The Exchanges

Q So for you and CircleUp, how are institutional investors getting into this sector, and is there anything else you'd like to see in terms of them entering the market?

A You know, that's a great question. So we're seeing, um, a explosion of Institutional investors on the platform in 2012 when we first started the average check on circle up was 12,000 dollars and it was all from individual investors accredited investors in 2015 the average individual check was over a 100,000 dollars into a single deal on circle up and half the capital comes from institutional investors what you've seen over the course of those those three years is Uh, a path that looks very similar to lending clubs path and there's first three or four years where they started with individuals loaning money to other individuals and then move to family offices, then small funds and larger funds, et cetera. And we're seeing a very similar path, which by the way, is why some of the largest VC firms that backed lending club are in circle up and their COO is on our board, right? They, they see a very similar path. They view us as the equity equivalent of, of lending club. You know, but I, I think as we look forward, um, we get even more excited about that. So in our series C a few months ago that we raised and announced it in, in November, some of the, you know, best marketplace and fintech investors in the world invested, but we also had the ex CEOs or presidents of Goldman Sachs, Thompson Endowment, Capital One, and others invest, and they all invested with the theses that goes back…

AI assessment note: “half the capital comes from institutional investors what you've seen over the course of those”

Q couldn't agree with you more there in terms of certain cases of kind of AUM hungry VCs, but before we kind of discuss maybe some of the solutions in more depth, I'm interested in terms of accountability. Is this solely the fault of the AUM hungry managers, or does one blame the LPs and the LP mechanism for allowing this behavior to occur and really supporting it with their dollars?

A Perhaps. I mean, it definitely takes two to tango here. In terms of the LPs, there are some who have the courage and capacity to try something new. Those are the LPs that will thrive. Also, an old expression in investing from many decades ago that said, I don't get fired for investing into IBM. The Right? So we can both think of some firms that even recently are kind of blowing up, haven't seen any innovation, returns have gone down for them year after year, but LPs are scared that if they take a chance, they might get fired. Playing it safe means sometimes going with old brands, and so from that perspective, I think that the LPs are partly to blame.

AI assessment note: “it definitely takes two to tango... I think that the LPs are partly to blame.”

Q it's applied to consumers. So I do want to touch on consumer, because as you know from listening to the show, Ryan, I'm a complete nerd when it comes to all things brand and DNVBs and consumer more broadly. With that in mind, though, we've seen this explosion of VC investment into the space. Starting at the top, I have to ask, are we in a consumer bubble today, Ryan?

A Yeah, so what I have seen that worries me a bit is VCs that don't have a background in consumer trying to get into consumer and not having the discipline to diligence those companies as consumer businesses. What I'm seeing a lot of is tech VC firms putting a ton of money into companies in the Without raising a lot of money, but we'll also have smaller exits, candidly, than a typical tech VC firm, and that's what's key. So we see a VC firm that candidly doesn't know what they're doing give a mayonnaise company a hundred million dollars. That terrifies me. That mayonnaise company shouldn't raise a hundred million dollars. Candidly, they shouldn't raise 10. These companies in the consumer space, they tend to get to profitability by raising four to eight million dollars. Not 50 to eighty million dollars, as they do in the tech space. Consumer companies are more capital efficient, on average, than tech companies are. But the problem is, when you have a tech investor that wants to write really big checks, often because they work for larger firms, that's because that's what they're The other thing that happens is they put a huge valuation on it. We saw that with Honest Company. Where Honest Company is a good company, it just got stuck in a post-money trap. It got passed over for acquisition, and now it was in a little bit of recapitalization mode with Catterton because it raised too m…

AI assessment note: “now it was in a little bit of recapitalization mode with Catterton because it raised too much”

Q be an interesting response. But I do want to dive on one more topic before we go into the quickfire round, Ryan. So I want to start on some of the lessons learned from the Circle Up journey and touch on maybe some of the mistakes that cause those learnings. If we begin on fundraising, talk to me. What were some of the early fundraising mistakes and lessons for you?

A The fundraising lessons learned? Yeah, I've learned a lot, to be frank. I mean, I've learned about how necessary it is to have a CEO make an intro to you. I've learned about How important it is to make sure that your story is tight when you're talking to an investor. I think though that probably the most important thing I've learned in terms of fundraising is to make sure that investors are aligned with your vision, your mission, and your values. By and large, I think we've done a really good job of that. We have made mistakes before though, and those mistakes are really, really painful when they happen. I think there's a lot of fundraising and Advice out there around the decks, et cetera, but the most important thing I've learned is just getting alignment over that vision, mission, and values.

AI assessment note: “the most important thing I've learned is just getting alignment over that vision”

Q be an interesting response. But I do want to dive on one more topic before we go into the quickfire round, Ryan. So I want to start on some of the lessons learned from the Circle Up journey and touch on maybe some of the mistakes that cause those learnings. If we begin on fundraising, talk to me. What were some of the early fundraising mistakes and lessons for you?

A The fundraising lessons learned? Yeah, I've learned a lot, to be frank. I mean, I've learned about how necessary it is to have a CEO make an intro to you. I've learned about How important it is to make sure that your story is tight when you're talking to an investor. I think though that probably the most important thing I've learned in terms of fundraising is to make sure that investors are aligned with your vision, your mission, and your values. By and large, I think we've done a really good job of that. We have made mistakes before though, and those mistakes are really, really painful when they happen. I think there's a lot of fundraising and Advice out there around the decks, et cetera, but the most important thing I've learned is just getting alignment over that vision, mission, and values.

AI assessment note: “the most important thing I've learned is just getting alignment over that vision”

Q I love the kind of focus on framework there, and I haven't heard that kind of quite specific Explicitly stated before, but I would love to ask maybe when the framework doesn't work out, and there's questions around a potential individual, how do you determine when a stretch VP is really a stretch too far?

A Well, it's an interesting question. I got advice, and I'm sure probably everyone has, that when you're thinking about whether or not to let someone go, to fire someone, the decision's already made, and that point is absolutely true. When you're having that consideration in your head, it has gone far enough, and you need to just make the decision. So there's different symbols of that. Certainly someone who breaks our values, you know, the values that we have here at Circle Up, and we have them clearly laid out actually literally on our wall. That's a non-starter. Then it comes down to impact. Impact in a way that is consistent with our mission and vision. And so we work very clearly to define objective key results for everyone on the team so that they know what are we asking them to contribute to. If they're contributing it in a way that is consistent with our values, with a mission, a vision, then they're doing a great job. If they're not, then we need to have a conversation about whether or not it can improve, and if it can't, we need to part ways. But one of the benefits of using these frameworks is that it helps to take out personal bias. It helps to take out not all, but a lot of the ambiguity that typically comes with those performance decisions, both in hiring and in letting someone go.

AI assessment note: “When you're having that consideration in your head, it has gone far enough”