they here's what they did from q one to q two, and here's what they did from q two to q three. And it's just like if you were trying to train for a marathon. Right? You go to talk to who's run a marathon and say, how do you train? What do I need to do? And what kind of pacing do I need? And blah, blah, blah. That's what I did. And that gave me a framework that helped share this grow as fast as it did.
It also takes luck and timing, by the way, right? If you're in a bad market, there's nothing you can do about it. So the time was right. But what dawned on me was that outside of the big tech hubs like Silicon Valley, the big gap is an experiential gap that entrepreneurs have. They don't have a knowledge gap, have an experiential gap, which is hyper growth. They don't know what it looks like. Think about it. Most people in the country work for companies that never hypergrowth, right?
They may never work in a company that has triple digit percentage growth year over year, that goes from one to 10 or 10 to 100,000,000 or 100,000,000 to 1,000,000,000. I've got a thesis, growth is growth, And venture requires it, right? Because venture is unlike private equity, venture is all about growth and becoming a market leader or being at least perceived as a market leader. That's how you get a big valuation, right?
Because you've taken business from the incumbents, you've created a new market opportunity, ride sharing with Uber or Airbnb or what have you. So it requires that kind of growth, which is basically just an indication that you're opened up a new market. And that's what you need in venture. And you know that if you're on the West Coast, if you're in the Midwest, you don't necessarily always understand that. You don't have people around you showing you that or telling you how it's done, right?
So there's not a lot of talent there. So what I The moment for me is what if I created a venture fund here in Cincinnati where I live, where I prefer to live, knowing that I've worked in New York and Silicon Valley and I understand how those worlds work. And I focus on recruiting leadership talent that has those attributes that have been through hyper growth. But maybe they grew up in Ohio and went to Ohio State or they went to Carnegie Mellon or they went to Michigan.
And they go to the coast and they get that experience and they come back. Usually I get a phone call and the phone calls are always the same. Hey, I went to University of Michigan, I went off to the West Coast, I worked for Twitter, blah, blah, blah. I got married last year. And then the next thing is, and I'm about to have a kid and we're thinking of moving back to the Midwest. Sure. Well, I love those people. I mean, I call them the boomer.
Those people have so much to offer because of what they learned in that experience. Matter of fact, they don't even understand how much they have to offer. Sure. They they may even take it for granted. But that to my point, that leadership and growth experience is very rare. So we're creating a program and a fund that's focused on sourcing that talent and then we call that x fifteen. Okay. It's a network of hyper growth leaders.
They're not necessarily, by the way, founders or they haven't been a founder, but they're not yet. Mhmm. And, you know, quick quiz. Do you know what a x fifteen is? I don't. Is your DOD guy? No. I don't, actually. Sounds, sounds important. The X 15 is a rocket jet. It was locked in and Neil Armstrong flew it before the Apollo mission. Got it. Okay. It was his hyper growth experience. So that's what we call our network and we've been building this network of talent. Nobody's ever done it.
And it's really, I don't know, are you familiar with what a search fund is? Oh, yeah. Absolutely. So search funds usually associate with private equity. Right? It's a way I mean, it's what people in Harvard do. Right? They graduate from Harvard and they they they join a they start a search fund or they they become a searcher, right? They find a company and then they Right. They they pretty much give themselves a job, right? They operate the company.
Yeah. They're trying to they they basically it's like a it's like a micro PE fund. Yeah. To some degree, they they're fresh MBAs. They go up and find Mhmm. Sponsors who pledge to put up whatever it is, $10,000,000 or $20,000,000 for them to buy a business. Yep. They have a thesis like, hey. I wanna go I wanna acquire a printing company or I wanna acquire a you know, it's typically conventional businesses. Right? What I got a question for you. What would you buy if you were coming out of college?
What would be the ideal business that you'd find and get people to pledge for this day and age. Just if I were to go back in time? Yeah. Or even right now. It's like, look, you know, you you you you maybe run a little search strategy on the side. What what type of business would that look like? Like car washes or something, right? I literally am looking at a couple of car washes right now. I would look at businesses that are completely automated.
So I would buy them coming in, maybe it's an elderly couple that has just had it for a long time. I would love to just buy one that is just completely robotic. And then that gives you some value creation that you can add on top of that. But it's just it's crazy how you read my mind. Yeah. No. It's people are spending money on that stuff every day. And Even during a recession, people gotta people gotta clean their cars. Well, you know, you mentioned in the intro, like, I'm a member of YPO.
