The transcript from this week’s MIB David Hall, Revolution’s Rise of the Rest Fund, is below.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found at iTunes, Stitcher, Overcast, and Bloomberg.
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DAVID RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, his name is David Hall and he is a partner at Rise of the Rest Seed Fund. A little background, I previously had interviewed both Jean Case who runs the Case Foundation and is a former early executive at AOL and coincidently married to Steve Case, the cofounder of AOL, and she introduced me to Steve Murray who works at Revolution partners fund, which is run by Steve Case. And in my research with Steve Murray I came across Rise of the Rest and afterwards, he said “oh you’re interested in this? I got a guy you have to speak to and his name is David Hall.”
If you are remotely interested in oh my goodness so much stuff, the state of venture capital in America today, why it doesn’t have to just be focused on three areas namely San Francisco, Boston, and New York, how much entrepreneurship technology startup energy is in the rest of the country? Well, you’re going to find this conversation absolutely fascinating.
With no further ado, my chat with David Hall.
My special guest today is David Paul, he is a partner at the venture capital fund Rise of the Rest Seed Fund, part of Revolution Partners VC. He comes to us with a BA in economics from Morehouse College and an MBA from Harvard. Prior to joining Revolution, he worked at the “Washington Post” as the director of planning and developing managing corporate M&A and investments in helping to launch a number of new print and digital publications.
David Hall, welcome to Bloomberg .
DAVID HALL, PARTNER, RISE OF THE REST: Thank you, Barry, it’s a pleasure to be here.
RITHOLTZ: So I’ve been speaking to a number of VCs over the past couple years and I’m always fascinated by their backgrounds. Your background is a little unusual, how do you get from the “Washington Post” to the world of venture. Let’s start with what were you doing at the “Washington Post”?
HALL: Yes, so I went to the “Washington Post” actually interned at the “Washington Post” Company between my first and second years at the Harvard Business School and it was, for me, it was perfectly placed because where do newly minted MBAs want to go? They want to go to industries that are in crisis and there was no greater crisis in the 2000 — early 2000s than the print newspaper.
RITHOLTZ: Wait, let me interrupt you, newly-minted MBAs want to go to industries in crisis? I always thought they either want to go to high paying Wall Street jobs or high-paying Silicon Valley jobs. You’re suggesting …
HALL: Well, I figured I can always end up in one of those high-paying coastal jobs but for cutting my teeth…
RITHOLTZ: Right.
HALL: I needed to manage a business through disruption, and that to me was going to be such an interesting you know, how could I be the savior of the great gray lady of Washington at least.
RITHOLTZ: And managing a business through disruptions sounds a lot like what VCs look for in startups.
HALL: It’s you know I was reflecting on the train up here from Washington how much of what I’ve been working on has been kind of cumulative, it’s looking for these — how do you recognize disruption before it hits and how do you manage through the disruption and how do you and now from an investors perspective, how do you manage that process sort of indirectly because we are not in the company everyday but we’re advising these companies about disruption that is either coming or disruption that hopefully they are creating with their products and services that they are launching.
RITHOLTZ: Quite interesting, so that was your first experience in the workforce, how did you tack from that..
HALL: Sure.
RITHOLTZ: To venture?
HALL: It’s easy to talk about but it’s actually more visual, you know, I was sitting there one day at the “Washington Post” and it’s the only place I have ever worked where sitting at your desk reading the newspaper was called product research, right? And so I was reading an article…
RITHOLTZ: Part of your job.
HALL: I was reading an article about Steve Case and the firm that he just launched after leaving AOL Time Warner called Revolution and it was going to build these big iconic businesses that were going to tackle really tough problems around healthcare and financial services and it just was so exciting to me. I said I’ve got to plot my way there. You know, I did a little cyber stalking at the time finding out where the Revolution offices were, I did some LinkedIn searches to find who I knew there and ended up finding a woman that I went to business school with who was there, a couple of free copies for her and a glass of Chardonnay and I found myself with an email introduction to one of the founders and that’s how it started.
RITHOLTZ: And not, I have to point out, unlike most of the big VCs, Revolution didn’t set up shop in New York or Boston or anywhere in the Bay Area and Silicon Valley, they’re pretty close to where the “Washington Post” is headquartered
HALL: It was three blocks, it was the easiest commute for an interview I ever had. Yes, I mean, you know, the Revolution story and what Steve has built and others have built with Revolution is really phenomenal.
In the Washington DC area, it’s been its home, AOL grew up in the in the Dulles Corridor, has been a phenomenal explosion of just capital ingenuity in that area and has helped spawn you know the grandchildren of AOL, companies like Vox Media which…
RITHOLTZ: Right.
HALL: …is you know, run by Jim Bankoff who was at AOL or even Living Social which was a huge company that was run by a former product manager at Revolution Health. So you still seeing the spillover effects of that sort of huge entrepreneurial flashpoint with AOL.
RITHOLTZ: Now I think of that area as very heavily laden with telecoms and other networking firms, is there any cross pollination with Revolution or you have a very specific set of things you focus on and telecom may not be it.
HALL: Well, I mean given sort of the AOL DNA of our place, there’s a lot of focus on social networking, social media, and general consumerism like how do we make the lives of consumers better, easier, faster cheaper by investing in a lot of products that that sort of where the consumer is the end-user. So a lot of our investments throughout time have been either B2C directly or B2B2C where the end user — the business might not necessarily be generated from the consumer but the end user was a consumer.
Because the AOL DNA is really pervasive about how do you make it — how do you make it easy for the average Joe to get online?
RITHOLTZ: Right.
HALL: That’s exactly what AOL…
RITHOLTZ: The on ramp to the Internet.
That’s how we described AOL for forever.
So does that background change what you look at, how you look at it or what you put company capital in? What’s the impact of the AOL background? Is it just so obvious as “Hey we’re used to doing B2C sort of investments business to consumer sort of investments or is there a change in the entire process of what comes your way and the way you consider it.
HALL: Well, I guess the way that I’d most likely consider it — think about it is we really approach things from a brand building perspective, how do you build the brand so that it helps the consumer recognize that there’s trust behind the brand, there’s a simplicity, there is a real value add that’s coming through the products that we’re backing, I would also say that we’re also — as we deploy capital and a lot of the deals that come to us are deals that that are pretty focused on consumer so we have a lot of B2B business-to-business and investments as well. But, you know, a lot of the deals that we see just end up being really strong consumer brands.
RITHOLTZ: I previously had one of the partners in your firm, Steve Murray on, and I discussed ever so briefly Rise of the Rest with him in and he said “Hey, I got a guy you should speak to about this. His name is David” I love this concept and I have to just give a really brief explanation and then let you dive into this.
So most of the venture capital money spent in the United States, it’s San Francisco, it’s Boston, it’s New York, there are a handful of other places but there are these huge stretches of entrepreneurs and innovators and technologists that it’s a venture capital desert.
What led to the development of Rise of the Rest Seed Funds and tell us how it came about and how it actually operates.
HALL: Yes, sure, it’s — it actually stems from a very simple premise. We believe that great entrepreneurs can start great businesses anywhere, and for so long in our country’s history or at least in the recent history, in the digital history, digital era, that belief was epicentric to the coastal hubs of as you said San Francisco, New York, and Boston, and one of the things that we have been doing at Revolution when working with Steve, we started in 2014 these bus tours which became theme to Rise of the Rest Bus Tours.
