Nov 16, 2016 · 37m · 20vc
20VC: Investing In Sectors That Were Cool 2 Years Ago, What Accel's Facebook Fund Taught a Generation of LPs & Why LPs Need A New Discovery Process with Paul Martino, Founding Partner @ Bullpen Capital
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In this episode of The 20 Minute VC, host Harry Stebbings interviews Paul Martino, co-founder of Bullpen Capital, about pioneering post-seed venture investing. Martino breaks down how data-driven contrarian strategies, strict burn rate management, and navigating LP dynamics allow Bullpen to find high-return opportunities overlooked by traditional venture capital.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 25.1% of the talking time here. How this is scored →
Harry as informed peer 2.8 Guest teaching 2.6 Guest disagreement 2.2 Harry pushing back 2.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 16:39 Rejecting missed milestone framing
Paul directly pushes back against Harry's suggestion that post-seed rounds occur because companies failed to hit milestones, calling it a negative picture and reframing the core premise.
Hardest push from Harry ▶ 21:40 Challenging contrarian fund structure paradoxHarry sharply highlights the internal contradiction of running a contrarian strategy while adopting a standard institutional fund model.
Biggest teaching moment ▶ 26:29 Analyzing LP fear around Accel's Facebook fundPaul educates listeners on how Accel's massive Facebook win taught LPs the wrong lesson, causing them to maintain allocations in underperforming funds.
Harry holds his own ▶ 13:44 Asking if guest is a spreadsheet investorHarry uses informed pushback to challenge Paul's metric-heavy approach, directly confronting him with the industry insult of being a spreadsheet investor.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome and Initial Pleasantries | 1 | 1 | 1 | 0 | Harry welcomes Paul and asks a standard background question on how he transitioned from founder to VC. Paul recounts how Mike Maples convinced him to analyze early-stage VC data. | |
| Analyzing Market Disruption and the Series A Crunch | 2 | 3 | 2 | 1 | Harry asks what data led to Paul's pivot. Paul educates the host on how early-stage funds shifted to option-buying fail-fast models, creating an incompatibility with traditional late-stage lifecycle funds. | |
| Understanding Post-Seed Financing Needs | 3 | 3 | 2 | 2 | Harry cites Jeff Clavier's advice on raising 24 to 30 months of runway. Paul respectfully nuances this, arguing 36 months removes a CEO's urgency while explaining how founders manage rolling cap notes. | |
| Bullpen's Burn Rate Requirements and Round Sizing | 5 | 2 | 3 | 5 | Harry challenges Paul by asking how he responds to being called a 'spreadsheet investor'. Paul wears the label proudly, framing quantitative rigor as a defense against subjective Silicon Valley biases. | |
| Post-Seed Valuation Dynamics and Outcomes | 4 | 5 | 4 | 5 | Harry suggests second seed rounds imply founders failed to hit initial milestones. Paul rejects the premise, reframing post-seed as building rounds for growing companies needing extra runway before supersized Series A rounds. | |
| Contrarian Investing vs. Herd Mentality in Silicon Valley | 2 | 3 | 3 | 1 | Harry prompts Paul on herd mentality. Paul critiques VCs for funding tech disruption while remaining blind to structural disruption in their own industry. | |
| Balancing Contrarian Strategy with Standard Fund Structure | 6 | 3 | 3 | 6 | Harry asks whether adopting a traditional LP fund structure is a paradox for a contrarian strategy. Paul acknowledges the challenge, explaining the regulatory constraints and LP resistance they faced. | |
| Critique of VC Models and LP Decision-Making | 3 | 4 | 4 | 1 | Harry asks what needs fixing in VC and LP communities. Paul offers a sharp critique of LPs staying in legacy funds out of fear of missing another home run like Accel's Facebook fund. | |
| Quickfire: Recommended Reading, Industry Leaders, and E-Commerce | 2 | 2 | 1 | 1 | In the quickfire section, Harry asks about reading, Josh Koppelman, and contrarian sectors. Paul shares how Bullpen backed an e-commerce deal right before major acquisitions validated the sector. | |
| Quickfire: Influential Writers and Lessons from Bill Campbell | 2 | 2 | 1 | 1 | Harry asks about mentors and coaching lessons. Paul recounts working with Bill Campbell, distinguishing between public platitudes and private 1-on-1 coaching accountability. | |
| Highlighting Cleanify and Interview Conclusion | 1 | 1 | 0 | 0 | Paul highlights their public investment in Cleanify as an example of finding metrics-driven winners in out-of-favor categories, ending on warm pleasantries. |
Statements from this episode (22)
Incompatible seed and late-stage VC models create a startup funding gap
“These portfolio constructions are incompatible. If you're an investor, you're going to end up having a lot of companies that need a little bit more money to hit the milestone. And if you're an entrepreneur, what happens if you raise just a little bit too littl…”
Micro VC funds grew from 25 in 2009 to 350 in 2016
“And at this time, this is Christmas of oh nine. There's only 25 micro funds in Christmas of oh nine. By the way, there's now 350 or so Seven years later.”
