Building and Growing VC Funds: Insights from Industry Leaders | Upstate Capital Panel

Noa Simons – 00:00:03 –> 00:00:39 

So without further ado, I’d like to welcome David Brown, chair of the Board for Upstate Capital and Managing Director of Impellent Ventures.

Nitin Pachisia in from California, Managing Director of Unshackled Ventures, and, and Heidi Knoblauch. Here she is with New York Ventures as a senior director for. Working with both emerging fund managers and with accelerator programs, as well as helping evaluate early stage investment opportunities. So I think we have a great lineup here of people to talk about building and growing VC funds. So I’ll let you guys take it away.

Heidi Knoblauch – 00:00:39 –> 00:01:04

Awesome. Thanks, Noa. I will say that I emailed these two and said, Hey, I would like a couple questions that I could ask you. And the subtext of what they said was Heidi, you’re such a dynamic and engaging and wonderful question asker that we don’t need to give you any questions. Feel free to ask us anything.

David Brown – 00:01:04 –> 00:01:10

I think we specifically said as long as we don’t have to wear sports coats and we can offer us our legs like you see right now.

Nitin Pachisia – 00:01:10 –> 00:01:16

That’s right. That’s right. I just said what she said.

Heidi Knoblauch – 00:01:16 –> 00:01:35

So the thing I think I want to ask you first is why venture you know, why are you engaged in Venture? You know? David, why did you come back to upstate New York to start a venture fund? And why do you have a mission driven venture fund? Why are you doing this?

David Brown 00:01:35 –> 00:03:33

You want to first or you want me to take this? Awesome. Two very different questions. Two very different responses, I think. So why venture in particular? For me, entrepreneurship has always been the most interesting gateway for opportunity. Equity is the way that individuals can transcend and move from one part of the world to the  next. And I honestly believe the vision entrepreneurs bring to being able to create and co-create really interesting, exciting ventures that are going to change the world is probably the most interesting, exciting thing that you can spend your time with. And so I moved back to Rochester over time, both kind of investing and operating. And the reason I actually came back to Rochester had nothing to do with Venture. You know, if you grew up in Rochester there I did where the home of Xerox, Kodak, Bausch Lomb, all three of those imploded during my high school. So by the time I graduated, about 20% of my graduating class had left or was in the process of leaving. And so I never actually looked at Rochester for coming back. My parents had a house in Colorado where I was going out there. And what actually had never happened was my mom got very sick. She developed a pretty nasty neuromuscular disorder. We were very happy in Boston, but we had just had our second kid and I said, Fine, when we get in the car, we’ll move back, see if Rochester is a place we can make a living. And we’ve got enough good friends here. The I’ll start to venture and I’ll raise funds for my, myself, for my own venture. And what we found instead was what I thought was going to be a desert turned out to be a really exciting ecosystem. And we looked outside just Rochester to Buffalo, Syracuse, Ithaca. I saw that pattern repeating itself over and over again. And so the genesis for Impellent was really saying, How do we infuse ourselves into the bridge between Tier one and Tier two technology marketplaces and create better opportunity for entrepreneurs to stay where they are and to drive value for their ecosystems while at the same time being able to enact some of those life changing or world changing views that they’re so excited about.

Nitin Pachisia – 00:03:33 –> 00:03:34

Well said. 

David Brown – 00:03:34 –> 00:03:35

Thanks. 

Nitin Pachisia – 00:03:35 –> 00:05:22

Same one word reason entrepreneurship that didn’t think I was going to become a VC such and I’m not a VC is the business model that I use for the firm. We started. MIT truly was trying to start my own company. The back story I grew up in India came to the US after spending three years in Asia Pacific, stayed with Deloitte for five years and joined a startup, then tried to start a company and I would have happily been building software companies if somebody, somebody else had done what we’re doing now, which is if you’re an immigrant founder pursuing a visa, can you start your company? And, and in trying to answer that question for myself to go full time working on my company, whatever I learned became this, this knowledge pool that we pulled into and shackled to help tens of thousands of other entrepreneurs who are trying to do the same. Or I could have just kept it to myself, and then it would have been another way of nothing so the venture, you know, as a, as a VC is what we are today. But what we really want to enable is very similar to what David said entrepreneurs who want to change the world, we want to be in their service, we want to enable them. And in doing that, I think all of us play a very unique role in whatever friction we can remove. And for Unshackle,  That friction starts with the immigrant journey. So it could be immigration, it could be connecting into the community, it could be connecting with downstream investors. We keep learning from, from founders who we work with on what is the bottleneck, what is the next thing that, that is slowing them down. We take that away.