RITHOLTZ: And let’s put a little flesh on that, half a million dollars, a bunch of people pile into a bus, you go to a specific city, what happens there?
HALL: It’s — we kicked off in Detroit and we start in the morning we convene the leadership, I like to call it the suits and the T-shirts getting together for the first time, we’ll bring the politicians, the mayors, the governors, the state and federal officers, we’ll bring the heads of economic development, the university presidents or business school deans, we will bring the heads of the tentpole companies, those big success companies that have kind of broken out and made a name for themselves but we will also bring the startups, the T-shirts, the guys who are — guys and girls and — guys and ladies who were cranking every day on building the next app of the next B2B SaaS business and bring them together to save what’s going on in Detroit, in Nashville, in Pittsburgh, what’s happening in this city? What industries are flaring up, what are you noticing about the flow of talent, the flow of capital, the flow of ideas into and even out of your city.
We follow that with visiting, going out and seeing that, talking to these companies and going and being in their physical spaces and meeting as many companies as possible in that venue and then we end the day with a celebration, we do a pitch competition where the winner has historically received $100,000 investment but it’s a way for the community to show the best of the future and you know a handful of ideas.
How that’s evolved over time we’ve done it now in 38 different cities…
RITHOLTZ: Really?
HALL: Seven different tours.
RITHOLTZ: Wow.
HALL: So we’ve literally been you know from places like York Pennsylvania down to New Orleans which is near my hometown and seen this play out in so many different cities and it’s what you walk away from is both like the how different cities take entrepreneurship differently and how they’ve had to deal with it differently which is not undifferent from or indifferent from how they’ve had to historically deal with economic ebbs and flows.
I mean one of the things that’s really interesting to me is we see a lot of robotics in Pittsburgh for example because of the focus of Carnegie Mellon…
RITHOLTZ: Right.
HALL: But also the history of steel there, which kind of makes sense if you draw the narrow line between steel to robotics, right? You see a lot of advanced manufacturing in Detroit, which obviously makes a lot of sense, but interesting you’ll see some really interesting things like Ed Tech in New Orleans, why? Because Katrina forced New Orleanians to rethink their entire education system and you saw a lot of Teach for America alums coming there to be helpful but then being entrepreneurial about how do they solve these problems.
And these Teach for America alums mostly started businesses in New Orleans focusing on education and educational reform. So you see this — the legacy of the great industries of America and steel and manufacturing take place but also you see the resurgence because of current situations in places like New Orleans that launch these burgeoning industries and things like education and technology.
RITHOLTZ: So what are some of the advantages of not being in these coastal urban centers? When you roll into a Detroit or a Pittsburgh, I have to imagine the costs of everything are a fraction of what San Francisco is.
HALL: It’s so funny I was on the call just the other day with a company that relocated from Boston to Wisconsin and they were able to extend their burn by over six months just by redomiciling the company.
RITHOLTZ: Right.
HALL: Right. So I think that there are a couple of things, I think that obviously the cost of living differences are really different and you can grow a company a lot farther on the same amount of funding, but I think you’re also seeing the flow of talent, I think you are seeing people graduate from you know, the University of Michigan or graduated from Georgia State or Georgia Tech and say, you know what? I don’t necessarily feel like I want to go to these coastal hubs, I want to stay here, I want to become an entrepreneur and it’s easier because my network is here, it’s a more livable more…
RITHOLTZ: Affordable for sure.
HALL: Definitely more affordable environment, but the jobs are now starting to happen, it’s part of the flywheel that we’re seeing this flow of talent boomerang back home because that’s what they want to be and I think that you know, the combination of those two factors with the flattening of the, you know it’s never been cheaper to start a business because of you know things like…
RITHOLTZ: A laptop and an Internet connection and Amazon Cloud and you are pretty much ready to go.
HALL: Ready to go and that wasn’t always the case, you know, a decade 20 years ago.
RITHOLTZ: To say the least. There is a giant on demand for STEM jobs even in the highest paying Silicon Valley and biotech in Boston and a little bit of everything in New York, do you run into an issue of shortage of skilled care labor in those towns that may not be known for their tech workers?
HALL: So I would — you know that a common issue we hear a lot and I think that the real the focus is for a lot of the early-stage jobs, a lot of the junior folks, the entry-level jobs, they’re coming right out of the university…
RITHOLTZ: Right.
HALL: So it’s no different from leaving Morgan — Morehouse and coming up to New York to work at Morgan Stanley, these folks graduated from you know Vanderbilt and then go to work directly into one of the Nashville start up — Nashville startups.
I think…
RITHOLTZ: What about coders and statistical analyst and design — I guess designers you could pretty much find anywhere.
HALL: You can find a lot of these folks anywhere and I think you’re starting to see the recruiting of them away from the hubs. One of the big challenges for developers particularly in the coastal hubs is there is such a high opportunity cost in their talent, right? If you have a bad quarter as a startup or missed a couple of your milestones, half of your development staff is looking for another job because they recognize that you know unless they work for Google…
RITHOLTZ: No exit, they are out.
HALL: Yes, and so but in Madison or in Detroit, like you got a stickier employee and we’re seeing that those folks end up staying around longer being more productive, they are able to get a backyard and start a family, and I a saw deck one time where the question was asked, what about recruiting, how hard is it to recruit? And the entrepreneur showed a slide of a birthday party, he says it’s easy for me to recruit because I can promise this. You can’t promise a backyard birthday party in San Francisco or New York.
RITHOLTZ: And I have to point out and ask you about the board of advisors for Rise of the Rest. This is just an astonishing list, Jim Barksdale of Netscape, Jeff Bezos, Tory Burch, Ray Dalio, Steve Case, John Doerr, I’m just — I’m going to stop there but that’s just an unbelievable list of investors, it goes on and on and on, what’s it like working with a group that august and esteemed?
HALL: We are beyond privileged that those notable entrepreneurs, investors, business leaders, among the best of our era have decided to join us on this mission and you know we think that the things that they saw in us and sort of the implicit mission of what we are doing of democratizing this flow of capital was really important but we also think that they are — you know, they are investors, these folks understand business and they understand that there’s something going on in the heartland, there is something going on in the middle of America that you know either their personal portfolio didn’t necessarily have enough allocation but also, you know, a lot of these folks are for — you know, David Rubenstein, one of our LPs is from Baltimore, you know, Bezos is from New Mexico, their hometowns are these cities that have been left behind a lot of times and of course everybody wants to see their hometown flourish and they want to see the return of jobs to a lot of these places where they have — they haven’t seen the economic growth and vitality that we’ve seen a lot on the coasts.
RITHOLTZ: Fascinating. So let’s talk a little bit about private markets and venture investing, why is it that when we look at private pre-public companies, there is an expectation that the performance is going to be so much better than the public markets?
You know, why shouldn’t people just buy an index fund and forget about it is how someone put the question to me, so I’m going to pass it to you, what are the potential upsides of a venture investment?
HALL: Well, I think you know that the first thing is the appetites and ability to allocate risk whereas because of regulation, because of just the cost and visibility of being public it’s harder for companies in the public markets to do that, but on the private side, we’re able to see things before they’re ready for prime time, where they are still very risky and can completely flame out, right? The risk of every round of investment that we do at Revolution and Rise of the Rest, we run the risk of the company calling us up one day and saying, “Yes, it didn’t work.”