Late-stage VC funds shrank from 900 in 2000 to 90 by 2016
“And guess what? The Series A and later funds, they were consolidating through this period. You know, they had gone from 900 funds back in the bubble, 99, 2000 down to 90. So they had taken a full zero off. So you got one group going from 25 funds to three 25. …”
The largest venture outcomes require pivots and extra discovery time
“And so the more we looked, the more we found that the biggest outcomes of the vintage were companies that had either pivoted once or on their second or third business model, or took a little bit more Time and that learning and discovery phrase to use Mike Mapl…”
18 to 24 months is optimal startup runway; 36 breeds complacency
“And so I think 24 months is about the most I'd ever advise a startup company taking in an early stage. I think 36 is too much. But you know what? 12 is probably too little now, given that the depths of the crunch is as bad as it is.”
Founders are raising rolling seed tranches with increasing valuation caps
“And another thing that the smart entrepreneurs are doing is some of them are figuring out that they can do it a little bit at a time. I get my first six months on a cap note, and I get my next six months on another note, and I get my next six months on another…”
Bullpen Capital rarely backs startups burning over $200k net monthly
“We've done very few deals with burn rates over a 200 net as the result of the math that I just outlined.”
Bullpen Capital ignores founder pedigree and screens purely on metrics
“We ignore a lot of that stuff at the front of the screen and just look at the numbers. And what it allows us to do is it allows us to spot a lot of things other people are just missing. Categories, founding teams, and geographies that nobody's paying attention…”
VCs relying on gut instinct miss breakout companies like FanDuel
“If you're not looking at the spreadsheet and only looking at kind of these softer, subjective, gut-oriented factors, you're going to miss FanDuel. You're going to miss Namely. You're going to miss Ipsy. You're going to miss some of the absolute best performing…”
Bullpen Capital averages a 20% valuation step-up over prior seed rounds
“We're now 54 deals in across three funds, and on average, the valuation we pay is about 20% higher than the post money of the round in front of us. This is a very interesting statistic, and by the way, let me give you the variance. Our rounds are between flat …”
Bullpen Capital never offers six-month bridge loans to portfolio companies
“Bullpen never does bridges. If you need a bridge for six more months, I'm not your fund.”
Seed investors categorically refuse internal bridge funding for portfolio companies
“And it turns out many seed investors, if you ask them, if they come on your show and say, hey, seed investor, do you inside bridge your companies? Almost every one of them is going to tell you categorically, no, that's something we don't do.”
Venture capitalists fail to recognize disruption within their own industry
“It is amazing that for a group of people that fund disruption to be so oblivious to disruption happening to their own business, it is It has been fascinating to me to see people who fund disruption, not understand that an iceberg hit this business over the las…”
Targeting older incubator cohorts yields superior venture deal flow
“What if we said, let's go look at not what the cool kids are in YC's graduating class, but let's go look at those companies that have great metrics from three classes ago that nobody's paying attention to. You know, we sat down with some of the incubators, for…”
Venture fund mechanics leave very little room for structural innovation
“It's a fair question, and I wish I had a better answer, but once you get into the mechanics of how a venture fund works in terms of the way limited partners give you money, the way that you deal with taxes, etc., it is very difficult to innovate at all on the …”
Pitching non-traditional VC strategies to LPs is extremely difficult
“When you do something different, especially for the limited partner community, it is very difficult to get that funded because they're just used to buying IBM.”
Fewer than 10% of new VC funds have unique strategies
“I would say no more than 25 of them have a truly different strategy other than I'm better in this category. I'm better in this geography than these other people. And so it's crazy to me that less than 10% of all of the newly created funds have a different stra…”
Accel's returns were not top-tier prior to its Facebook investment
“Excel's returns prior to the Facebook fund weren't the best in the industry, and so some analyst types in the LP community were like, well, you know, should I stay in Excel or not?”
Fear of missing outliers traps LP capital in underperforming legacy funds
“This has now trained a generation of LPs to be scared to death to cut off funds that aren't performing well, because they could be just around the corner from Facebook. And as a result, a lot of that money that should be going to new and innovative funds gets …”
Josh Koppelman's seed model was venture's most innovative move in 60 years
“Josh truly innovated, and his For lack of a better word, early stage option buying model. I don't know exactly the right phrase to use it, but to basically say, I'm going to let these companies fail fast and write small checks to them. It was perhaps the singl…”
Target sectors that were popular two years ago but are now ignored
“But the way I find my new favorite one is what was cool two years ago that's out of favor now, that's what I'm going to be looking at.”
Public CEO coach interviews bear no similarity to private guidance
“It is the difference between the public version of the CEO coach, which is what you see in a little taped interview and the private version of the person giving you the one-on-one guidance. There's no way to explain what the difference is other than to say the…”