Heidi Knolauch – 00:05:22 –> 00:06:06

Awesome. So that’s the why. So now good, bad, ugly. I think we will start with bad and ugly maybe. And go good. Please. That’s right. That’s right. That’s right. So you guys kind of said your why. Right. Which is your purpose for doing this. But for people who want to start funds, I think sometimes they underestimate how difficult it is to raise money and how difficult it is to deploy money. So could you just speak to the tension that you have between, you know, having this, this purpose, As you said, you are an accidental VC or I guess I’m putting words in your mouth. You’re an accidental VC, you know, what’s it like to raise funds?

David Brown – 00:06:06 –> 00:09:13

Yeah, I would say we’re, we’re still overly optimistic, right? We’re still learning as we go, you know, fund one when we first went out to raise it, you know, we closed February 22, February 2020. So February 15th, that was our first closed right before COVID really kicked in. And I went out, having never raised a fund before, I was like, this is going to be a $50 million vehicle. We’re going to have so much fund raise, $10 million COVID kicked in, and we’re like 10 million is perfect for that. That’s exactly what we’re the fund to. I added a few more partners. We said, we’re going to go do a $50 million fund. Really started running through figuring out what that means. We got to $25 million. We’re very excited about what that means. Hopefully Fund three, which will launch at the end of this year. Maybe that will be a $50 million vehicle. But I think there are two things that I think are fundamentally really tricky about starting a fund, especially if you haven’t been in venture before. One, you’ve got to find true believers. You’ve got to find people who like you for who you are, who trust that you’re not a complete idiot when it comes to making investments and who are willing to ride a journey with you not just for one fund, but hopefully for multiple ones, because it’s going to take a while for you to actually prove whether you’re good or not at this. And it probably is going to take 3 to 4 really good fund cycles to get you down that pathway. I think the second piece that kind of leans into that, right, is that as you’re building a fund and I don’t know how many people are looking and doing this after having been an entrepreneur, When you’re an entrepreneur, VCs tell you where they are. It’s pretty clear who you’re supposed to go raise funds from the people who raise their hands typically in venture and say, I’m allocator, I’m looking to deploy capital historically are focused on later stage funds. They’re the ones who have the privilege of being able to wait to see where performance leads before they start to allocate it. And so what that means is that as a new investor, as a new fund allocator, you’ve got to go find people who don’t hang around and go saying, I’m looking to invest, who may not be in your network, and you have to make a lot of ask, a lot of very personal ask to do that. I found deploying capital to be a lot easier. You know, luckily we came from an operating perspective, so we’ve got really good relationships and deal flow history on that. But I think if not really your name in your recognition, particularly at early stage, the short lived right, the best returns for new fund managers tend to be in the first three vintages because that’s when they’re freshest, that’s when  people actually know who they are. And so you have to be willing to hustle and you need to be willing to show up. I mean, I literally went from Rochester to Boston last night because we had to meet with a bunch of companies back here. And then I go back to Boston to have a few more conversations before back to Rochester next week and then Germany, you know, the week afterwards. Right. So you always have to be hustling. And I think that’s the piece that if you don’t have that energy, that’s going to make it really hard to sustain as an  investment partner and you have to really love it, right? If you don’t love what you’re doing, if you don’t have the same sort of this is what’s going to change the world perspective. You’re not going to get rich any time soon doing this. And so you have to have a wherewithal and stick to it