And as painful as that is, there — luckily for us, there are so many more calls that say, “hey, it is working really well” or it’s “we think we’ve got 80 percent of it figured out and then the risk has been greatly reduced but the opportunity is still huge to come up with you know the next social network you know, it’s really risky when it’s a little a little face app for Harvard University students.
RITHOLTZ: Right.
HALL: It’s a lot less risky when Facebook is going from the United States into the world and I think that that’s where the public markets do really, really well at assessing risk. I think the private markets do really, really well at sort of evaluating and managing risk before the drug has cleared FDA approval.
RITHOLTZ: So let’s talk about those numbers and I’m not going to hold you to a specific number but my general understanding of the way venture investing works is your expectation is that the vast majority of investments are going to be that phone call, “Hey, it didn’t work out.” How many breakeven or better and how many are just outsized giant winners?
HALL: I mean, look, I think every venture capitalist underwrites a little bit differently. You know, we don’t really talk about sort how we think the ebbs and flows of the market will affect us. The goal obviously for us is to have as few as few zero returners as possible and we think one of the benefits of our geographic focus outside of the coast actually benefits us because again the dollar goes longer and a little bit of the sort of Midwestern and Southeastern and just the ethos of the people is I’m not to let this fail and you know, we typically find companies that are farther along in their revenue cycle so they have been a lot more derisked than the proverbial napkin on the Silicon Valley coffee shop, right?
And so we see that really interesting. We also think look on the upside a memo that the that the hockey-stick side we think that there’s lots of opportunity outside of the traditional coast to see those companies really accelerate have this explosive growth because of the flows of capital or so have been so flattened.
But I’m really, you know, to answer your question, I think that there are a handful of companies that are going to go to zero, that’s just the nature of the beast. For me, it’s all about protecting the middle and the upside and making sure that those companies that have a chance are introduced to the right customers and partners and executives for recruiting so that they can actually skyrocket on onto some real successes.
RITHOLTZ: Are you finding the valuations are better away from the coasts and that the ability to pick and choose your spots is a little easier then perhaps what people are dealing with in the Bay Area?
HALL: You know, I think so. I mean I think we’re seeing a lot of less competitive valuations…
RITHOLTZ: Right.
HALL: I think there is still froth in the market and in and every market, but we are finding by and large, our buy-in prices are a lot better than some of our Valley competitors and New York competitors are seeing in the standard series A or series seed round that we would invest in.
RITHOLTZ: And since you brought up froth in the market, we’ve seen a number of unicorns over $1 billion in the private market although a few of them seems to have gotten their wings clipped recently. How do you view this sort of cycle? How frothy is it? It doesn’t feel to me like this is a ’99 2000 situation because so many of these companies seem to be either generating revenue or heaven forbid actually making profits. How do you look at that froth and the overall cycle?
HALL: So I was literally cutting my teeth in ’99 during first big sort of tech correction and then was working at Revolution during the big economic recession of ’08, ’09, this as you said seems different to me and I and I think it’s because we’re seeing these companies stay private longer and not rush for public market exit. And I think that that helps them figure it out, right?
Like you know folks who are financing on S1 threats in ’08 ’09 and that didn’t play out very well for them and I think you see in the companies take the time and build the scale necessary to get it right when the IPO actually ends up happening.
RITHOLTZ: Quite interesting. Let’s talk a little bit about the sort of venture investing you guys do at Revolution, what sort of returns are you looking for on any specific fund or any specific investment?
HALL: You know, we are a traditional VC we want to put a dollar in the machine and get more than a dollar hopefully a five or a ten coming back out of the machine, but to me the goal is also about building these great iconic companies that are tackling some of the toughest problems that we as a society are facing around healthcare and education, transportation, food, security, and things like that. Because I think that those are going to be big winners for investors over…
RITHOLTZ: Food security.
HALL: Having great and open access to healthy clean food options because we’re still trying to make sure that we have a healthy population and there are lots of businesses that are working really hard to get it — farm to table is the sort of the…
RITHOLTZ: That’s a huge now.
HALL: The rule of the day but just trying to figure out how do we do that in a sustainable scalable level?
RITHOLTZ: Right, farm to table in Brooklyn or the city or even the suburbs are small restaurants and local farmers and it’s very high-end and very chichi, you’re talking about a much broader approach in and I want to mention industries that you’re looking to disrupt include food, healthcare, transportation, agriculture these are like basic foundations of society, how can you disrupt those?
HALL: Yes, so the way that we think about that and we largely see opportunity through the lens of geography and that we think that you know the — and if you’re going to come out with the newest form tech business, kind of hard to see how that’s going to be a guy from Midtown Manhattan coming up with that…
RITHOLTZ: To say the least.
HALL: Or a lady from Silicon Valley whose going to be able to come up with those ideas who has never spent time on a farm, and we think that there are you know lots of experts in places like Des Moines or St. Louis who know a bit about arming and agriculture, there lots of manufacturing experts who come out of places like Detroit and Anne Arbor who can help us build things as a country. And so we think that those types of opportunities are going to come perhaps outside of the Valley and outside of New York. And let me be clear because one of the criticisms we get at our fund a lot is about bashing the Valley and we are definitely not bashers of the Valley.
We appreciate Silicon Valley, they are the cathedral that every other city aims to be as it relates to allocating capital and assessing risk for early-stage entrepreneurs in and I tell, you know, a lot of the cities when we go on tour always ask us, what’s one thing that they do in the Valley better than what we do you know in pick a city, and the answer is always they accept failure and they except risk so differently than you know 90 percent of the cities in the country because it’s just woven into the ethos of Silicon Valley.
Things fail, but out of that, like phoenixes, you know, these great companies can emerge from entrepreneurs who have massive failures and so…
RITHOLTZ: Go ahead.
HALL: We love to highlight, you know, we’re not looking to steal share from New York or Boston, or the Valley, we are looking to grow the denominator and say you know if 75 percent of all venture capital went to three states last year, Massachusetts, New York, and California, one percent of venture capital goes to a place like Michigan, one percent goes to Georgia.
RITHOLTZ: Right.
HALL: There’s a lot of smart people in those states and if we can just not move California from 50 to 49 percent to lift Georgia from one percent to two percent but just grow the denominator.
RITHOLTZ: Make the pie bigger.
HALL: It really, because the beauty of what we do is you know as an asset class, venture largely creates jobs, right? When we write it, when I’m investing in a company, the first thing I always ask is what are you going to do with the money and almost always the first answer is we are going to hire.
RITHOLTZ: Yes.
HALL: You know, it’s not we are going to close the factory to generate profitability or we are going to close the trade at you know three or the 20 percent 30 percent IRR, it’s — I want to go hire 15 developers and two community managers and a CMO because we’re trying to build something great and that to me, you know, we all know in cities and politicians are well aware of things that the tech multiplier where every technology job generates you know 5 to 6 general economy jobs, so when they go out and hire five people, that’s you know another dentist that gets hired or another restaurant that needs to open or a coffee place that needs open in the corner to help sort of accommodate all of that growth in some of these heartland areas that have been losing for the last couple of years.
