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Jon Bradshaw & Peter Harris

In today's episode Jon and Peter talk about the effect of VC Collective on VC Landscape What is a VC collective?Examples:Curql Collective - Met Nick Evens at Fintech MeetUp$90 million in capital deployedReach over 100 Credit Unions, Credit Union Service Organizations, and League limited partnersBlack Dragon Capital with Benson Porter & Louis Hernandez Jr.

Decoding VC Collective: Impact on VC Landscape

In today’s episode Jon and Peter talk about the effect of VC Collective on VC Landscape

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Episode Transcript

Jon: So Jon Bradshaw founder for those that are new. Basically, Peter takes the VC side of this angle and I take the founders side. So kind of like the pro VC’s somewhat anti VC, but I'm not anti VC.
Peter: But I'm totally anti founder so just put that out there all.
Jon: All VC’s are aren't anti founder right?
Peter: No way. We're so founder friendly.
Jon: Very foul That's all in the podcast. Okay. So this last week I was at the FinTech Meetup. FinTech Meetup Las Vegas was basically the fact the people who created Money 2020, which is one of the largest fintech conferences, decided to create another fintech conference. And it was amazing. But one of the things that came out of this should have gone.
Jon: You should have. Well, I think it was. I don't think.
Peter: You didn't invite me so well, I.
Jon: Didn't know I was on the fence if I was going to go or not. Yeah, we got a press pass.
Peter: One. One.
Jon: Why you didn't ask? I can. I can apply for multiple press passes.
Peter: Let's do it. Press pass.
Jon: And then the question was, is how good would it be? And I think next year it's gonna be a lot bigger. Yeah. And I think what made this one unique is it's an emerging podcast. Our our emerging fintech conference from people who know what they're doing, who have got the connections. Yep. And I think it'll be a lot harder the next one to hangout with like the the Who is the VP of development at Chase Bank.
Peter: Yeah.
Jon: Or Wells Fargo or.
Peter: The Probably harder to find them. Yeah.
Jon: Hard much harder to find. Although if we use we have access to the press room or the meeting room.
Peter: There you go.
Jon: No speakers lounge. If we can get into the speakers lounge with our Media pass, that should be a determination whether we go or not.
Peter: But what we should really do is set up a an interview basis there. They have.
Jon: Them there.
Peter: They would love it.
Jon: I just.
Peter: Know. But like, you know, our on the.
Peter: Floor, we just feel like we're podcasting.
Peter: The whole event.
Jon: Yeah. I mean, so some of them do it. My thing is I just want to be able to run, talk to as many people so I could get a feel of what the spaces and not be stuck to.
Peter: But you know, our listeners don't care about this.
Peter: Let's talk about what.
Jon: We talk about. So we're going to name a term a VC collective and how it may or may not be changed in the space. One of the things that's happening, at least in the fintech space. So this again, is a very fintech oriented podcast, but we could extrapolate to larger is that basically you've got a bunch of these credit unions who don't have the same power as a Chase or Wells Fargo that might have their own venture ARM.
Jon: Yep. So they are coming together and creating like a VC collective and they have their own collective VC groups that they're, they're running. And some of the things that you're seeing is like, was it money, desktop or Amex accounts? Either rebranded years ago, they used to go to innovate and they would win every year. And the individual I was talking to said, you know, the whole innovate the reason many sorry Amex quit winning largely was because of this shift where it was the people getting the rewards were the ones that were accepted into this like VC collective group.
Jon: And so then their members were voting for their own deals. And no matter how good you were, they wanted to vote for their own rather than an outsider. And so the whole kind of, you know, a la the a huge, you know, a huge thing changed at that moment. It became harder to win unless you went through like a bank venture accelerator.
Peter: How much it was like winning an award at an event matter.
Jon: I don't know. I know some people. I mean, it's.
Peter: Kind of interesting data point, but.
Jon: I think it's you have to you have to be the darling, right? The Darlings win for the most part, unless you crumble.
Peter: But does that mean you.
Peter: Ultimately build a successful business or not?
Jon: That's a whole nother topic. But anyways, let's give examples. So one of the guys I met was was Nick Evans. He runs what's called Circle Collective. So you ask you. Well, they've got you know, it's a new fund of a bunch of there's 100 credit unions. They've got what they call a C USO credit Union service organization. So they have a large group.
