BRV Fund Manager & Author: Benjamin Gardiner
Benjamin Gardiner: Hi Andrew, thank you for your time today. First, congratulations on the new Curious fund! I wondered if you could elaborate on the idea of distressed investing and what brought you to the idea for this latest fund at this point in your career.
Andrew Dumont: Thanks, yeah, I think it is important to note that Curious is not really a venture fund. In my background prior to this, I spent 20 years operating venture-backed companies. You see how unnatural they can feel in pursuit of growth, in a lot of ways, and that creates a lot of unsustainability, a lot of burn –theres good things obiously – but those are the downsides. The six years I spent after that were operating profitable software companies, ranging from $5M to $25M in ARR. I just loved a business that ran on earnings, and ran on revenue! A real business, you know. And software is such a efficient business model that if you don’t chase unnatural growth you can actually build a profitable, sustainable business. So, that’s the backdrop, and along with that I personally invested in about 20 companies, personal investing. And with that I saw some of the same kind of unnatural stuff. I was thinking, what’s the best vehicle for this? And I think, as former operator coming in, helping these companies pivot away from an unprofitable and unsustainable model was exactly what was needed. So Curious is built because of that, we do either majority or minority investments to recapitalize a company and pivot it towards profitable and sustainable growth.
Benjamin Gardiner: Great! So, with these being previously venture-backed businesses, they were presumably chosen at some stage as having venture-backable characteristics, and then now are not getting follow-on funding according to those same metrics, so what characteristics are you looking for in a company?
Andrew Dumont: That’s exactly right – there’s a whole class of companies that, because the venture model is built on the power law, and having that top 10-20% of companies returning the fund, that means that 80% of the fund is not going to be that. Basically, these companies were geared towards hyper-growth, but for whatever reason weren’t able to reach the hyper-growth scale to get follow-on funding. So what I look for is good fundamental businesses, that have stong ACV, strong retention metrics, have reached what I consider product-market fit–for me, $1-5M ARR is sufficient to show what I consider product market fit. And then, what is the path to sustainability for them? Some companies are burning a ton of money, some are closer to breaking even, so just looking at the fundamentals of the business and how difficult it is to get them to a sustainable place.
Benjamin Gardiner: Great, and then, I think you did mention in another interview you are holding for a longer time horizon so you aren’t hoping to exit in 3-5 years.
Andrew Dumont: That’s right, yeah. The intention is to hold them in perpetuity, effectively. The reason we can do that is we are making these companies profitable, they’ll be making free cash flow, so you don’t need an exit from the business to return your investment. So yeah the intention is to operate these companies long-term, and as someone who has sold several companies myself, that I had started, it is rare to find a company to sell to that will commit to keeping the brand and the product alive. And that is another very big thing here: I want founders to be able to sell their business in a context where they know it’s not going to get shut down, sold again, or sold off for parts.
Benjamin Gardiner: Absolutely. I want to circle back around to what you said about being a operator, before becoming an investor. You’ve talked about how important that is to the kind of turnarounds you are working on here, but I also see more former operators becoming venture capital investors more broadly–how important do you think that background is, and does it need balancing out with other backgrounds or is that really the core skillset?
Andrew Dumont: From my perspective, it is a non-negotiable. But, I am also an operator, so I am biased. I think without it it is hard to achieve two things: first, it is hard to have empathy, without having started a business or running a business in its early stages; second, I think it is hard to understand what levers need to be, or can be, pulled without having had that operating experience. So, from my perspective it is an unfair advantage, I think in the venture capital context it is important for empathy. But, given you are not jumping in and operating these businesses it is less of a requirement – for what I have been doing it is absolutely critical.
Benjamin Gardiner: Thank you. You also mention your focus early on was on marketing and the go-to-market component, so I am wondering whether when you look at companies that are weaker in that area you see that as a serious flaw, or an opportunity?
Andrew Dumont: Yeah, I mean, it’s what I want. And to be honest with you, most of them are weaker on that, the ones I am looking at. It means getting good at understanding spend to payback. A lot of these companies, because they are on that hyper-growth trajectory, have their ratios way off and are acquiring customers unprofitably. That is where a lot of burn is coming from, and on the people side as well, so yeah–I see that as an opportunity, really.
Benjamin Gardiner: Excellent. And this relates to something you’ve mentioned in other interviews, which is that startups–technology startups especially–are feeling this pressure to raise a lot of venture capital money, fast, in order to meet the profile of a “good startup”. Part of your mission with Curious is to come in and support the companies that were let down by that system, who probably raised too much too fast.
Andrew Dumont: Yeah.
Benjamin Gardiner: So, having sat on both sides of the table, then, what do you wish more entrepreneurs understood about raising venture capital money?
Andrew Dumont: Yeah, and just to be clear: I think that there is a place for venture capital, it creates opportunities for founders who wouldn’t otherwise be able to take the risk, for one. Two, it takes these kind of moonshot opportunities and makes them a realistic thing. So, I think it is important for a subset of companies–like, 10-20% of companies. But I think we’ve had it drilled into our heads that if we want to start a company we will need to go raise venture capital money. I think my biggest wish is that it wouldn’t be seen as the default path, and that more people would bootstrap. I know it is harder, it just is, but I wish more people would do that because they have more optionality, more control, when they do do that. I think what people don’t understand is that by raising venture you are usually giving up control of your company, unless you’re really lucky in how you are able to structure it. You’re giving up control, and so it becomes a different kind of company, and I worry most people don’t fully understand that when they start. And that is why I think, you’re seeing a lot of second- or third-time founders wanting to bootstrap, or not raise as much venture. It is a pretty common theme because they have been through the cycle once, and understand what that is.