Nitin Pachisia – 00:09:13 –> 00:11:26

as I think. I think raising is easy. I think deploying is easy If you have a unique edge or easier. I think that the toughest market part is making money for yourself. You’re not going to make money for 15 years. Like you’re not going to see that for a dollar of return for 15 years because the maturity cycle, especially at early stage. So we’re investing at inception and for companies to become meaningful, that cycle is now 14 to 18 years. So the, the patience that it takes to  persist through that, what’s going to happen? You raise money, you’re excited, now I get to deploy, you start deploying you to build a process. You’re especially if you’re unique, you’re going to have a ton of deal flow and there’s a lot of ugly in the deal flow. So you get a filter through the noise to find the signal. But let’s say you’re a great operator, you can build that process, then starts the next phase of failures are going to start showing up, right? And they’re going to show up much before success. They show up. Successes are directional with company B investor in a Pre-Seed will raise the seed will raise the series, but the companies that are not raising money are going to run out of money. And so that’s like an emotional thing that I had to personally overcome is, this is personal. Like a company that a founder that I know and the company that I invested in is now out of business. So getting over that was a process. So any new manager, be prepared for it. And then it’s, it’s just working with companies. Fortunately for us, both modern and I have really deep interest in solving problems. And so any time any of our portfolio companies are at a point where we don’t know what to do here, we, we love jumping into that and supporting not just with our knowledge, but with the wisdom of the community that we have behind us. But to me, you know, the, the most challenging part for a VC is it’s going to take 15 years to find out if you’re good or not and how good you are.

Heidi Knoblauch – 00:11:26 –> 00:12:31

So let’s talk about segments, about peers, because I think sometimes people think that, you know, they’re all the same, but really the market is pretty segmented. And so to do that, one of the things that the one of the things that the three of us have in common is that we work with SBC funds. So for those of you in the audience that don’t know what SBC is as a speaker stands for the state sponsored credit initiative. So this was an initiative put together by the US Treasury, New York State received $500 million and California received $1 billion. The New York State money was split relatively evenly between capital access programs, so lending and debt and venture programs. And so David pitched us and we made an investment into empowerment. And it was the first fund to receive an investment from the state of California. So I think if we could just kick it off by talking about maybe institutional investors where you look for these opportunities and, and how you segment your LPs.

David Brown – 00:12:32 –> 00:12:35

Nitin said. This is easy, so I’m going to let him

Nitin Pachisia – 00:12:35 –> 00:15:55

It’s, it’s easy relative to the other part. I think institutional LPs are an interesting beast and and I think David kind of hinted on one part of it, which is it’s, it’s opaque. The system is intentionally opaque. A lot of allocators don’t like to be out like we are. We’re actively going out seeking data for coming here for this. I was

looking for opportunities to do anything I can do with the ecosystems around here. I want to make the most of it wherever I’m going. Institutional LPs do not operate like that. And so, so there’s, there’s built systems that we didn’t come from B.C. so we had to learn how to, how to do that. So we used our first two funds to, to learn how institutional piece work, what the vocabulary is, which was very different from what we were using. So there’s a learning curve and what we found is there are just like VCs, LPs are not all equal. Everybody’s got their own philosophy on some will just track brand names, some want to look for interesting strategies and learn from those and follow those managers for a little bit to build that relationship and then invest. Some are very purposeful, like the SBC funds where it’s a clear mandate. This is what we want to do and within that we want to go find managers. But just like anything, anything in the entrepreneurial ecosystem, the passiveness or activeness of LPs differs. And so what we’ve kind of gravitated towards is who are people like us? Who are we going to have fun working with, who are responsive the way we are, who are thinking about the future, the way we are thinking? And that’s where we spend a lot of our energy is from the first conversation qualifying. These are people that, that kind of look at the future the way we do and, and yeah, our managing funds with a few more commas than us but they have similar world views  and that’s we’re spending more of that time has led to building those relationships. So it becomes easy over time because you know, when you’ve been in something for a long time,

people see that you’re, you’re staying true to your strategy. You’re disciplined about that strategy. The strategy is working. You, you said you were going to do this ten years ago. You’re still doing this. So there must be something that’s keeping you into it. And that has a compounding effect of ultimately getting to that conviction of I want to trust you with, with my money. There is a big, big bottleneck with younger firms because no allocator is going to get fired for investing in a Sequoia Lightspeed and reason. Tiger. Well, well, but, but if you know, unshackled is an unknown name. And if, if we do something that, you know, the fund blows up. So the, the allocator has to be extra cautious.So they’re doing that, that more, more diligent work, to be sure that, you know, the small check that they write in a small fund like us does not become a reason for them to look bad.