Mhmm. And I'm I've been chairman of the local chapter in international. And most of the people in YPO run regular businesses, you know, not necessarily tech businesses. Yeah. And maybe multi generation or whatever. And they make a lot of money. A lot of my friends have those kinds of businesses and make a ton of money. So when an entrepreneur comes to me and wants to raise venture, I challenge them a bit. Because I'm like, look, if you wanna raise money, go go buy a car wash, right?
Yeah. Go start a, you know, commercial landscaping company or something. Mhmm. I mean, you're you you told me your father was an electrician, right? I mean, there was there was a whole thought process around people being plumbers and electricians. Those people like multimillionaires in in New York, especially, right? I mean, these services are going to get more and more expensive every year. If you own a car wash, that real estate is gonna appreciate.
There's depreciation that you can take, and then you can write off all your expenses. You can't do the same with with with venture, I mean, in that same way. So Well, no. Adventure is not that's that's back to venture is not the get rich quick model. Sure. Adventure is really for opening up a new market Mhmm. Or redefining a category and kind of really making a dent in the universe.
And if somehow you're able to survive as the founder to continue to be the CEO, which I'm a fan of, but not everybody does, then you can make a lot of money. Right? But it's a very small percentage of people that can actually pull that off. So it's anyway, it's an interesting No. It's a it's a good it's a barbell, though, for a lot of your YPO people. Right?
Because they've got those, you know, traditional businesses that generate cash flow, but you're not going to get a 5,000 X like you would if you went early stage, right? So that's the strategic outsized returns that you that I think is really great. I think with a lot of emerging managers, we're going to talk about this because I know you probably supported a lot of managers and had a lot of advice for them. I met one of them right over dinner and got to know her pretty well.
But like, I would say, you know, as you're educating LPs on like what the benefit is, right? Especially these YPO graduates, Why why venture? Right? Like, how are you educating these fund managers to help help share the value of of early stage venture and even growth equity? Right? There's there's even different vehicles and products that you can offer within venture. But how are you mentoring these managers and how has that changed since from when you were at Centrifuge?
Well, of all, if you're gonna be in a venture firm, you'd be a venture firm, don't try to be something else. So the firm I came out of, the firm I was part of, they tried to their strategy, they called it the balanced strategy. So they were like part private equity, part venture. No. Yeah. If an allocator from a pension fund or an endowment wants venture, they want venture. If they want private equity, they'll do private equity. Right?
And private equity is all about getting two or three times your money by, you know, bringing out operating efficiencies and usually, you know, multiple arbitrage. Venture is very different. Venture is all about power laws, right? There's one in 10 that returns everything. And so you have to embrace that and understand it. And for people that have been in private equity, they can be scared of or turned off by the loss rates, right? Venture took me at 20 to 40% loss rate.
Yeah. And the venture firms, when I was doing the fund of funds that we liked, they didn't shy away from that. If a manager was pitching us and was taking too much time defending the losses, we knew that was a problem. And I learned that in the venture fund I was part of. Tried to save too many deals. That's a waste of time. You can't always save them. And you save it and you get one times your money. So what? Whereas the big one, you're gonna get a 100 times your money. Sure. Right?
And so you have to be comfortable with that. And many funds and especially if it's a manager that hasn't been in venture before, so a new emerging manager or what have you. They may not understand that yet. They may not grok that yet, right? Because it's a bit of a psychology mental hack, right? When you make an investment in a company, you end up taking personal pride in it, right? You wanna defend it, you wanna help it, you don't want it to go poorly.
And you need others to help you save yourself. It's like there's only so much you can do and I'd rather make another bet and try to get another 20 or 100x or 1000x instead of sucking up all my time. So that's a very hard lesson that not everybody gets to learn. So that's a big one. I think the loss rate in venture versus later stage, whether you're an LP or a GP is something that people need to understand.
Yeah. You know, the other thing is for GPs, for early stage funds, the next important thing and we would say this because we had an investment committee that included a retired former Cambridge Associates managing director, right, who created benchmarks, basically. If the general partners said the phrase portfolio construction, it was probably gonna be a good meeting. Yeah. Just because they understood that. Too many funds would come to us and they'd have nice logos and say, how much do you own?
