The Exchanges

Q So what was the company other than a cash burning machine?

A It was a company called US Search. It was originally one 800 US Search, which was finding lost family members and loved ones via infomercials on TV for consumers. You lost track of your son or your daughter, your old war buddy, and they play these infomercials in the middle of the night and say, hey, you should really be better connected. You call us, pay us a hundred bucks, and we'll find your lost family members and loved ones. Generally by using offline capabilities. And then the internet came and someone said, hey, if you call it one 800 us search.com, your company worth 20 times more. So they did that. And Lehman Brothers and Bear Stearns took them public. They raised about seventy million dollars and they burned through it in about nine months. Everything was a bloated semblance of that era where none of the seven members of senior management actually lived in Los Angeles where the company was based. Five of the seven didn't even live in the same state. This is before remote work. They rarely saw each other, and the company was just burning capital, doing everything from big deals with AOL, where they were paying five dollars for a dollar of revenue, to just having a bloated structure. This was not an easy opportunity, but a great opportunity for someone who was willing to go in and roll up their sleeves.

AI assessment note: “It was a company called US Search. It was originally one 800 US Search”

Q So with that as a concept, where did the pivot come into play?

A So it was going to business school, mid nineties. So I graduated from business school in 1999. During that time, it was the go-go internet age. So from the time I thought about applying to business school, I guess in 96, when I started to do things like buy things on Amazon or access sports scores using Prodigy or play rotisserie baseball or football without having to mail in the things, I realized that this is very cool. And if this could be really great, But no one would hire me with absolutely no technology background and no growth investing background and very little even idea of what a venture capitalist did. But going back to business school, let me meet people who did that, gave me time to understand that, and also be part of an industry that was growing so quickly, they had to let in more outsiders. So they had to open their spigot to people who were not engineers, didn't go to Stanford, and were people who were going to work hard and maybe had some background in investing. And financial services, but really wanted to make their way. So that provided a little bit of a crack in the door, which I was able to slide into.

AI assessment note: “So it was going to business school, mid nineties.”

Q So you had this idea of getting into a growth area from your original background restructuring, then you find yourself restructuring again, and doing a bunch of acquisitions. How did you get from there to what became FirstMark?

A So what I started to realize at the time was this thing called the internet, which a lot of people had left for dead in a one to O three definitely had some legs. It wasn't perfect, but I was able to say my own business that a lot of the promise of the internet was going to work eventually. A lot of great companies were going to be built and therefore it wasn't the end of an era in a one to three. It was really just the beginning. And I deeply believed in it and figured out, all right, so what are we going to do to take advantage of that? I thought, as still a relatively young guy in a time where it was really hard to raise capital, how do we go about building a business? So I went back to Pequod Ventures, and I had some partners from there who actually had invested in First Advantage and had some great returns from that era and from that investment, and we thought about what would a venture capital firm look like at the time, and a lot of the firms were either older that had a lot of success in the late nineties and were going through generational transitions, Obviously, some of that rhymes with the current state, 20 years later. Some of them had expanded too quickly, maybe entered markets that weren't either that great, like clean tech at the time, or areas that were not growing as quickly, like telecom equipment and semiconductors. But if you start with a blank sheet of pape…

AI assessment note: “So with a couple partners from Pequot, we formed Firstmark”

Q You decided to focus on the earliest stages. There is that question of, boy, isn't the cost of doing business just higher in New York than some other places? Like, how does that all come together

A A lot of the analysis we did, especially as we're trying to recruit people, or especially working with LPs, the Bay Area, as that heated up over the last 10 years, became much more expensive than New York. So engineers, despite the challenge of Wall Street, were always at a discount to the Bay Area. The cost of living in San Francisco became much higher than New York in the last five to seven years. So you had a choice if you were coming out of college or coming out of grad school, Do you live maybe in a lower cost of living Sunnyvale, which is a young single person, isn't the greatest place to live. You can live in San Francisco, which is more expensive, probably not as fun place to live, or you could live in New York. And, and also you could go to a startup and now with places like Google and Facebook and other tech giants here, if the problem was during, call it 1015 years ago, if you moved to New York to work at one of the 15 great startups, and that startup failed. Now, do I have to go back to the Bay Area? Do I have to go back to Boston? Now, if your startup fails here, it's no different than anywhere else. Oh, I could go work at Adobe. I could go work at Google. I could go join this other startup, which has a thousand engineers here in MongoDB, or actually the guys who I just started the startup with have the opportunity to seed something else. So the ecosystem is really…

AI assessment note: “the Bay Area, as that heated up over the last 10 years, became much more expensive than New York.”