RITHOLTZ: I love your take on failure and Silicon Valley, my favorite thing on some of their VC Bay Area websites is their list of here’s — yes, we said not to Uber, we said no to Apple, we said no to Amazon like their list of failures and it’s a badge of honor, you’re dead right on that, it’s quite — it’s quite fascinating.
So when you’re putting together a portfolio of companies, when I look at a portfolio of stocks, I want to see some US companies, some emerging market companies, some European and Asian — Japanese companies, how do you approach creating a portfolio, do you think in terms of different sectors in a distribution of risk?
Tell us about how you go about doing that?
HALL: Yes, so we were — we are obviously geographically diverse because that is part of our mandate, but in that, we have lots of different industries, we have lots of different business models in you know, some are, like what we talked about a little earlier, some are direct to consumer, some are business-to-business, and some are — like will likely end up being procyclical, some will likely be countercyclical, and ht I feel like as we take a step up and look broadly at our portfolio, we do have a range of really interesting business models in targets of the economy that are different.
We got some healthcare companies, we’ve got some retail or e-commerce companies, we’ve got a handful of food opportunities that we’re pursuing and so…
RITHOLTZ: Food different from agriculture or one and the same?
HALL: We see food and agriculture as perfectly commingled and we’ve got some longer plays and in the ag tech business and we also have a couple of food brands that we are also really excited about.
RITHOLTZ: I remember reading and it’s a couple of years ago already, I think it was “Wired Magazine” you talk about ag tech, there are these big commercial like John Deere tractors and people pretty much created a using an iPhone and a satellite receiver a way to self program these tractors to do a whole field with nobody sitting in the cab long before there was self driving cars and trucks. It seems that tractors were pretty much the first to do that.
When you talk about ag tech, is that the sort of stuff you are referring to or is it more specific on soil chemistry and materials science and things along that or little bit of everything?
HALL: It’s a little bit of everything, I will give you an example. We are investors in a business called App Harvest. App Harvest is based in Pikeville Kentucky and what this business does and it’s so fascinating, the founder and entrepreneur is just this really dynamic guy and he’s found — he’s basically turning abandoned coal mines into hydroponic farms, hydroponic greenhouses, and he’s hiring former coal workers to come work these new farms on what used to be a coal mine.
And so to me that’s the essence of ingenuity, like how do you take abandoned awful coal mines and turn them into really high quality produce that by virtue of being in Pikeville Kentucky is like less than a day from 90 percent of the United States, right? That’s how you deliver a better higher quality product to a greater degree of people than — while doing it in a way that lifts up a community that’s been you know by almost by definition sort of impacted by the change in sort of the economy.
RITHOLTZ: How do you respond when someone comes along and pitches you something like that? My immediate reaction is growing food in coal mines, that sounds horrible, how do you get by that — initial wow that’s pretty whacky and out there. Or have you trained yourself to sort of say well that’s interesting.
HALL: The hardest thing about being a venture capitalist is to always avoid that initial gut reaction to — of that will never work because you’ll that will never work yourself to death in this business.
RITHOLTZ: Sure.
HALL: And for me, the question always ends up being how can that work? Imagine the possibilities, imagine how — but how can these ingredients be put together you know flour, sugar, eggs, milk, independently would all taste gross, but you put them together and it come out as a cake, how can you assemble these ingredients to be a cake as opposed to you know a mud pie? Right?
And I think that’s one of the challenges we face every day is because nothing’s ever going to work and we’re looking at ideas in a PowerPoint that talking to founders with hopefully some high degree of domain expertise because it gives them the authority to talk about hydroponic farming and abandoned coal mines. But you got to start looking through and say, all right, if this guy is able to get you know this technology and then maybe find this scientist and maybe pull together this other expert like he’s got a very credible shot at making this all work. And I love doing this at the seed stage, right?
And one of the other benefits of our job is we get to see this stuff before it’s really ready for mass consumption, we typically like to invest post product market fit but before sort of mass adoption and so it’s really interesting to see sort of the reaction of the first handful of consumers and customers of some of these products, how do they react, how resonant is the product as it is starting to hit the market?
RITHOLTZ: You know the parallel in the public markets is simply when someone tells me an idea about a stock and my immediate reaction is “Oh, that’s a dog” probably means the worst of it was already priced in, I have taught myself to recognize that over the years, but you’re talking about stuff that’s so high concept and so interesting I find that fascinating, your response is “how can we make that work?”
We have been speaking with David Hall, he is a partner at Rise of the Rest Seed Fund, part of Revolution Partners. If you enjoyed this conversation be sure and come back for the podcast extras where we keep the digital tape rolling and continue to discuss all things venture capital. We love your comments, feedback and suggestions, you can write to us at MIBPodcast@Bloomberg.net, follow me on Twitter @Ritholtz, you can check out my daily column on Bloomberg.com.
I’m Barry Ritholtz, you’re listening Masters in Business on Bloomberg Radio.
Welcome to the podcast.
David, thank you so much for doing this. This is really fascinating stuff. I am endlessly intrigued by the ideas within the venture community and you guys are actually disrupting the way traditional venture capital is done. It’s amazing that the vast majority of the states in America don’t have a whole lot of venture investing and I really am fascinated by that.
So I didn’t mention Steve Case who’s the founder of AOL, really this seems to be his brainchild, is that a fair assessment?
HALL: Absolutely. Yes.
RITHOLTZ: So how did this come about and how was this announced? Was it supposed to be a one off when Steve first did this or give us a little background on that.
HALL: Yes, so I think that the notion of the Rise of the Rest started as an interesting slogan for how can we engage some of these communities in and find great entrepreneurs, find great deal flow for our funds. But as we started to uncover what’s going on in these communities, it grew to its own — it spawned its own sort of life and its own being and it was really interesting to become part of these communities and what it ended up being for us was a great way to meet and have authentic relationships with the people on the ground and a lot of the cities that were building the businesses and supporting the entrepreneurs and it’s interesting, it’s so great to meet the entrepreneur’s support organizations, the ecosystem building organizations like the accelerators and the incubators which have really exploded over the last couple of years.
And understand how they are supporting and having to do it differently and often very grassroots and a lot of these communities where it isn’t sort of the thing that you do and having that drive to keep going and saying, you know what? We are going to bring — we had eight companies in our last accelerator class, we are going to expand it to 10 companies in this next cycle like that’s really interesting and so what we were doing and what Steve led and you know, Steve is a — I have come to respect him more and more the longer I’ve worked with him, I have been working with him for over a decade now and this is — there a lot of people of Steve’s caliber that spend their time doing lots of other things.
Steve invests in entrepreneurs, that’s his passion and that’s what he does and it’s been great to learn from him on having that be part of not only his legacy but his passion to invest in entrepreneurs and traffic in these great ideas and great future , I mean he’s one of the most accomplished futurists I know about thinking about where the ball’s going and trying to sort of marshal the resources to be there.
And in Revolution as I think that the Symphony that he’s been able to create by bringing the right people together to help execute on that that vision of really thinking about the future and thinking about how entrepreneurs can drive and be change agents in the future and again some of the bigger problems that we’re going to be facing.
RITHOLTZ: Which is why I would guess that list of notables who were on the — who are investors in and board members of Rise of the Rest, I’m not going to read the names, go to their website and look at it. It’s the most mind-blowing list of investors I’ve ever seen associated with one organization in my entire life. It’s astounding and I don’t want to build up the hype too much just go to the website and check it out Google Rise of the Rest Fund investors or advisors and it’s really astonishing.