Mhmm. Have enough ownership for it to even if it was worth a billion dollars, wouldn't return the fund. Yeah. So on average, you have to have enough ownership in each company that if you had a moderate exit, you could return your fund. It requires Facebook size exits, you'll never get there. Right? No. I totally agree. I get lightning in a bottle, but not so that's just a math problem. Right?
And so for years like us, we can understand that, but not everybody it's amazing how many people don't think through that. What are the biggest questions that managers have asked you in the last maybe six months? Are you getting a lot of questions around portfolio construction? What are some of the hot topics that you're hearing right now for managers? Oh, the biggest Beyond Beyond, how do you meet LPs? Well, Well, the biggest topic is fundraising and liquidity, right?
Yeah. So venture in the last couple of years, you've had the magnificent seven, you know, wealth managers, other investors just say buy NVIDIA, that's all you have to do. Mhmm. And they're not getting liquidity from venture. Matter fact, venture and private equity, the most important stat I would say to look at if you can see it or find it is distributions as a percent of NAV. So you look at total net asset value of all of venture and what percentage of that is distributed every year.
And historically, it's in the 15 to 20% range. What's it now? The last few years it's been under 5% and it's been staying there for quite a while. Yep. So that I would say that's probably why some of these mega funds are offering so many products. Right? I mean, they're like, hey, know what? I know you're locked up for, ten years. So here's and we just launched a secondary think and I also yeah. So I hear I get emails from secondary funds every day. Right?
One of the big questions is, is that going to be a permanent fixture layer in the capital stack? Because not just because of today's environment, but because companies don't go public anymore, right? And like they when I started in this business, you can go public with 30,000,000 in revenue. Sure. Look at Canva and companies like this that have tens of billions of revenue. So is there a more permanent stratification of that capital so that the early stage venture can get out sooner?
Yeah, I'm still a believer, early stage venture seed and series a is where the all the money's been. That's that's always been historically the the the group and the the stage that's made the most money. Right? The thing is different now is where do you get that liquidity from?
Sure. I think more funds may have more policies that say, hey, if we get, you know, if we do follow on rounds in a company series b or c, and we're at a 10 x or 20x, we have a policy to sell in each of those rounds or something like that, just to generate more liquidity. I think we're likely to see more of that. So that's a challenge the funds have. But then you have like Andreessen and others becoming RIAs. Yeah. I mean, I mentioned this on our previous discussion.
So we've got many more mega funds creating RIAs and then now we're seeing and this kind of relates to the venture studio model of people building, you know. So Tribe Capital launched a roll off strategy. So they're essentially, you know, putting together roll ups and they're, you know, building alongside investing.
So I feel that's going to be more and more prevalent and there's just going be a blurred line between late stage growth equity to buyout, and some of that's just gonna flow into each other as a funnel. But, yeah, on top of the RIA, I'm I'm seeing, you know, company incubation, company creation, and then having that flow into a strategic roll up. Right?
So you you you've got the car wash, now you got software to take credit cards, software, you know, on the website to do subscriptions, and then that integrates in with Turo, you know, because Turo drivers also need to wash their cars. Right? And Right. You know? So Yeah. The other interesting thing is happening now that's just from a you know, obviously, the AI trend Mhmm. Is real.
It it is, I think, as big as kind of just even the introduction of the Internet in terms of everything it's opening up, different ideas, different capabilities. And, what I've heard is venture firms looking at their current portfolio and saying Mhmm. If you started pre AI and you're not at native AI Mhmm. You may not get an exit. You may you may be you may be a zero. Sure. Right? Because you're gonna get leapfrogged by new companies or native AI that are just gonna run right past you.
Mhmm. So that's a very interesting dilemma, you know, for a lot of firms, for for both companies and and the funds. Sure. So, yeah, a lot of lot of changes happening. And you mentioned the studio and studio models and our friend Sarah with Vault Fund. Sarah was my hire at Centrifuge. She's got a very interesting niche that she's focused on with the studios. You typically associate studios with venture and that's just, hey, we're incubating and building companies.
Yeah. What what I'm trying to do with Refinery is similar but different. I think it's more like the search fund private equity search fund but for early stage tech. Sure. Our our searchers are either gonna start a company or they're gonna join an existing startup and we'll invest. Yeah. And I don't know that anybody's really doing that Mhmm. In that way. Right? I totally agree. There's a guy, he was on my podcast, Joe John Stanberg.