Q What's your take on some of those next generation experiences? So whether it's metaverse as a concept or augmented reality, virtual reality?

A I think it's going to happen, and the question is if it's going to happen slowly with the incumbents, or it's going to happen quickly with something new. Some companies like Rec Room have a broad base of activity, and obviously Fortnite had concerts in it, and all these things which were going to usher in the metaverse. So some of those economies worked, some of them have not worked. Axie famously worked until it stopped working. Some of that was tied to people's inherent tie-in with crypto. So they were compounding their bets by saying, hey, I'm going to have crypto, and therefore you have to get in with ETH, and then we're going to have our own coin, and then we're going to create an experience. So you're compounding your risk there in a way that a couple of those things didn't work, and therefore it became less interesting for the people inside the game. I think augmented reality is going to happen. It's happening now, even if you look at your Google map of what do you see on the street and how that works, you're going to have more and more computers on you.

AI assessment note: “I think it's going to happen, and the question is if it's going to happen”

Q Which two people have had the biggest impact on your professional life?

A One would be Ben Silverman. Besides being the founder and CEO of Pinterest and really giving me a great seat on his rocket ship, going from starting the company all the way through being a multi-billion dollar public company and being able to experience that with him was a tremendous experience, but also him being so different, being much more product focused, being much more thoughtful about business, work, family, thinking about things from a first principles perspective. And always being thoughtful and kind, but also questioning, definitely gave me appreciation of that perspective, and therefore, what can I do to integrate some of that in my own personal style? I'd probably say maybe the person that had the most impact, though, on me is my partner, Avish, and we're co-founders. We worked together for over 24 years. Ups and downs, marriages, kids, All kinds of stuff. Everything you can imagine from the roaring late nineties, all the way through where we are today in building a business, having success, having failure, having someone like that in your life. You've been through so much with that. You could be completely honest with completely transparent with, and you can have such a great time both sharing successes and then commiserating on failures. It's incredibly special to have a partner like that to go through your professional life with.

AI assessment note: “One would be Ben Silverman... the person that had the most impact, though, on me is my partner, Avish”

Q Where did you take it from there after that? You had the boom, you had the bust, and then what?

A So interestingly, you never know how life turns out. So in the middle of 2001, under two years after getting this crash course in the boom and bust cycle of venture capital, you're in the bust cycle. And you're able to say, oh, what skills do I have? I was fortunately still in my twenties. I had no family, no kids, all the flexibility in the world, and I have these skills around restructurings, and not being afraid of bad balance sheets, and not being afraid of hard conversations across multiple parties, and said, is there an opportunity to get into restructuring for these technology companies, and there's an opportunity to do it even as an operator? So that took me out to Los Angeles, where I led the turnaround of a company that had gone public, Had burned through all their money very quickly, like most companies that went public in 1999, and took, in retrospect, not a high degree of success job, but the job that you'd give to a twenty-something-year-old who, hey kid, why don't you see if you could figure it out, because there's not much downside, and I went out to figure it out, and said, here's an opportunity to get some operating experience, really build a business, really take advantage of some of the skills I had, and build new skills, And build a public company.

AI assessment note: “So that took me out to Los Angeles, where I led the turnaround”

Q When you're in the middle of all this, I'm curious how it influences Your funding of companies in later stages. You're getting involved early on. There's follow on rounds. How have you thought about that element to your portfolio construction?