You mentioned incubators and other types of accelerators, you know, we know about those in cities like Boston and New York and San Francisco and there were number of some of which actually went public, there were a number of incubators that had been around for a while. Where are you finding incubators outside of the coasts and are they private, are they public, are they private public joint ventures? Tell us a little bit about it.
HALL: Yes, simply…
RITHOLTZ: All of the above.
HALL: You find it takes different types of organizations to help support the ecosystems, right? There are quite a few and most — the majority, overwhelming majority I would say are private enterprises that people are running and hopefully running for profit. Some include co-working so that there is like a real business model there. Others are…
RITHOLTZ: When you say co-working, I immediately think of We Works but that’s not what you’re necessarily referring to?
HALL: Very similarly, the entrepreneur rents desk space and so that becomes the revenue model, the business model for the co-working space and helps to feed the incubator accelerator, but we’ve seen dozens of models of how this can work and you know, and I think a lot of them are specific for the company, specific for the city or geography, but the goal is unlocking entrepreneurship, it’s taking the man or woman who’s working for one of the big companies in the cities saying you know what? I can — I’ve been working at Procter & Gamble forever in Cincinnati and I love what I do but boy I have a great e-commerce opportunity that I’d love to go in and start.
And now there’s a vehicle for them to extract themselves from that big corporation and like go start a startup somewhere.
RITHOLTZ: So let’s talk about some of the cities you’ve been to. You mentioned Detroit, Pittsburgh, Cincinnati, New Orleans, what other cities have you guys invested in and how did they vary from location to location geography to geography?
HALL: Yes, so we know we’ve been — you named a few of the cities but cities from as small as couple hundred thousand people to as large as you know, 3 million or 4 million people, our most recent Seventh Rise of the Rest Tour.
RITHOLTZ: Three million or 4 million, that’s like Chicago, is that what we’re talking about?
HALL: Well, you know, we went to Dallas, Chattanooga, Birmingham, Memphis and Louisville, Kentucky in our last tour. That’s a great cross-section of the types of cities that we go to, some big, you know, big major cities that everybody has heard of, others — all these cities people have heard of, but others less well known for being tech hubs.
RITHOLTZ: Like I don’t think of Chattanooga as a tech hub.
HALL: And you’d be surprised to find out that Chattanooga has such a strong logistics tech industry…
RITHOLTZ: Really, why is that?
HALL: Where — I think it’s there -the proximity of Chattanooga to both obviously Atlanta which is a huge transportation hub.
RITHOLTZ: Clearly because you have a couple of airlines…
HALL: A couple of airlines.
RITHOLTZ: That go to there, a couple of transportation companies.
HALL: Then you go up to Chattanooga and it’s close — it’s close to lots of that transportation tech hub but also a lot of freight travels through Atlanta — to Chattanooga and even the winner of our Rise of the Rest Tour in Chattanooga this year as a company called Freight Waves…
RITHOLTZ: Waves, not Freight Way.
HALL: Waves, yes. And what that company is doing is building the technology platform to help shippers properly assess and book freights. So it’s a data platform that helps them determine that the freight cost because of all sorts of things like fuel and temperature and load that is being transported between any two endpoints.
Heart Industry (ph) that was basically done analog…
RITHOLTZ: Right.
HALL: Up until these guys have come along and help them — help them digitize this and create a fulsome platform for the transmission of freight.
RITHOLTZ: That’s quite fascinating. What cities have surprised you? That seems like an interesting surprise. What else has really surprised you either in their focus or any other way?
HALL: Yes, so I’d say one of the big surprises to me was Indianapolis. Indianapolis is obviously great city, a storied American city and what one of the things and one of the big highlights because there was a business there called Exact Target that sold to Salesforce for multiple billions of dollars. The founders of Exact Target after they sort of spun out of the Salesforce world, doubled down, tripled down in Indianapolis and created an ecosystem they are focused on B2B, business-to-business, software as a services companies, and so they’ve really like anchored themselves around this notion of B2B SaaS is going to be what Indianapolis is known for at least from a technology start up perspective and it’s become a hub.
They’ve got — the founders there created a company called the High Alpha Studio, they got a fund there, they invest in the handfuls of companies that are coming out of Indianapolis and who would’ve thought, right?
RITHOLTZ: Right.
And it was so — it was such a great ecosystem that Salesforce after their acquisition of this company, Exact Target moved its HQ2 to Indianapolis and now has one of the largest buildings in the city of Indianapolis is by Sales was — is owned and operated by Salesforce and has a couple thousand employees in Indianapolis. And so it’s amazing to see…
RITHOLTZ: Fascinating.
HALL: How that city has kind of release really exploded in growth around a couple of founders who said we are going to double down in our hometown.
RITHOLTZ: That’s amazing, what — give me one more city that kind of — was like wow, I didn’t expect to see that, an overwhelming set of choices or…
HALL: You know, I’m trying to come up with a really good example for you and I I’ll go back to Chattanooga, I was really surprised, there are a handful of just really great companies there is a company we were not investors in but it’s a logistics and a moving company called Bellhops based in Chattanooga that’s a really strong company and seeing how a city that’s not the largest city by any stretch of the word has really focused on building this really dense community.
We have this phrase that that we use a lot called network density, which you know…
RITHOLTZ: Network density.
HALL: Network density which means how can you how can you create this tight network of people of entrepreneurs, of fans of entrepreneurship bring them together and have your little city play a lot bigger, at least have the startup part of your little city play a lot bigger, right?
And what they have been able to do and by bringing you know funds and startup accelerators in the Chattanooga area together, they’ve created this strong network where everybody knows each other and all the entrepreneurs are talking about you know best practice sharing and recruiting new people, when new people come in, they meet a handful of the executives at other companies that say, you know, “Come move from Chicago to Chattanooga, we’ll show you around, we’ll take you out on the boat and really wine and dine you as a community to say that you’re joining our community, not necessarily just joining this company.
RITHOLTZ: Interesting, you mentioned Chicago, have you spent any time in the West Loop? That’s a little bit of a tech hub that seems to be exploding.
HALL: We’re really excited, one of my portfolio companies we invest in earlier this year is a Chicago-based company called Foxtrot that is on a trend that I love on the future of retail. Foxtrot is reimagining the convenience store. We all know lots of convenience stores and obviously, we’re sitting in New York City where the corner bodega is…
RITHOLTZ: Sure.
HALL: So people love their corner bodegas, but in a lot of America, there isn’t that sort of deep passion around your convenience store. Foxtrot does half of its business through mobile app orders that get delivered to your door in and you know in less than an hour and it’s a great business, perfect for launching in a city like Chicago and we’re really excited about that opportunity because we think that you know, there hasn’t been a lot of disruption in the convenience store market in over a generation and being able to have really cool products ordering ordered at the tap of a phone but also — your corner store that you are passing to get a bagel and a coffee on your way to work in the morning is actually pretty cool.
RITHOLTZ: That’s interesting. So I wanted to — I was going to ask you how you source companies but I want to change that question a little bit. When you announced hey, here’s our new tour and we are going to these five cities, does that open a floodgate of inquiries or you still flipping over rocks to find where the next great entrepreneur is.