David Brown – 00:15:56 –> 00:18:55

Yeah. I think you hit on one thing that. That I want to start with, and that’s that you’re building a real relationship with someone you want to spend a lot of time with. We always talk to our entrepreneurs about this when we make an investment, our average tenure for an investment is going to be between seven and ten years of working directly with that founder. Seven years would be twice the average American. We know marriage. So these are like real commitments. When we look at an LP, we’re actually expecting these folks probably to be with us for three, maybe four or funds. Obviously, we can fire them. They can fire us. If something doesn’t work out, we’re at least 10 to 15 years with those folks, most likely 30 or 40. We’re talking about people we want to spend our entire lives with. Right. I think these are real commitments and they’re going to watch our entire careers. And so finding a fit there is so important. I think that’s why that dads last for as long as it does. And so I think you brought up a very important part. I think, Heidi, part of your question kind of so like what is the world of potential investors and is enormous, right. Like sometimes it didn’t even make sense to me when we first started. You know, just on the individual side, you’ve got individuals who can invest, you’ve got family offices. Multifamily offices are a which are obviously conglomerate in cash from a bunch of different individuals.

And then you start getting to the institutional, as might be, a fund of funds, right? So now they’re going to the wealth and they’re, they’re collecting funds to invest in a lot of different funds, and they’re taking a skill. On top of that, you got the larger institutions that may represent a corporate entity, a state entity. So there’s a lot of different pathways. And each of those pathways and even each individual within those pathways has very different criteria of what they’re looking for. People like to joke, you know, when you get in the industry, if you know, one family office, you know, one family office, right. It doesn’t have any translate ability from one thing to the other. And so what you’re figuring out is not just the dance of the individuals, but also what is their investment and what matters to them. A little bit of your mission might switch a little bit to help support some of the LPs that you’re working with. I think at the end of the day, when you’re thinking about where are you going to take capital, you’ve got to think about how you fit into their overall strategy and how they fit into their strategy. I guess we’re driving somewhere now, but so, you know, one great example is like we got introduced to an awesome fund right off the beginning of a great fund of funds. I shouldn’t say great. I mean, it was foreign money and it probably came with a ton of stipulations. And we get off the end of the call and the guy’s like, This is amazing. I love what you guys are doing. How much are you raising? And was like, Well, we’re trying to raise a total of 50 because my minimum check size of 50, I was like, okay, that doesn’t sound like a problem. He goes, Yeah, but I don’t want to be  more than 10% of your fund. We have a very specific mandate. So it’s like, Well, I should probably figure it out. Even for us, we’re raising a half billion dollars. We probably shouldn’t even be talking. And so you spend a lot of time, you know, kind of getting to know where the strike zone is for a lot of these people. But again, even if you think you’re figured out, you’re going to learn more and you’re building a lot of really good relationships. But it’s a lot of them. It’s a lot of time.

Nitin Pachisia – 00:18:55 –> 00:19:39

You know, just to add to, to that last point, mandates change and sometimes people also move. So the value of building relationships still stays. And, you know, we’ve had, we’ve had some institutions that had the same thing, like our minimum check size is bigger than your  fund. And, and we kept in touch. We, we kept them updated. They kept us updated. And now there’s a new CIO who said, we can we can carve out this small bucket where we can write some checks in smaller funds so and can change relationships if if they’re strong or are in a position to take advantage of those.

David Brown – 00:19:39 –> 00:20:01

You know that. That’s exactly right. I mean, Jennifer Teagan, who helps with Heidi’s side of things, actually started as a VC. And so our relationship to New York City start as core co-investors. This is fantastic. That changed. And now we have an LP that we’re working with to help them get into the VC game because they want to switch their day to day and you never know where these things go and it’s part of the fun and part of the challenge.

Heidi Knoblauch – 00:20:01,533 –> 00:20:59,524

So for people in the audience, I will say, and we, we actually have some people on the audience who we’ve made other investments from speaking, but just to talk about the New York City initiatives. So we have two programs within our fund of funds. The first is the emerging and Regional Manager Fund and the second is a community and regional partner fund. And those two funds can invest checks of 2 to $15 million in two funds. They have slightly different requirements for ] each of the programs, but the main push behind those funds is to invest in socially and economically disadvantaged individuals or city individuals. So that can be where a founder is located. That can be the diversity of the founder. But both Nithin and David are committed to, to that aspect of their funds. And so we’re, we’re very grateful for you guys being part of the program.

David Brown –  00:20:59 –> 00:21:05

This is where we’re supposed to say we didn’t know that was part of our mandate. Now we’re excited about that as well.