He's a he's one of the only fund of funds that I know for search funds. So really interesting guy. I mean, grew up in he owned a he owned a vineyard for a long time. Yeah. And, you know, has built a platform around just investing in search funds essentially. And we've had a few search funds in our fund accelerator as well. So it's just very unique model. Search funds have done better than outperform venture. Yeah. Oh, totally. It sense because the investors put up a little bit of money.
Mhmm. 11% or less to just fund the circle while they look for a business to buy. Mhmm. That that all that's pretty much pretty much almost like a management fee, pretty much. Right? I mean, the the equivalent of whatever the management fee is. It's it's less actually because it's less because it's 1% where management fees too. Right? Right. It's less. And if the searcher comes up empty because they're Mhmm. You're not out much money. You don't Sure. You're not blowing it.
And if they do get a deal on the term sheet, it's a in the in the case of search funds, it's a you at least have an asset of some sort. Right? Absolutely. It's not not just an idea. Mhmm. So everybody I know that's done the search fund model has done very well. Mhmm. And so, basically, I'm I'm trying to do that model, for early stage tech. Like, the search funds are typically existing kinda non innovation driven businesses. Mhmm. Absolutely.
No offense to those who are, of course, because I'm sure there are some, but it's really, like I said, kind of a micro model, but we're applying it to venture. I think that there are well, of all, if you've ever if you ever run anything, you know that it's all about the people. Right? It's all about Absolutely. When you get into venture capital, well, it's one of the things I remember learning was ideas are a dime a dozen. Mhmm. It's execution that matters at the end of the day, right?
It's a good idea, the problem is So there's no better place to invest your time and energy than into talented people. And that's the model that's the benefit of firms like Sequoia have over the years is through their investments and successes over the years. They've got the best talent network bar none. And at least out there. So I'm gonna I'm gonna build one that's is good, but it's not in Silicon Valley. Absolutely. What would you look for when you're looking to hire talent?
What are some of the Good question. Hard skills, the soft skills as you're looking to expand your team? And just over the years, right, you've developed a lot of talent, you know, growing centrifuge and, you know, trying to figure out what the DNA is for being a good asset manager as a whole. Doesn't have to be venture, doesn't have to be search. But what are the traits of just a good asset manager?
People that are deploying capital, you hit you hit on one of them, which is just kinda having good values and and doing right by people. But, you know, maybe you can break it down the the hard skills and the soft skills. Well, the way we look at it is, of all, the the the key is the growth piece. Mhmm. We look at people that have gone through the, you know, one to 10,000,000, 10 to a 100, and really wanna understand what role they played Mhmm. In that, that we contributed to it.
They saw what it's like. It's like experiencing gravity or experiencing lack of gravity. Right? I could train you to be an astronaut and you can understand it, but until you've experienced that, I have no idea how you're gonna handle it, right? So that's a key criteria that sounds logical, but people don't necessarily look for that. They sometimes get distracted by the exit. Right? So you talk to somebody and maybe they had an exit and they sold the company, which is also very valuable. Right?
Sure. It's easy to start companies. It's hard to finish them, you know, or exit. But you say, oh, great. Yeah. You sold for $50,000,000. How how big was the company? Oh, well, yeah, we grew to 2,000,000 or 3,000,000 or something like that. Sure. That doesn't really qualify as the hyper growth. Absolutely. You build something very interesting.
I'm not saying you're a dummy by any stretch or that next one can't be successful, but there are I'm a fan of a lot of stuff that Nicholas Taleb, Nassim Taleb has written. Anti fragile and skin in the game and those books. And one of the books I read of his by accident was called Fooled by Randomness. It was like a quant, New York quant.
And fooled by randomness, one of the things he talks about is a lot of entrepreneurs that have successful exits, they had those successful exits because they're that good. And truth is they might have just been lucky. Mhmm. Oftentimes, it's just being lucky. And so I I I use the metaphor of a surfer in a wave. It's not like the jockey in the hole, it's a surfer in a wave. I can have the best, most aerodynamic, waxed surfboard.
Mhmm. And put you on that surfboard and standing in a puddle, and it will do nothing. Right? Yeah. Or I can put you on a two by four in the middle of a big swell, and you're gonna you know, you're gonna do great. So Sure. The market timing and the market conditions have more to do with that success than anything else. Mhmm. And so you have to be careful to to yeah. How you attribute that success. But back to the people we look for, we we look for the growth piece.
