Nov 11, 2019 · 44m · 20vc
20VC: Firstmark's Rick Heitzmann on The Rise of Pre-Emptive Rounds, His Biggest Learnings From The Pinterest Board, 2 Things VCs Can Do To Prepare Their Companies For The Downturn and Why Now Is A Good Time to Be Contrarian and Invest In Consumer
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In this episode of The 20 Minute VC, host Harry Stebbings interviews Rick Heitzmannn, founder and partner at FirstMark Capital, about venture capital evolution, downturn preparedness, effective board governance, and early-stage investment strategies. Heitzmann shares key insights from leading FirstMark's seed investment in Pinterest, navigating macro market cycles, and supporting founders through strategic partnership.
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 32.3% of the talking time here. How this is scored →
Harry as informed peer 4.6 Guest teaching 3.8 Guest disagreement 1.6 Harry pushing back 2.6
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 25:04 Contrarian take on consumer tech
Rick directly rejects the narrative that consumer tech is in a bubble, framing current market pessimism as an optimal contrarian buying opportunity.
Hardest push from Harry ▶ 28:52 Challenging consumer exit multiplesHarry pushes back firmly on consumer brand economics, pointing out that scaling to $50-100M revenue often yields disappointing 1.8x EBIT exit multiples that fail venture models.
Biggest teaching moment ▶ 15:59 Empirical analysis of price overpaymentRick educates Harry using FirstMark's 12-year empirical internal audit, showing that while 20-30% price mistakes don't affect fund outcomes, 100% overpayment cuts available fund shots on goal in half.
Harry holds his own ▶ 7:40 Questioning unit economics dogmaHarry demonstrates strong market expertise by challenging the standard podcast consensus on unit economics, citing Uber and Instacart as examples of pouring fuel on the fire early.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Rick Heitzmann's Path to Venture Capital and Entrepreneurial Empathy | 3 | 2 | 1 | 1 | Harry opens with warm praise and asks structured questions informed by conversations with Rick's partners. Rick outlines his transition from distressed buyouts to VC and explains how being an operator built his founder empathy. | |
| Managing Market Cycles, Growth Risk, and Pre-Emptive Funding Rounds | 5 | 4 | 2 | 4 | Harry challenges standard advice on unit economics by bringing up Uber and Instacart as counterexamples. Rick explains how cheap cost of capital allows tech giants to buy ahead of the curve and mitigate financing risk. | |
| The Formalization of VC and Asset Class Capital Oversupply | 5 | 3 | 2 | 3 | Harry quotes Bill Gurley on capital oversupply and asks if VC is losing its craft nature. Rick expands the analysis by noting that oversupply is occurring across all asset classes due to low interest rates. | |
| Downturn Preparedness, Portfolio Construction, and Price Discipline | 6 | 5 | 2 | 3 | Harry presses on reserve strategies and price sensitivity in competitive markets. Rick educates Harry using FirstMark's historical data, demonstrating that a 20-30% price premium has minimal impact, whereas 50-100% overpayment cuts portfolio shots on goal in half. | |
| Personal Growth as an Investor, Board Room Mastery, and Psychological Safety | 5 | 4 | 1 | 2 | Harry introduces his partner Fred's concept of board room safety to discuss governance. Rick agrees and shares how his style evolved from overly micromanaging as a young VC to establishing shared problem-solving with founders. | |
| Evaluating Consumer Tech Dynamics, Customer Acquisition Costs, and Proprietary Infrastruct | 6 | 5 | 3 | 6 | Harry challenges Rick on consumer tech by raising concerns about customer acquisition costs and poor exit multiples. Rick counters with a contrarian view, arguing that consumer brands with proprietary backend infrastructure bypass front-end CAC wars. | |
| Early Stage Storytelling: The Seed Investment in Pinterest and Board Efficiency | 4 | 4 | 1 | 1 | Harry presents high founder reference scores for Rick and asks about the early days of Pinterest. Rick explains how Pinterest raised its seed round during the 2009 trough and describes Ben Silbermann's highly structured board memo process. | |
| Quickfire Round: Books, Board Formats, Decision Making, and New York Tech | 3 | 3 | 1 | 1 | Harry conducts a fast-paced quickfire round covering board formats, firm decision-making, and firm succession. Rick lays out his actionable '3 Ps' board format (People, Product, Performance) and discusses generational transition. |
Statements from this episode (17)
Board decisions about headcount and expense cuts demand deep founder empathy
“Well, I think there's probably two things in that you don't really understand. And I was not a operator before when I was first in BC and then became an entrepreneur that you want, you understand that you have to have a deep empathy for entrepreneurs, right? W…”
Cheap, unlimited capital allowed Uber and Lyft to take bigger risks
“So Uber and Lyft basically had an infinite financing pool, and they had a very cheap cost of capital. Therefore, they were able to experiment more and push themselves more out on the risk curve.”
VCs must proactively issue term sheets instead of waiting for fundraises
“So you can't reactively wait for someone to raise their hand and say they're raising. You have to proactively be focused on the best companies and the best entrepreneurs, and basically proactively kick off a financing process by putting out a term sheet or bei…”
Venture capital has transitioned from an artisan business to buyout-style structures
“It's gone from being an artisan business on the whole to being a structured business that looks more like a buyout group.”
Venture capital will not lose its artisanal, craftsman approach
“I don't think we're going to lose it because there's folks like you or I who really treasure that, and they really view working with an entrepreneur as a partnership and not being, especially at the earliest stages, solely driven by quantitative and being data…”
Capital oversupply is depressing returns across all asset classes
“So as you're looking at a decade of a bull market, if you're looking at historically low interest rates across the board, and therefore a flight from fixed income, everything else is basically overcapitalized, and it's really depressing returns across all asse…”
Overpaying 20-30% on seed valuations has minimal impact on fund returns
“If we're wrong by 20 or 30% on price in a seed in a series A company, it doesn't matter that much. If we're off by 50% on price, it does matter. And a hundred percent of price matters more.”
VC reserve capital should target winners rather than downside protection
“Although you want to reserve some for downside protection, those dollars aren't really as valuable as opposed to making sure that your true winners, you're able to put dollars behind.”
FirstMark re-evaluates portfolio board time allocation bi-annually
“So we go through, and my partners and I think about on a biannual basis, where are you spending your time on boards, and how do you prioritize your boards, and how do you prioritize the companies in the portfolio, and that's not a purely quantitative exercise.”
Board members dilute their influence by talking too much during meetings
“I think what I was able to learn from them is talk less. So you might have an opinion on a lot of things, or, you know, maybe even if you're younger, an opinion on most things, but you're diluting your own voice by talking so much or opining on so much.”
Negative sentiment makes now a great time to invest in consumer tech
“I don't think so. I think that I would say enough people are down on consumer now. It's a good time to be contrarian on consumer.”
Snap and Pinterest broke Google and Facebook's acquisition duopoly
“I think Snap and Pinterest have kind of broken through that duopoly, and therefore there's some heterogeneous ways to acquire customers, but not as many as you'd hope.”
Hubble holds online private-label contact lens exclusivity in most markets
“For example, Hubble has a proprietary back end. They have a exclusive ability to sell Private label contact lenses on the internet in most countries. And by being able to do that, you're not competing with Harry and Rick's contact lens company. You're not comp…”
FirstMark Capital led the seed round for Pinterest
“We were excited to be the lead investor in the seed round for Pinterest.”
Pinterest's early seed extension round went unfilled and open to anyone
“Pinterest actually had a Seed extension round that wasn't even completely filled out. So, you know, there was a round very early on at Pinterest where anybody could have invested.”