Heidi Knoblauch – 00:21:05 –> 00:21:30

So in addition to not knowing what I was going to ask you, I also don’t know how long this is, and I don’t want to not get to the good parts. Right. So, so what are some of the things that you are just like when they happen to you, you’re just thrilled. Like what? What is something where you, you get to your office every day. I’m sure neither of you have offices, but you get to your office every day  and you see something come across your desk and you’re just ecstatic.

Nitin Pachisia – 00:21:30 –> 00:22:45

Two things. I’ll share the delight in people’s eyes when you give them the opportunity that enables them to be the best version of themselves. And one of the best examples of that was  we just made ten offers last week to ten solo founders who are all on visas, different kinds of visas in the country. And our teammate Elizabeth, who made those offers recorded when she made those offers. And she, she showed us the 5 minutes real and everybody in the room was crying because of the emotion that was felt through that video. The everybody’s being told or it’s a very common thing that, that people who are on visas get told you’re on a visa, you can start a company, and then somebody comes along and tells them, immigration said, I’m going to stop here. And that the the joy and the energy that suddenly shifts is what keeps me going.

David Brown – 00:22:45 –>00:24:19

I think it’s very similar to our wins, our entrepreneurs wins, right? I started by saying I get excited by watching other people fulfill their dreams. I love to be part of it, but we also understand that we’re a small part of it. And I think what’s amazing to me is, you know, we have 45 companies in our portfolio right now. We add about one new one every single month. And a lot of these guys, sometimes you talk to them in, you catch up with them once a month or maybe a little bit more frequently than they start crying. Maybe it’s a little less frequently. And there is often a passage of time from where you might have gone and seen their office. Like, you’re right, we don’t actually I don’t actually have an office. I’ve got a bunch of like random spaces that I like to crash in and thank you to all of our service providers for caring for us like that. But when you walk into some of these offices and you realize that that team that was two people is now 100 people that are creating real jobs, and you have people that care about them and they’re hitting successful milestones that are self fulfilling and very exciting for the founders. It’s just, it gives me chills every time. Like it’s hard to explain. I would say that’s probably the number one thing that just kicks me off every time is just like, That’s awesome. The other piece that for me is just fulfilling is you wake up in the morning, you have a schedule 15 meetings, you don’t know where they’re going to go and you get that one meeting where the person’s vision and excitement teaches you something that you didn’t know. When you wake up that morning and you start to look at the world differently, that’s really cool. That gets me excited every time.

Heidi Knoblauch – 00:24:19 –> 00:24:32

One time I was told that I couldn’t speak at  the professional events at the chamber anymore because everybody would quit their job afterwards. And I feel like I have to say the same thing about you guys. I feel like everybody in here is sort of fun. I think is the best.

David Brown – 00:24:32 –> 00:24:37

So I think we went over the hard parts of this. So we can repeat that if we need to. So.

Heidi Knoblauch –  00:24:37 –> 00:25:00

So there are some people in the  audience who I know who work with founders  very directly, either as entrepreneurial support organizations or in tech transfer offices. So if you guys could just speak to, you know, not necessarily what exactly you invest in, but,  but the founders that you see that really come prepared to pitch your funds.

David Brown – 00:25:00 –> 00:27:25

Yeah. I mean, we have a very strange philosophy. So we specifically have preceded seeds, hedge funds and other companies. And so that means that companies might have revenue, might not have revenue. Typically, they’re just starting to figure out product market fit and a go to market strategy. And so they’re really early on the ideation stage. And so what that means for us is that we honestly believe that 100% of the businesses we invest in a wrong and that’s not because their founders are stupid or because they’re malice and have bad intentions. It’s because at the end of the day, you need to build something in service of a customer and you need to be able to think about, adjust and continue to augment your business based on what you’re learning. And so the founders that we automatically write checks to the company is probably interesting, but we know it’s going to change 15 times over. What we’re looking for is how are you approaching the world? How are you thinking about what’s going to be there? How are you uniquely differentiated to have impact within that space? And then are you a leader? Because at the end of the day, right, It doesn’t. Well, I guess there’s two things, right? You have to have grit because you’re going to get beat down. Right. That’s part of entrepreneurship. And so you got to be able to come up, but you have to be a leader because at the end of the day, if you’ve got a great vision, but nobody else is going to help you build that vision, here’s going to be shouting from the top of the mountain. And so we spend 90% of our diligence looking at the people, how they’re responding. And I think when I look at my own partnership, REI, what I love about the folks that we work with is they ask questions in very different ways. And so we get of stress test entrepreneurs from a lot of different directions. And so if you are in the support entrepreneurial system, right, and you’re thinking about who you’re going to support, how are you going to spend time with them, help them think through their model. Right. Like a business plan actually has a negative correlation to success. We, we wrote a report when I was in business school that surveyed everyone who had ever gone to Babson and started a company. And they show that if you write a business plan, both negative correlates with revenue as well as funds raised, because once you become too concerned with executing against what you think you’re supposed to do, you stop listening to the customer and stop actually modifying and building the business. And so if you can really help people think about the adaptability, the customer attractiveness and testing ideas before you build product, I think that’s going to be the most exciting thing because people are going to learn a lot about themselves and they’re going to learn a lot about the audience  that they’re trying to work with.