Jon: Black Dragon Capital is another one that's coming on the scene. They already have 80 million of of assets under management. Their founders have been like credit union Hall of Fame of the Year. And you're right, you're basically seems like an LPI fund or a fund made up of LPs from credit unions. And so the question is, is you know Peter, as if because out of all the banks in Utah, you've probably have done more fintech deals and other books.
Jon: Do you see that from a VC perspective? Is it harder for you to get in in deals like if I'm if I'm raising, would I rather raise from circle one of these collectives? Would I rather raise from Chase Bank or would I rather go to Peter Harris, who has perhaps no connections inside.
Peter: Except for like most of my LPs are large banks.
Jon: Okay, well then.
Peter: Okay.
Jon: Does that make.
Peter: You like that? But but to your point, does it make it.
Peter: Harder for a generalist fund?
Jon: General fund? Yeah.
Peter: To compete, in those deals. Yeah. I mean.
Peter: I think Yeah, Yeah, I think so. does it make me, like, super nervous? No.
Peter: Because especially in this environment.
Peter: Where capital is more scarce, I think the reality is, is that.
Peter: Look, if you're an entrepreneur and you're putting down, you're putting together around the dynamics, kind of sorted.
Peter: Out like this.
Peter: You have your lead.
Peter: Investor.
Peter: And my impression is, is.
Peter: That these venture collectives are not lead investors, right? They're not writing large checks. I mean, these fund sizes ride of like 90, $80 million.
Peter: You're not going to be writing.
Peter: A 5 to $10 million lead check, right? So your lead investors are going to come in and they're going like, hey, series A, I need 25% ownership of the company. I'm going to write, you know, a 5 to $10 million check to buy that. Right.
Peter: And then the company has to look at things and say, you know, do we really need.
Peter: A $15 million check in our series? And then they're going to go and, you know, they're going to go talk to a bunch of people. And ideally what they're going to say is.
Peter: Hey, I want as many like good value.
Peter: Add partners, good partners that provide value.
Peter: Around the table. And yeah, we'll take you know, we've got 5 million and.
Peter: Excess capacity for.
Peter: This round or 5 to 7 million. We'll give a million over to the collective group that with the credit unions will give a million to Wells Fargo. We'll give a million to University growth fund. Right. And we'll pull this syndicate together. And that's how things.
Peter: Ultimately shake out the.
Peter: Part that gets competitive is where the lead investor.
Peter: Is. Like here, I need to own 25.
Peter: Percent and the company only needs.
Peter: You know, $5 million, right? Or $10 million or whatever. And the fund, the lead investor just takes the whole thing. Okay? Right. That's where it gets tough.
Jon: But in that case, I think my argument would be.
Peter: And maybe the entrepreneur says, Hey, that's fine, but I really want the.
Peter: Collective group.
Peter: In because they.
Peter: Represent all these credit unions and so they're able to squeeze into the deal because they probably value out there.
Jon: But so as a VC, you don't feel like this is competitive to you very much.
Peter: I mean, like, I just don't think maybe I should.
Peter: But I don't view other venture funds as being horribly.
Jon: Competitive.
Peter: Like, yeah, it's like Venture is.
Peter: A very like, cooperative space.
Peter: Where you're like kind of collaborating, cooperating, but you're also.
Peter: Kind of like friendly competitors.
Peter: But like for us as a co investor, the reality.
Peter: Is, is that if an entrepreneur wants you in the deal, it's very rare that room can't be made. And so I just look at things in terms of like.
Peter: Hey.
Peter: You know, let's grow the pie. Let's not, you know, divvy it up right?
Jon: So you would, you would let circle collective into in your deals, let's just say for sure and you were talking about 5%.
Peter: I've got.
Peter: A lot of our deal flow comes from relationships I have with groups like collective.
Jon: Inc.
Peter: Or like Circle, right? And we trade deals. I'm like, Hey, here's a fintech. So I'm looking at you want to you want an intro to the CEO, right? Because I guess vice versa.
Jon: I think my strategy B is if I was trying to raise, I would look at does having an investor actually open doors, which I assume it might, but I would also want to mix it my portfolio of someone who could help me get the right exit. Yeah, and I think the next big thing is.
Peter: Giving does giving circle a million or.
Peter: Half a million or 10 million like generate a different type of outcome in terms of value add?
Jon: How about this?
Peter: If probably not.