Then there are four things that I've kind of accumulated over the years that are kind of proprietary, some less more than the other, but there are four of them. So the one is EQ, right? Emotional intelligence. Yep. Do they have empathy for their customers and empathy for their employees? Sure. Right? That's a key that comes from a lot of my customer driven product design experience.
If you're gonna you're gonna unlock a new market opportunity and you intuitively sense it, it means because you're intuitive intuitively been to what people actually want and need. Sure. So that's the one. The next one is I call them the quotient. So it's it was EQ, then it's GQ, Mhmm. Which is not Not the magazine. Not Joel. Not Joel. It's mister GQ. It's I wish. It's growth quotient. So it's your growth Are you a lifelong learner?
Do you you know, are you constantly trying to learn and challenge yourself? So there's a book, I think I mentioned it over the dinner. I think it's The Magic of Thinking Big. And there's actually research around a sample set of people that had the same education, had the same skills, and just by default, the person that thought bigger did well. Then you and I went on this tangent because I think it's really interesting. We don't have to specifically name people.
But one thing that I remembered you sharing at that dinner was you did a personality test. And there's some people that are visionaries and then there's people that are more tactical and you know, it doesn't mean that anyone, you know, whether you're a visionary or tactical that you would do better but I think there's interesting outcomes that can come out of that and different Yeah.
A lot of the people in our x fifteen network, these leaders, they're not necessarily all visionaries or want to be founders. Mhmm. Sure. They'd love to find one and partner with them and help them achieve their There's a lot more of those, and that's fine. The the area, I'm thinking big definitely Mhmm. Came out in, like, 1959. It's it's it's awesome. Mhmm. But what he relates to in that, what he talks about in that book relates to this area, which I call AQ, which is adversity quotient.
Mhmm. For that one, I'd refer you to this book, Leadership in the Art of Struggle. Mhmm. And the great quote in here is all leaders face adversity, exceptional leaders thrive in it. So and this is what in thinking big he talks about. Right? Mhmm. The people that end up having the most success are the people that when they face a struggle, they get knocked down. They go, what can I learn from that? Sure. What can I take it's not just somebody else's fault? You know? It's it's it's okay.
Well, it might have been mostly somebody else's fault, but I probably could have avoided that person or, you know, I could have learned something from that situation to protect myself or what have you. Absolutely. And that's the important thing that kinda goes back to growth mindset and learning. But it's through struggle that our character is built and our reputation as a leader is built. And that's actually where the name for the fun comes from, Refinery Ventures.
From my own experience as a leader, some of the most painful experiences I had as a leader were also the most valuable. Absolutely. Wouldn't replace them, but they sucked at the time. Yeah. And so Pain is the best instructor. I always say I got all the scar tissue on the back, right? Which causes me to avoid those things again. Well, when you talk about refining, again, not to just quote another person's quote, but there was a story by Steve Jobs.
Think it was in one of his interviews and he talked about him going next door and one of his neighbors had this like, I guess it's like a rock smoothener. I guess you throw a bunch of rocks in it and you spin it. And then over time, the rocks just become like pearls, you know. And he was just saying that's kind of how Apple was. Right? I mean, there's just a lot of bumps. But then over time, as you learn, as you make those tweaks, as you pivot, the rocks become very smooth. Right?
And when I think about refinery, I think of just refining the process and just kinda improve you know, constantly iteratively improving. That's right. That's I I call that experimentation is like building a muscle in terms of your corporate culture. Mhmm. It's learning how to do that and do it as fast. So you're learning quickly. Yeah. Yeah. I I I took the word refinery came to me actually from a biblical reference.
Isaiah forty eight ten is behold, I've refined you, but not as silver, but through the furnace of affliction. Mhmm. That's how we get disciplined. That's how we learn. Sure. Or learn. Mhmm. And then the last area that you don't hear much about is PQ or paradoxical leadership. Mhmm. So particularly in a startup, managing paradoxes is like what you do all day long. I didn't know what that was called, but as a CEO, I called it healthy tension.
Like when you're in a meeting in your room and there's do we go this way or that way? And everybody's arguing about it. I wanted everybody's best ideas. I didn't want anybody to be a wallflower. You had to speak up. And a lot of times, there's a lot of unspoken assumptions. And when they come out, learn stuff. Right? It's kind of the iron sharpening iron. It's like, I believe this and you believe that. And like, how can we be that far off?