Nitin Pachisia – 00:27:25 –> 00:29:33

A lot of similarities. We invest only at inception stage. There is no product, there is no revenue, there’s a person or a few people. And so that’s, that’s what we focus on. We intentionally try to shift the conversation from being a pitch to being a conversation and that’s how we get to appreciate the person instead of the label of this is a startup or a founder. And and when that conversation shifts, there’s there’s clearly an opening very intentionally created by us to really get into what is your distance traveled which is which is our phrase for you didn’t, you didn’t just you know, show up at Stanford one day you were, you were born in certain circumstances and then you went to somewhere and then you did something and and you’ve worked your way to Stanford. So instead of just saying you’re a Stanford grad and just stopping there or you are from a university that I’ve never heard of, or you’re a high school dropout and you’re, you’re trying to build airplanes, just what is it that you’ve done through your life that, that brings you here? And based on that, can we imagine with you the potential leader that is inside you? Right. And so it’s a lot of imagination. It’s imperfect. But the, the willingness to to really look at the, the person and then be, be ready to learn from them because, you know, whatever I know is outdated already. Our business is all about knowing what we don’t know and finding the outliers. So if something’s fitting too well in the pattern, it’s too late to invest in that. We should not. And so really looking for what is your unique way of building the next very, very successful company.

David Brown – 00:29:33 –> 00:30:04

Yeah, to what you were just saying. We ask a question if anyone’s ever going to try to pitch us, you know, we’ll call this a shortcut to the interview process. We always like to ask, what’s the hardest thing you’ve ever had to be gone through in your life? And I don’t care if it’s professional, personal, or in between how you think about that journey, how you reacted to it, and what you’ve learned from it, I think is incredibly poignant in terms of us understanding who you are as a person and how you’re viewing the world.

Heidi Knoblauch –  00:30:04 –> 00:30:24

So you’re both Pre-Seed seed and and I know that a lot of the due diligence is around the team which you’ve spoken to, but could you speak to the other due diligence that you’re doing for these companies? Because I imagine you’re making potentially reference calls or looking at the market or things like that. So if you just want to speak to what your process looks like. 

David Brown – 00:30:24 –> 00:31:54

Again,is this where we’re supposed to say, we’re supposed to do all that? So that’s Chris Rodi speaking next. He can tell you everything that he does for us on the legal side. Yeah. No, I mean, look, I think there’s a lot of things that we have, like the traditional business school, how to be a VC. What? How you make sure you get the right TAM is a big enough address. The fundamentals of the unit economics that when you sell, are you going to be able to acquire customers for less than their lifetime value is going to be? Is there you know, are they hitting certain numbers that have a repeatability? I do think those things are important at the early stage, right. Like you’re looking at the fundamentals of how you’re modeling your business more so than how is the business fundamentals actually designed. And so what we do is we actually much more into how are you building your projections and how are you thinking about the go forward? Because it’s the same thing, right? What’s more important to me is are you asking the right assumptions questions about your market and do you know where your proof disprove points are going to be? Because that’s what’s going to be really interesting after that and after doing the diligence on the individual right and we do background checks, we do all sorts of reference calls about individuals, then you start to go into the, you know, is the legal that you guys have set up, Correct. Are you the right organization to set up? Are you going the right direction? If you have patterns, you have IP that’s central to your business. How well protected are those actually? And you can cover some of those pieces, but again, that’s less of the day to day. 