HALL: When we go to a city and we announce that we are going to come to the city, we get scores of applications to participate even in our pitch competition. We’re able to put those companies in our database and start to track them. We really have, I think have taken a more data-driven approach to looking at lots of different companies across the country is the only way that we are going to be able to do it with a relatively small team at scale.
And we also rely heavily on our network partners, so when we go to these cities, we meet the local VCs and the regional VCs and we ask them hey, you know, are there, what are the two or three companies that you guys are most excited about in Raleigh-Durham? And they’re happy to tell us the two or three companies that they are most excited and you do that to two or three local funds and you’ve got a you know a dozen companies at the end of the day that are, you know, ones that tend to bubble above the some of the rest.
But it’s also a temporal thing, right? You come back six months later and it’s a new batch of companies.
RITHOLTZ: Right.
HALL: So we love to maintain these really authentic relationships with the partners and investors in the community and then that helps introduce us to the entrepreneurs that are really making a difference.
RITHOLTZ: What about competition? You mentioned other VCs in areas, are you at all concerned that you’re going to start running into competition in some of these places or is it still a sort of cooperative friendly group of other players in the same space who might be coinvestors in the same company?
HALL: Yes, I see them more as collaborators than competition, we need people — we’re not going to write a full investment round, if a company is doing a $5 million series seed round, we are not going to do that entire round. So if we do some of it, we’re going to need other people to help participate and it’s always helpful to have local eyes and ears on the ground who know the company or know the founder or know the — have domain expertise in the business.
And so being able to bring all of those folks into the round is one of the reasons why we’re doing this. We’re able to be massive connectors of you know if you might be a healthcare expert fund based in Nashville and if we fund a healthcare deal in St. Louis, we’d love to bring you guys in to that deal because it just only helps make that deal — helps derisk the deal to our limited partners in our fund, but also helps potentially expand that — the access for that company.
RITHOLTZ: So it’s not just network density but then it’s the network affect cross pollinating from city to city.
HALL: You got it.
RITHOLTZ: Quite interesting. Do you have a target for number of investments you are going to make each year or is it really you just kind of take it as it comes?
HALL: I think we will do about 100 — 150 investments out of this fund over the next couple of years, but we’re — we don’t have a specific target, we again are being super opportunistic about finding great companies in these regions.
RITHOLTZ: And you mention this fund, my assumption is this is set up as a traditional VC — general partners and limited partners, any thoughts on is there to be Rise of the Rest 2, Rise of the Rest 3, are you going to stack that down down the years? What happens when you basically say “Okay, we’re filled up.”
HALL: You know, I’m focused on deploying the 150 million that our limited partners have invested in us — in this fund and hope to really make a difference and obviously create a lot of value in the fund that we are in. You know, who knows what the future is going to hold but we’re super excited about the limited partners trusting us and the capital that we’re deploying into what I think are a fantastic array of companies that showcase the best of what’s going on in you know at least 47 of the 50 states although we do have investments in California and in New York but not necessarily in Silicon Valley or New York City.
RITHOLTZ: Got you.
And you know, I’ve danced around this question and you came close to answering it but I haven’t asked it so let me just blurt it out. I have to imagine there are a lot of misconceptions about venture investing in general, you referenced the misconception about your relationship with Silicon Valley but just speaking broadly what do you think is some of the biggest misconceptions about how venture capitalists operate, what they invest in, just generally speaking?
HALL: So I think from the — from the capital deployment side, the biggest misconception is that it’s easy. It’s that you sit around listening to a couple of pitches and whenever something rings…
RITHOLTZ: Write a check, how hard could it be?
HALL: You write a check.
And you know, we apply science, we apply data to our decision-making and you know, and we do a lot of work, I mean it’s not just come in for a pitch and come out 30 minutes later with the check, right? The closest we get to that are in our pitch competitions but for our normal investments, we’re doing due diligence and we’re asking big questions about the market opportunity and about the founder’s domain expertise and about all sorts of ebbs and flows of the real market opportunity in the business model.
I think from the capital receiving perspective, I think the biggest misconception is that a lot of entrepreneurs have great companies but they are not necessarily venture backable and I think that there is this misconception that that venture is the financing source of kings and, you know, I was told whenever I start having conversations and talk to particularly large audiences of entrepreneurs, I say the first best source of financing is revenue, right?
RITHOLTZ: Right.
HALL: Revenue doesn’t take any of your company, you don’t have to pay any of it back, and if you can scale your company through revenue, that’s best but a lot of folks have really good businesses that just aren’t necessarily venture capital — or VC backable businesses because they are either not growing at a scale or have a broad enough large enough market opportunity. I mean typically, venture capitalist are looking for billion-dollar — billion dollar businesses and we have a specific model to help define what that means.
And you look at companies like Uber, it’s totally reimagining the taxi dispatch industry period, that’s a billion — it’s easy to see…
RITHOLTZ: Multibillion dollar, global, unstoppable…
HALL: But there are lots of really good really small business — really great small businesses where the proprietors are going to be millionaires but those aren’t necessarily always great venture backable businesses.
RITHOLTZ: Sure. Makes a lot of sense. The one question I — before I get to my favorite questions, the one question that has been gnawing at me has been this, what cities have you not gotten to that you’re looking forward to going and doing a Rise of the Rest tour through?
HALL: So like I said, we have been to 38 cities, you can do the math and know that there are lots of cities that we haven’t been to, you know, we are in the process of thinking through and plotting out our next tour but we — I’ll leave as a nugget and we’ll make sure, that Barry, you’re on the list of people that we tell when we decide where we’re headed the bus to next. But it’s you know we look to find cities where there’s been some entrepreneurial, some startup activity where there have been a few successes and their companies to point to where there’s a willingness by all of the stakeholders from the local university to the politicians who are leaning and saying, yes we support startups, we want that type of ecosystem to be in our town, and we want to — we try to have those, those cities flare up on our map and get in front of us.
And we have — we’ve got — we’ve perfected the way of getting it done now and will let you be among the first to know where we’re headed next.
RITHOLTZ: I’m looking forward to it.
All right, so let’s jump to some of my favorite questions we ask all of our guests. Tell us the most important thing people don’t know about your background?
HALL: So that’s a pretty easy one for me and it always surprises me, I want to see the look on your face, I’m sorry you guys can’t see it, who are listening but I am a former competitive swimmer.
RITHOLTZ: I was going to say that, you know, I was going to guess that.
HALL: For those of you guys listening, I am a 6 foot tall, 250 something pound…
RITHOLTZ: He is a solid — I thought you were going to tell me you were like a middle linebacker, not competitive swimmer. Where did you swim?
HALL: I swim — I started at age 6 and swam through college actually through the first couple years of college but…
RITHOLTZ: What was your stroke?
HALL: I did a lot of medley and sprint freestyle because I just — obviously I’m not going to do distance, I definitely don’t have the body for distance.
RITHOLTZ: Do you still swim?
HALL: Recreationally and you know, take the kids out but for me it was such an important thing because number one, it’s the perfect both individual and team sport and so it really teaches you how to how to be a member the team but also how to really focus and then the second thing for me that it really taught was how to — it showed the direct link between preparation and execution, right? You go to practice, you work hard and practice, your times get lower, you win. And the side benefit was it also taught me to do a little bit with defeat and losing because it’s important for six and seven and 12 year olds to learn that, also important for 40 somethings to learn that.