And once you start clashing, you start to expose all those unspoken assumptions and you go, oh, now I know why you don't like this. It's because you got burned on that in the past or because it may cost you more margin than you thought or whatever it might And it turns out, and there's an F. Scott Fitzgerald famous quote that says, a sign of a brilliant mind is somebody who could hold two opposing thoughts in their mind at the same time.
There's actually I found out by chance that the dean of the business school at University of Cincinnati has studied this for twenty five years and co authored a book called Both Hand. I don't that handy, but they studied this. Yeah. Where have you heard business folks and business leadership talk about paradoxes? Sure. Here's a, you know, a good startup paradox example. You have to go fast. But the only way to go fast is fail. Absolutely. It's not linear at all.
It's like, I want you to do things that are wrong. I want you to come up with 999 ways that you can't make a light bulb. Right? You can also make a light bulb. That's a paradox. Mhmm. So, Tim, final question for you. So you've been in Silicon Valley, you've worked at one of the most iconic companies of all time, all humanity, Apple. Wish you had a couple Steve Jobs stories, but you've got so many other ones. You pretty much have been through the beginning of the Internet.
You've successfully been a serial entrepreneur. You co founded one of the incremental fund to fund strategies in Cincinnati. So all I have is just one more question for you. Give me one piece of advice from a mentor, a family member, or just a work experience that you want us to take away. Good question. There's a bunch of things there.
At the end of the day, as a leader, as you know, we're I always say my bookshelves when I was younger, all my bookshelves were filled with books about technology. Now they're all psychology. Right? Sure. I value people. I view you know, everybody is created in the image of god. Mhmm. Everybody has value. Sure. They don't have to agree with me or even that if they don't want to. It doesn't matter. I'm gonna treat them with the same same respect when I'm firing them, when I'm coaching them.
But I believe in people and the potential for people. And great leaders have shown that they believe in their people before their people believe in themselves. So my suggestion is to look at people you work with, look at your partner, your customers through that lens, put yourself in their shoes, understand where they are and be full of grace and seasoned with salt, right? You don't have to hit people over the head with the truth. You can understand that we all come from different backgrounds.
But at the end of the day, if we can't figure out how to work together and work effectively, then we've got nothing. Sure. I totally agree. Relationships are everything and I might have mentioned this. I mean, no matter who you meet, or who you, you know, treat with respect, you never know if they could be your boss one day or if they know someone that, is a decision maker.
But I think you should just try to help people when you can without expecting anything, and the the universe works itself out somehow. Absolutely. Yeah. Who who did the book? Adam Grant did a book. He talked about Dave Hornick from August and just taking taking meetings with people and not expecting to get anything back from it. That that made me feel so much better because some people would say I was wasting my time. But to your point, it could come back years later. Mhmm. Absolutely.
Yes. Say yes to everything. And and so so one of my recent podcasts there was a saying, and I think I posted this as a quote, but Rob Belandian, who runs Cambridge Wilkinson, they're pretty large investment bank. One of his quotes was say yes to everything.
That means, you know, maybe take every meeting, but if you've scaled your leadership, you don't you know, you could still take every meeting, but it could be one of your team members that's kind of representing you and representing the firm to be able to get the most coverage. Right? To be able to get the most access, to those relationships because you can't take every meeting. Some of the most successful people I know and people in YPO always find a way to make time.
Sure. If the person that never has time Mhmm. Just a little bit, you know, too full of themselves. I mean, I get jealous of like, I have the few people that are mentoring. I mean, these people are like in their 20s and they're not married. They don't have kids. They go to events like eight times a week and I'm like, man, I'm like, I can barely go. You know, I went to your dinner.
I kind of had to move things around and I was like really glad that I got to your dinner, but like I can't go to every single one because I got two kids and there's childcare responsibility. Like if you're that one person that goes to every single event and meets every single person, there's a lot of people that can't do that. That in itself gives you an edge. So and I know you you sure as hell can't go to every meeting either.
So, you know, you you try to scale yourself and and replace yourself with other people to to get that scale. So well, anyway, Tim, I know you gotta run, but thank you for the time, A lot of wisdom and really enjoyed. Every time I meet you, I feel like I get excited to get to know you better. And thanks for sharing all of these learnings with the community. So I really appreciate it. Thanks for having me, Joel. See you in July. Alright. Bye. Alright. Take care. Bye.