Nitin Pachisia – 00:31:54 –> 00:32:57

Yeah, I think it depends on the nature of what, what they’re planning to do and how deep tech or deep science the company is. The deeper it gets, the more we can actually diligence on the size, on the science front. But really our process is meet the founders, see if we can get to our conviction. And once we have conviction, the rest of the diligence process is about confirming that what we heard actually checks out. So it could be about the people and therefore we’ll find some other people that we know in common and try to validate the would we have heard make sense and resonates if it’s about hypotheses of their business? Well, go and confirm that through a community that, you know, they’re not just giving us some B.S. It’s, it’s actually what they’ve done and it checks out. So it’s, it’s more confirmation read than, than your numbers are right or not because there are no numbers at that point. And whatever numbers are wrong.

Heidi Knoblauch – 00:32:57 –> 00:33:02

So what does the next fund look like besides $50 million?

David Brown – 00:33:02,547 –> 00:34:26,030

That’s it. So once we have the money, we don’t have to do anything with that anymore. So I think we’re going to continue to double down on what we have right now, which is looking at how to do secondary markets or reemerging tech markets, work with the primary hubs and how do we continue to drive greater mentorship and late stage financial support through that. We based our model originally off of a group called Founder Collective out of Boston. In my opinion, they’re the best seed stage fund that’s existed to date and they have been hyper concentrated and staying. So $100 million, hyper concentrated on making sure that you have founder alignment. So you’re doing one at most two checks and not going any deeper. We’re going to continue to double down on those things because that’s where, one we think we have The best sweet spot is going to be 0 to 1 or 0 to 10. And then also where we think that the founders need someone really on their team. And if you continue to change your model and you go to late stage

in terms of follow on, your incentive becomes how much can I buy if you’re a company versus how do we build a really, you know, valuable company as a team. And so we’re being very conscious of doing that and doing that the right way. We’d much rather see a lot more deals and more founders that come into our portfolio than owning significantly more of those teams. 

Nitin Pachisia – 00:34:26 –> 00:35:23

Our next one will be the same as the prior fund. The only thing that’s changing is in our first three funds, we invested collectively about  $6 million in building the employment and immigration platform that has been used by these funds. So one part of our investment strategy is to hire of the founders at our research lab,  and that, that way we become the sponsors. They don’t have to worry about immigration. And there’s a lot of research going on at this at, this research lab that, that gets commercialized 100% of that. So, so that investment is now at a point where we don’t need to continue investing in that knowledge, that operating level. And we can absorb that. So fund next fund onwards, there’s going to be no load on the fund, but otherwise the strategy will continue to be invested in Inception stage start  companies with founders. Every company we invest in has at least one foreign born founder, and we’re not going to we’re not going to move from that strategy.

Heidi Knoblauch –  00:35:23 –> 00:35:56

So I would be remiss if I didn’t ask a New York state centered question. So, David, you are located in Rochester committed to upstate New York, also investing in companies outside of the state. And then you’ve met with some of our centers and have had the opportunity to meet with some people in New York here today. So if each one of you and I promise not to send us to California, if each one of you could just talk about the unique competitive advantage that you see in New York and especially in upstate New York,

Nitin Pachisia – 00:35:56 –> 00:37:09

Well, competition is great. So please send it to California. You know, complacency is not great, especially for a government. So let them compete. You know, I think the I’m still experiencing the ecosystem, but from what I’ve heard so far, there is a lot of STEM research work going on upstate. And so I wanted to continue to learn more

and use these relationships to, to, to not just like show up once and disappear, but, but engage with the founders in this ecosystem. And so, you know, one thing I can promise is follow up wherever I have, wherever I’ve gone, wherever I build relationships, it’s I will follow up. And as long as I get the response, we’ll do our part. We do have a team made in New York City, so anytime, you know, we’re doing a hackathon here or something else, it’s easy for her to, to show up. But as a state, like, we have a lot of portfolio companies in the state of New York. So there is a gravity already and we think it will, it will just continue to grow with this work. 