RITHOLTZ: Tell us about some of your early mentors, who affected the way you look at the world of investing?
HALL: So the first obviously and I’m sure this is something you hear a lot is it was my dad and he’s a dentist — just retired dentist but an entrepreneur, a small business owner and my first job was working in this office and seeing how it’s a daily 24 seven opportunity thinking about you know the practice and the building and the employees that you got working for you, but also seeing the benefits that come from working really hard and so he — we working and work was always important and stressed in our home and being thoughtful and being really good to the to the people that work for you was also really important character — character building that that I saw through my dad every day.
My uncle Eugene Flood (ph) is a — was working on Wall Street, kind of opened my eyes, I worked for several years after college at Morgan Stanley, a huge mentor to bring me — take a little southern boy from Louisiana and expose him to sort of the machinations of Wall Street was really a big eye-opener and career changer for me.
RITHOLTZ: So let’s talk about venture investors, who affected the way you approach deploying capital as a venture capitalist?
HALL: So this is going to sound a little contrarian but again having worked at the “Washington Post” Company under Don Graham and the Graham family who are heavily influenced by Buffett, you know…
RITHOLTZ: Who was a board member and a shareholder for a long time.
HALL: For a very long time, yes, but the essence of that philosophy is kind of invest in what you know and don’t try to force fit an idea or a company in a certain milieu where it’s going to go where the company needs to go and I really appreciate particularly the notion that, you know, if you don’t understand it, you can t invest in it. And so you got to be smart about figuring out what makes sense, how do you follow the money from the customers’ wallet to the cash register?
And if it takes too many hops and starts to get a little blurry then that’s — it’s hard for me to want to back that type of company.
RITHOLTZ: Everybody’s favorite question. Tell us about some of your favorite books be they fiction, nonfiction, venture investing or otherwise.
HALL: So the book that I really like and have gone back to, it’s a little tiny thin book but it’s called “The Inner Game Of Tennis” and it’s by a guy by the name of Timothy Gallwey and it basically talks about how do you — how do you maintain high levels of performance while still being relaxed and sort of allow your inner game, the game that you will not the game that you necessarily practice for but what happens when you’re on the court playing, how do you perfect that game as opposed to the very mechanical of — throw the ball up, hit the serve and make sure the ball goes in to like you’re playing against an opponent, how do you make that — how do you allow yourself to relax and practice.
And it’s so — the implications of the book well beyond the tennis court have been huge for me from a business perspective and how do you maintain intensity while still being relaxed and thoughtful about how you can approach the game from a different angle?
RITHOLTZ: That’s fascinating. Any other books you want to mention?
HALL: I just finished reading recently a book called “Disintegration” by Eugene Robinson who is at the “Washington Post” it’s a fascinating take for me on the sub segmentation of Black America, basically African-Americans for so long have been considered by politicians, by marketers to be relatively monolithic.
RITHOLTZ: It’s a uniform block, they are all going to vote this way, they are all going to do this…
HALL: All going to buy this kind of product.
RITHOLTZ: Right.
HALL: But in reality, Robinson points out that there are four different types of real subgroups, the elite, so the Obamas and the Oprahs of the world, the middle class such as the broad sort of group of us that are African American, college educated, and who are working and living parts of the American dream, but then that the two that are really interesting to me were the emergent class, so this is that the group of folks that are biracial or biracial with African-American being part of that composition, but also the African diaspora and immigrants who are first, second, third generation immigrants, who have a totally different view of themselves as some of them aren’t necessarily African- Americans, the might be Nigerian-Americans.
RITHOLTZ: Right.
HALL: But the notion that they see the world and they act and interact with the world differently, and then the final group was the what he calls the abandoned, which are the folks that just have really been left behind and are the folks that we hear about and read about frequently in the news and it’s just understanding that black America is really subsegmented into these different groups that have obvious similarities, but some pretty stark differences was a really fascinating read.
RITHOLTZ: Some of the data on the fourth group is really very discouraging in terms of employment gains, wage gains, it’s just the numbers have been pretty — pretty intimidating, I’m going to definitely take a look at that book.
I have to ask you if you play tennis and if the book was at all helpful?
HALL: You know, my results not necessarily withstanding but to me, yes, it was absolutely, it’s one of my passions, you know, try to get out as frequently as I can, I just register for a new flex league so I’m excited to get out on the court and work out some of the cobwebs but yes, the ability to relax on the court and focus — not focus on the mechanics of getting in the right position but just play and breathe and then control that…
RITHOLTZ: That is fascinating to me.
HALL: That you can’t — that you can control, right? Like, say, you can control how many times you bounce the ball and it really teaches you to focus on the things that you can control because there is so much that you can’t control, so in that moment, focus on breathing and focus on where you want to hit the ball as opposed to the exact mechanics of how you are going to stand and how you are going to position your racket and your feet to hit the ball.
So it’s a great read, the book was published in the 70s and has been used, I mean like, folks like Billie Jean King swear by it and its — the author’s now written several other books about like you know, “The Inner Game of Golf” and “The Inner Game of Business” and things like that, but for me the application as something loves tennis and loves playing tennis into business, into my personal life, has been a really helpful guide.
RITHOLTZ: That fascinating. I am late to the game of tennis, I only started playing with in the past few years and my one of my biggest issues I do these drills on Monday nights and most of the — I shouldn’t say most — about two thirds of the men’s drills, two thirds of the guys are considerably younger than me and there’s a group of guys in their 50s and 60s most of whom are either good or very good, and the problem with playing with the young studs are that they want to crush the ball, it’s baseball, and is much as I laugh at them, it’s like unforced error, unforced error, when you’re playing with big hitters, you can’t help, the crowd sucks you along and suddenly I’m trying to smash the ball and it’s a constant effort, I love that idea or of relaxed intensity, don’t try and kill the ball, play within yourself then but you mentioned that and I immediately went to that “I’m going to crush this ball Roger Federer style” but you are not Roger Federer, you don’t have that swing.
HALL: Yes, just get the ball across the net, the place you wanted it to go, if you can hit the ball where you want it to go, you will 9 times out of 10 win the point. Right? And if you can focus on just that, hitting the ball where you want it to go.
RITHOLTZ: Well before I learned the proper mechanics, I could literally put the ball anywhere on the court not with power, not a speed but I could kiss any line I wanted to once I learned the proper way to stroke the ball, that skill set took a step back as you start learning mechanics and becoming more comfortable with it. But…
HALL: It’s like what Mike Tyson says though, “All of that preparation goes out when you get hit in the face.”
RITHOLTZ: That’s exactly right and that testosterone poisoning, that competitive spirit, these are drills, it doesn’t — there is no winning and losing, who cares?
HALL: Right.
RITHOLTZ: You get sucked right into it, it’s the most amazing bit of crowd psychology, it’s — I’m going to look into that book because it’s definitely appealing. And once again, we digress about tennis instead of talking about what we should be talking about.
So let’s talk about the venture capital industry, what’s changed since you joined the industry and is this for the better or the worse?
HALL: You know, I’d say the biggest thing has just been the influx of data into the industry and it’s funny, we require and then suggest and advise our companies to leverage data in your decision-making…
RITHOLTZ: Right.