Benjamin Gardiner: Yeah, that is an interesting trend. And you talk about the companies you might be acquiring, where the founder has a vision they want respected after the transaction. How important is that as a non-financial factor in their decision to sell? Would a founder accept a lower price for a business if they know their vision will survive?
Andrew Dumont: To me, I take this stuff really personally because I have been in that seat before and there’s nothing worse than spending four or five years on something and then seeing it die, or turn into something that is not what you intended. So on a personal level that is super important. From a perspective of how that changes the value of the company, it shouldn’t change it at all. I have been excited by the number of new firms emerging which are doing this sort of thing, and I think there will be more and more firms with the capabilities to continue operating a business while keeping the founder’s vision in mind.
Benjamin Gardiner: That’s great, thank you. You talk about the concept of “getting reps” as an investor and an entrepreneur. I am wondering, for those of us just getting started, most of our “reps” are still ahead of us: do you have advice about how to get the most out of those experiences as they come? Do you have any system for documenting what you’ve learned, or looking back on those experiences?
Andrew Dumont: Yeah, that’s a good question. I think that the “investor reps” are enlightening, but not in the same way that “operating reps” are enlightening. The reason I say that is because once you write a check, there is a lot that is out of your hands, so you get the pattern-matching of seeing a founder, a problem. And there’s some pattern-matching that emerges retrospectively, so I have some notes there, from things that I have seen. But I think the more valuable reps come from being in a functional operating role in a startup–doing the work. I wish that more young people didn’t fall in love with investing first, but fell in love with operating first. I think that would serve them better as investors, ultimately, even if that was their eventual goal.
Benjamin Gardiner: Great, and definitely something I have heard from multiple investors who transitioned from being operators first–it’s valuabe experience. In the same thread, do you have any general advice for young people who are interested in this space but don’t have a entrepreneurial idea yet?
Andrew Dumont: Yeah! I mean, my whole career started from sending a cold email to someone who had a startup, in my small town. That is where this whole thing started. I would encourage people, if they do not have their own idea, to reach out to people and offer to do whatever is needed at these companies. By doing that, you start to get an idea of what you are good at. You know, in that environment, I was able to touch a lot of parts of the business and figure out a few things that I was good at, and to begin to specialize from there. I would also encourage people–spinning up a company without a technical engineer is a lot easier now with many of the no-code tools that are out there–I would encourage people, even if they don’t think it is the greatest idea, to put something out in the world and just see what can happen. Those are my two biggest pieces of advice. You can also start to get a bit of an angel-investor type of motion by acting in an advisory role, although that can be harder without experience. For folks with some operating experience, though, becoming an advisor with some advisory shares and becoming an angel investor that way. Those are three ideas.
Benjamin Gardiner: Those are great. I want to look at the time you spent doing seed investing, since you talked about there being very few metrics to look in the early stages. As an operator, do you have particular things you are looking for? I have also heard you say that there can be an incentive for VCs to build some mystique around their approach to evaluating companies, to act as though they have some “secret sauce”…any comments on that?
Andrew Dumont: Ha! That makes it sound, maybe, that I’m quite negative on all of that. No, my problem is that with pre-seed or seed VCs, sometimes, there can be a lot of pontification on being “an investor”. And you are, of course, in the sense that you are making a bet on something–so you’re an investor. But in almost every case you make a seed investment, a pre-seed investment, or an angel investment there is no fundamental business in place: there’s a team, and if you’re lucky maybe a product. So, when you make your bet you are betting on the market the team is pursuing, and the team which is pursuing it–that’s it. For me, I had, actually a fairly successful angel investing track record, but I did not consider it impressive. That’s because, for me, I knew that when I made those decisions I was making them without very much information, so I think all the credit goes to the teams that built those successful companies. It was not obvious, at the time–that is more of what I am saying. Now [as I invest in later-stage companies], I feel I am evaluating a business as “an investor”. Because there is a business: financials, churn metrics, a bigger team–a lot of stuff I can look at–so, for me, I feel like there is a more rigorous investment process. My point is: I wish more early-stage investors gave the credit–like, full credit–to the teams, not their brilliance for picking something super-early.
Benjamin Gardiner: Yeah, there’s this idea of investors buying–buying into, and then buying–the idea, right. It detaches the business idea from the operating team who carry that into the market.
Andrew Dumont: Yeah, sure. I mean, I have heard seed investors calling a company they have invested in “my company”. That kills me because there is a team getting their face kicked in every day. That’s where my comments are coming from, I swear I’m really a very nice guy.
Benjamin Gardiner: Of course, and it comes across. Is there a recent deal or company that you are excited about, and can talk about here?
Andrew Dumont: We are closing our first deal at the end of January, so I don’t have anything to announce yet. But I will soon, and we’re excited.
Benjamin Gardiner: Awesome, I also noticed on your personal website there are various articles you have written over the years. I feel like it is a strong pattern, in the VC community especially, I see investors putting their thoughts out there. Sometimes even just a tool to clarify their own thinking. Do you find that useful?
Andrew Dumont: Yeah, I mean, I wish I did it more often. I was better at that earlier in my career, and I don’t know why exactly that is. I still write a lot, I just don’t necessarily share it. There’s no strategic reason for it, I just don’t find myself motivated to put it out there. But I think everyone should have that habit, if they can. When I was an operator, just for example, I would insist on doing a monthly update to the board, or to investors. I did that mainly for me, actually, to take a forced step back and really digest what had happened during that period, and see where we were at versus what our goals were. I find it hugely valuable and I think that anyone who doesn’t have that habit could benefit from it, it is just the best way to digest things–that I have found.
Benjamin Gardiner: Terrific, well thank you so much, Andrew. I think that’s all the questions I have, we appreciate your time.
Andrew Dumont: Happy to, thanks for the questions.