A So we have both an early stage product and a growth stage product. So we have an opportunity fund, which funds companies both inside and outside the portfolio at the growth stages. And as we think about that, there's a couple of different things. A, we look at our pro rata as our option to fund. So we don't view it as an obligation and therefore There's a negative signaling around that or some obligation that we have that unfairly biases our opportunity fund. We look at it as a positive optionality for our companies as they grow and the opportunity to support them and maintain our ownership within them. So that's an awful hard dance to do because you oftentimes are not leading the round. You're often helping as a lead director construct the round with the right people at the right time and do that. And then you have to think about As a lead director, how much are you going to invest out of your own growth fund? And we try and be as democratic as possible because oftentimes a company that you've been involved with for years, that you're very close to the CEO, you're very close to the team, you're very proud of how far they've come, might not make you the best individual arbiter of how much do you invest in this growth round and what the real value is. So it's the benefit of having a partnership. Being able to say, all right, let's do the work, and let's re-underwrite this in the…

AI assessment note: “So we have an opportunity fund, which funds companies both inside and outside the portfolio”

Q How are you and your partners advising your companies to navigate that?

A That's the big question. It's been the question for two years. Around October of 21, we felt the market was way ridiculous in terms of valuations and a lot of things, and we said, this isn't going to last forever, and usually it's the worst before everything cracks, and it cracked then. In the fourth quarter of 21, we were budgeting for 22, with still a consensus in the broader market that the top three things that matter for your company in twenty-twenty-two were going to be growth, growth, and growth. And we went back in January of 22 across all of our companies and saying, the budget we did 60 days ago, we gotta throw out. That's no longer relevant in this environment. We're gonna have to change our priorities, we're gonna have to focus on path to profitability, unit economics, and capital efficiency, and despite many of our entrepreneurs never seeing a bear market, we have the benefit of having seen and operated in these bear markets before, And saying, this is not going to be a blip of a couple months or a couple quarters. This is going to be a couple years, and you need to change your business to re-manage it to these new milestones and these new growth hurdles. And that was a lot of pain. People have read about the layoffs, closing whole parts of businesses, but it was a necessary part of the process. And our best companies reacted very quickly. They did layoffs, they cu…

AI assessment note: “we're gonna have to focus on path to profitability, unit economics, and capital efficiency”

Q Why don't you take me back to the beginning for you?

A Coming out of college, I was trying to figure out what I was going to do. It seemed like the good place to go was to go to Wall Street, and that would be the fastest way to pay back my student loans, and as a kid growing up in suburban Philadelphia, New York seemed a million miles away. So I went to Wall Street, started working in investment banking, then got into distressed buyouts. In the early nineties, there was a lot of opportunity and distress buyouts and a lot of things going on. So as I did that, had success, started to really get an itch for investing. At the same time, I realized distress was oftentimes a knife fight over a shrinking pie. Well, at the same time, you were seeing an acceleration of this new thing that people were interested in called the internet. And the internet was saying, wow, I didn't realize this. Obviously, being an East Coast guy with limited exposure to Silicon Valley and tech, Hey, there is a way to invest in a growing pie and really create new and interesting things of what to do. So I thought maybe that would be a better way to invest and a way to create value and be less of a financial engineer and be more of a company builder, which took me a path to change careers, despite actually being on a pretty good trajectory to go back to business school and take advantage of this booming new internet trend.

AI assessment note: “Coming out of college, I was trying to figure out what I was going to do.”

Q When you think about The types of businesses you've invested in, you don't think of them as geographically focused. So when you say New York centric, what does that ultimately mean?

A Generally means on the enterprise side, some nexus to Newark. Oftentimes, a lot of the customers are here. So even if you look at a company like Data IQ, which does data science software, a lot of the customers are the big banks, big insurance companies that are here. So enterprise software companies have benefit from that. If you even look at a Shopify, how do you understand commerce and everything that goes around commerce? So the Shopify East Coast company, Ottawa, Canada based. But if you think about all the work we had done in commerce, we understood Why the legacy monolithic software systems from places like IBM maybe were working for Macy's, but weren't working for the latest entrepreneurs. And then if you think about New York as a center for media, for advertising, for financial technologies, for insurance, for pharma, you get a lot of talent and you get a lot of customers that are here. And then you also get a lot of capital that's here. So there's a lot of things you could pull together. We still do a lot of different things to Help stoke that ecosystem. So we run over a hundred events a year here through our platform. We have a thing called guilds, where you pull together people around interest sets that stoke our platform. We ran a demo day for the healthcare ecosystem about a month ago. And a lot of folks who are here, and whether they work for CVS, Pfizer, large h…

AI assessment note: “Generally means on the enterprise side, some nexus to Newark. Oftentimes, a lot of the customers are here.”