David Brown – 00:37:09 –> 00:39:51

Yeah, I think about my lens to Western New York is being very similar to the lens I was given when I was in Boston. So my last role before I came back to Rochester was running Innovation Leadership for the Chamber of Commerce in Boston. It was a short gig, but it was very interesting kind of helping think about, you know, how does the city state an ecosystem? Think about entrepreneurship, innovation and talent? And one of the pieces that was really interesting in Boston is that you have 4.5 million people and you have 83 universities and colleges within that greater area. And if you drove from the north side of Boston in that geographic area to the south side, it’s about two, two and a half hour drive. If I’m sitting in Rochester and I think what it takes me to go from Buffalo to Syracuse, it’s just about two and a half hours. It starts in Albany, you know, from Rochester. That’s a three hour area within that same geographic footprint. You have about 4.5 million people. You’re very similar to an MSA. And the drive times are actually very similar. It’s just more geographically spread. And instead of 83, I think we have 60 colleges and universities, you know, STEM leadership, unbelievable quality within our upstate area. And so as I view it, we’re just starting to catalyze. And the issue that Boston had that they finally figured out how to reconcile or starting to reconcile was retaining. So they were retaining about 2% of their college graduates. That’s now up to about 5%. That’s why that city has grown like crazy in ways STEM is, is going nuts. There you see similar things in New York and San Francisco. And then they’ve become that  you know, retainers and importers of town. I think western New York as an entity is starting to see that make that turn. And you’re seeing people who want to stay and create. And that’s awesome. Now what we have to do is provide them the pathways. And there are two pathways to do that. One is to invest right, and allow them to start their businesses and create the impact right away. The other way is to continue to import jobs and opportunities in STEM related fields. So when students first get out of college, they’ve got something to do. For the first five years. That same study that I was talking about for Babson, one of the most interesting things that they found the number one indicator of successful entrepreneurship was being 5 to 10 years post your terminal degree. It didn’t matter what it was. You started that business 5 to 10 degrees, ten years out, you just are really building good relationships within the industry. You’re really starting to have a vision of what’s unique and what’s differentiated,  and you also have some of the requisite skill sets to go out and you know, make a real impact. And so I think those are two opportunities is to turn right at the beginning and to be able to retain over the long term. And I do see that happening and I see that energy of entrepreneurship underpinning so much of not just the West New York region, but the entirety of the upstate and downstate parts of New York.

Heidi Knoblauch – 00:39:52 –> 00:39:56

Well, thank you so much for joining me

today on the stage.

Nitin Pachisia –  00:39:56 –> 0000:39:57

Thank you. 

David Brown – 00:39:57 –> 00:39:59

Our pleasure. Thank you.

Noa Simons –  00:39:59 –> 00:40:09

Now, this was great. I actually learned a lot and really appreciated all of your comments. So thank you. And I thought you did a great job given that they didn’t give you a specific things they wanted to touch on.

David Brown –  00:40:09 –> 00:40:14

So like we said, we didn’t have to give her anything.

She’s, she, she had the ideas.

Noa Simons – 00:40:14 –> 00:40:14

Yeah.

Nitin Pachisia –  00:40:14 –> 00:41:27

Just floating in there ready for 15 seconds if, if I can add a pod, just.

Heidi Knoblauch – 00:40:18 –> 00:40:19

Yeah.

Nitin Pachisia – 00:40:19 –> 00:41:27

You know, when I think of an ecosystem or look at any ecosystem that is hot now, the hotness started about 20 years ago, and it started with smart people moving into that ecosystem. You all have that going on already with the, with the success universities. You have people from all over the country and also all over the world coming here with ambition. All that’s needed is to, is to shift something in the ecosystem that more can stay here, more want to stay here. And if you think of it from an immigrant journey standpoint, someone who was born in wherever pick a country, has moved here, spends four years or six years with higher ed. Do they really want to move again? If they don’t have a reason to, they will likely want to build their company here. So if we can understand better for what could be, that’s something that would keep them here. All it takes is one or two companies becoming really successful and then the cycle have started. So anything we can do to support with that, we’re more than willing to. And I would love to learn from people in the ecosystem what that could be.

David Brown – 00:41:27 –> 00:41:54

I would say that I know we do have to wrap that pay forward mentality of how do you continue to support. That’s one thing that we have in droves in this area and that I’ve really seen crank up. We went from five domes to this is how I’m protecting the area that I live in to, to, Hey, maybe this doesn’t benefit me today, but let me help you with this because I think it’s going to be very important for tomorrow. And that’s what’s always creating great ecosystems. And I think that’s where our opportunity lies.