HALL: And I think for the for the first time now, we’ve got huge sets of big data that help us understand and rank and target entrepreneurs and so it’s important for us to leverage this data because it helps us and helps us make better decisions and helps us be more algorithmic about our decision-making but it also really helps us recognize that we can bring in more entrepreneurs of color and women entrepreneurs into the fold because we’re not necessarily relying on just network pattern matching from guys who went to Harvard or guys who went to Stanford who all look-alike.
And so — it’s I’m am happy that that’s the case because it’s making the table bigger and adding — allowing us to add more seats to the table of entrepreneurs and broaden that scope of entrepreneurs particularly for as we’re talking about earlier, some of the people who have been left behind even further.
RITHOLTZ: So when we look at the sort of demographics of who venture investing is giving money to, specifically do you think Revolution is more diverse, more gender friendly, more people of color friendly then the typical let’s call it Stanford-based or Stanford located VCs?
HALL: I don’t know what other VCs entrepreneurs look like, I’m very proud..
RITHOLTZ: That data is not broadly shared to say the least.
HALL: But I’m very proud that that we we’ve got quite a few entrepreneurs of color, women entrepreneurs in our portfolio and they have performed, thus far, really well, one of our exits was by an African-American female entrepreneur who had this business Part Pick that was sold to Amazon and…
RITHOLTZ: Park Pick?
HALL: Part Pick. It’s like Shazam for visual search, so taka e picture of something and it will run its algorithm and say this is most likely a screw, and you can — you know, Amazon acquired the business a couple years ago and you know…
RITHOLTZ: So when I use the Amazon app and say I want to see this where you could take a photo of something…
HALL: There are parts of Amazon, I don’t know exactly how it’s been filtered into the Amazon application and…
RITHOLTZ: But that basic concept.
HALL: Algorithm, but yes that basic concept is part of that — part of the Amazon DNA now. And you know, I’m just very proud of that, I’m very proud that we, you know, we look at a broader — we have a broader aperture for four who is an entrepreneur and what types of investments we’re willing to make.
RITHOLTZ: Tell us what else you’re really excited about these days.
HALL: I teased it a little bit earlier but I’m really excited about thinking about the future of retail, you know we and every e-commerce is eating the world yet 85 percent of the things that the buy are still things that you buy sort of in person and we’re investors in, I mentioned this company, Foxtrot which is redoing to the convenience store, we are also investors in a in a company called Neighborhood Goods, it’s a Dallas-based company that’s looking to sort of reinvigorate the department store model, you walk into a department store today, you see more employees than you do customers walking around and that’s because it’s become so transactional. You want a white shirt? You go to the department store you buy a white shirt, but if you wanted to go and see what’s there, you don’t naturally think to go walk through department store and sort of browse and be, have an experience.
And what Neighborhood Goods is looking to do is sort of bring back some of that experience, it’s almost really a throwback to the way that the department stores used to be where you get you know, you could go and browse and look at t something that’s seasonally appropriate but also have a bite to eat at the lunch counter and you know, you have a broader array of things to buy and so these guys are curating lots of digitally native brands that are looking for retail points of presence because it’s become obvious with businesses like Warby Parker like having stores actually matters because people want to touch and feel and experience your product.
But then there are other larger more mainstream brands that are looking for new ways to activate and show off their products to their existing consumers as well as new consumers and then you see lots of like makers, local folks, local craftsmen that have cool products that they want to share, they don’t have a big showcase arena to do that, and obviously you wrap that all around with food and community, music, art. And it’s a really cool installation in the in sort of how we think or at least the company thinks consumers want to shop in the next generation.
RITHOLTZ: Tell us about a time you failed and what you learned from the experience.
HALL: So I was a banker and you know that they’re there are no limit to the failure stories there for one particular moment where I consistently said yeah I understood what I was doing and had no idea what I was doing and I got it — the end result of the analysis was completely wrong and for that for me was a hard failure to take because I never wanted to be the guy that got it completely wrong.
But what led me to understand and recognize is that I’m not going to walk away if I don’t understand what’s going on. Like ask the — don’t assume that — ask the dumb questions you know in a world like banking, you get caught up in the jargon and folks are dropping all sorts of terms had no idea what they meant and instead of asking, I just try to figure it out and 2 o’clock became 4 o’clock became 6 o’clock in the morning and I’m still looking at the blank screen and it was an embarrassing awful failure, but it was the last time I have ever had that failure.
RITHOLTZ: Interesting. What do you do for fun? We know you play tennis but outside of that, tell us what you do to keep either mentally sharp or fit outside of the office?
HALL: So tennis is main thing, I’ve got two young kids and try to spend as much time with those folks and they are young boys and all they love to do is run around and say I get a good workout with those folks but it’s harder these days to find that time to get sharp and I really — I struggle with it, it’s one of the things I really work on but I’m recognizing more and more now that I got to take the hour or two hours for myself and either go play tennis or go right on the peloton or whatever and try to sweat it out a little bit.
RITHOLTZ: If a millennial or recent college grad came up to you and said they were interested in a career in venture investing, what sort of advice might you give them?
HALL: I would say start a business.
RITHOLTZ: Really?
HALL: Become an entrepreneur I — I don’t think that this was given much to my generation of college graduates and I think again as we talked about, the cost of starting a business or nothing and the opportunity cost of doing it when you’re 22.
RITHOLTZ: If you fail, you dust yourself off and on to the next.
HALL: Go on to the — go get a regular job, but you have so few opportunities to start a business and live off of ramen noodles for a year with your three best mates in a tiny either co-living facility or small cheap apartment starting a business, all you need is good Wi-Fi, like you said, good Wi-Fi and Amazon Web services account and you got a business going.
RITHOLTZ: You’re ready to go.
HALL: I think that they should start businesses, that’s the best way to learn this job is by being an entrepreneur.
RITHOLTZ: And my final question, what is it that you know about venture capital investing today that you wish you knew 15 years ago or so when you were getting started?
HALL: I wish I appreciated more how much this was an apprenticeship business, right? How much you got to learn from people and you got to sit there and sort of really it’s hard to do this unless you have been an entrepreneur and have lots of domain expertise, but by going to the typical channels, you got to learn from somebody else, you can’t read books about this, you can’t watch “Shark Tank” and come away as a VC, you got to learn from other people and then by asking questions, you know, so was that a good or bad company? And having those questions asked to you and develop that gut and that insight and intuition around what makes a good founder and what’s the right business opportunity?
A lot of that’s got to be show — you got to be shown the way are shown a handful of examples on how to do it because every VC is a little different but I think that most of us, as you talked about from sort of business mentors, we learned how we approach these from other people, not from books or from classes.
RITHOLTZ: Quite fascinating .
We have been speaking with David Hall, he is a partner at the Rise of the Rest Seed Fund, part of Revolution Partners. If you enjoyed this conversation, well, be sure and look up an inch or down an inch on Apple iTunes, Stitcher, Overcast, Bloomberg.com, wherever your finer podcasts are sold and you can see any of our other 200 or so previous conversations.
We love your comments, feedback and suggestions, write to us at MIBPodcast@Bloomberg.net. I would be remiss if I did not thank the crack staff that helps put together these weekly conversations, Atika Valbrun is our project manager, Madena Parwana is our producer/audio engineer, Taylor Riggs is our booker/producer, Michael Batnick is our head of research.
I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.