Q In the process of finding the person, like in the thesis, somewhere along the way, you have to get in the deal too. So how have you found coming to the table to win deals in a competitive environment?

A Back when we were starting, no one knew us. We subletted a French law firm's extra space in Midtown, so very different than maybe some of the cool offices some VCs have today. We were so non-consensus, a lot of the people were happy to take our money because it was non-competitive. A lot of people didn't understand gaming as a service. A lot of people thought that social curation wasn't an interesting category, or that these Canadian guys who were selling snowboards didn't seem to follow the IBM playbook. Where we were at the time, It was less competitive because we're looking for people who consided with our thesis. I think all of venture capital has become much more competitive now. And oftentimes we were the first institutional investor, and that could have been at the pre-seed, seed, or series A level. Now there's oftentimes a pre-seed investor, oftentimes a seed investor before we do series A, which is our natural entry point. And those seed investors and pre-seed investors also have friends who are in the market So we're constantly bumping up against people. The interesting part of this phase of the market, whereas maybe in the 2020 to 20 22 time, folks just wanted the money with the least amount of dilution. If you don't want to take a board seat, great. I don't really need it. I just want the money. I think the best entrepreneurs now are saying, hey, I not only want the…

AI assessment note: “if we're deep in a sector, We know the buyers in that sector.”

Q So you're bringing these people together, you're part of building this network, you've targeted these industries, enterprise software, consumer applications. How did you think about The investing part of it. What types of businesses you wanted to create inside those verticals?

A We're very thesis driven. We want to be able to understand what we call swim lanes better than anyone else. I have a partner, Matt Turk, who's very deep in data, machine learning, and artificial intelligence. He's had a thesis around it that he's published for 12 years. Besides being very good at Twitter, he's had a range of different things that he's done in and around that ecosystem. He has a very defined thesis of what's AI and what's not AI. Most of what people call AI we consider not AI. And how is that AI doing jobs to work? We have a partner, Adam Nelson, who does a lot of things in financial technologies. And what does it mean to be a back-end financial technology player? Matt runs DataDriven, which is the biggest community around data science, AI, machine learning in the world. Adam runs FinTechDriven, which is one of the biggest communities around FinTech. And that brings together people from startups, people from industry. So you're hopefully getting the best of those folks together And then you have a thesis, and you can go deep on that thesis, and as a small firm, you can't chase every car, so you have to be very deep in the theses that you have a lot of conviction around. And I'll give you another example, so probably now, 1314 years ago, I was a judge at the NYU Business Plan Contest. Now famous Scott Galloway was the professor there, but at the time, no one real…

AI assessment note: “We're very thesis driven. We want to be able to understand what we call swim lanes”

Q How do you go about taking something of that scale and curating it in a personalized way so people get something out of it?

A It's not necessarily concierge, but it's, hey, I'm Ted, I'm interested in these things, or I want to go to data-driven, especially in real life. Matt, who's run that for a dozen years, generally has three or four X the number of people on the wait list to actually go in the room. So how do you qualify yourself in terms of, I'm a chief data officer at this company, or I have my master's in data science from MIT, and I'm looking for a job in a startup. So as people, quote unquote, apply, there's some gates to have times in-person access. We try to be inclusive as possible. You still put it on Zoom, you still put it on YouTube. You're not trying to keep people out of the community, but hopefully there's gates so you have the best people in the room when you're limited by that.

AI assessment note: “as people, quote unquote, apply, there's some gates to have times in-person access”