Jon: If I came to it's that I've raised a million from Circle. Would that affect your potential? The decision to review my deal or not?
Peter: Yeah, I would probably help, right, Because I'm, I'm thinking, well, there's some people with like significant industry experience and connections that are saying, this is interesting. Okay. And they have some more insight into that than I might. Right? So yeah, I'd I'd be I'd be more curious to learn more. Okay then. Without it for sure.
Jon: How do you look at maybe want one thought here is I think especially in the fintech space, it's so much harder to get your I mean, I assume estimates significantly harder to get traction is formers revenue, which means you'd have to raise more to get off the ground. Is that true or false?
Peter: Is generally true. But the reason.
Peter: It's true is because fintech is a highly regulated industry. And it I mean, you have to build like a full fledged product right.
Jon: Before you can sell it, before you can really say, I saw an MVP.
Peter: Right?
Jon: So how does market validation or deals that you may or may not consider fall in that ground? Because typically you don't invest unless it has revenue. So does that mean you just go later into fintech or do you look for different signals?
Peter: So generally, yes, we go later into fintech.
Jon: Okay.
Peter: Not always. Sometimes, you know, we are.
Peter: An investor in a company called Counterparty is a very early stage fintech deal. We did. But look, we wrote a relatively small check into that deal, too. So, you know, for us it was like, hey, this is a really interesting concept with some really incredible founders, tackling like a massive industry that no one is really touched. maybe we put like a very small bet here, but I wouldn't say it's are like typical early stage investments, largely because when we invested they didn't really have a ton of traction at that point.
Peter: Today, you know, they've grown quite a bit and they're doing really well.
Peter: But that was a bit.
Peter: More of an outlier. Most of the fintech related deals that we've done, fintech and insure tech, the companies are already into revenue and usually quite substantially. But you know, look, we're also a growth fund. So a little different. The perspective.
Jon: Because you're growth frond revenue is fairly it's almost.
Peter: Requirement almost yeah.
Jon: What percentage of deals don't have revenue that you're going to.
Peter: In terms of number of deals.
Peter: Or dollars deployed.
Jon: Just I don't know I don't know what's.
Peter: Cause like I think.
Peter: Number of deals is higher but dollars deployed is lower right.
Peter: I might do try to think through I mean we've probably done.
Peter: Four deals where they didn't have revenue but it represents like our most amenities like a de minimis amount of our of our capital.
Peter: Yeah. And those were all unique.
Peter: Situations, right?
Peter: This is we've talked about this.
Peter: Before, like every VC kind of lies about their strategy. They always make exceptions, right? Like,
Peter: We only do like Series A.
Peter: Enterprise SAS. And then you're like, But what about that like consumer products deal you did randomly? Now like, well, you know.
Peter: Yeah. I mean, so.
Peter: Those would represent some of the exceptions. Definitely not the rule for us.
Jon: Okay. Do you see other industries having kind of like again, no VC collective isn't the term I guess the actual term would just be LP's made up of industry leaders?
Peter: Yeah, I mean, that's.
Peter: Pretty common, especially if you have a more targeted like niche play where you're like, we are a fintech fund or we are a real estate fund or we.
Peter: Are a.
Peter: You know, MarTech fund or whatever. and then they'll have a bunch of, individuals or companies that are investors in their fund, you know, like REIT ventures here in Utah is a good example of that. Most of their LPs, if not all of their LPs, are large property owners. And so part of their value add pitch to entrepreneurs is like, Hey, if you're a prop tech deal, come on, let us.
Peter: Invest and we.
Peter: Will turn on massive amounts of revenue for you overnight by just connecting you to our, our peers and by the way, that also becomes like a really interesting way to do due diligence because if you're LP's are like, yeah, I want, I want to buy this product, right? Then you know, there's something there versus if that I guess I don't know, right?
Peter: Then you're like, Yeah, probably not a good deal. And so yeah, there are funds that do that in fintech and real estate and all kinds of stuff.
Jon: Yeah, what is the actual term? Because it's not b c collectives.

Peter: I don't know. Like.
Jon: I think it's a term that started to pop up. I know Circle call themselves the collective. It just, it was just, it's a trend that seems to be be more prevalent in the banking space or the fintech space as of recently.
Peter: I don't I don't think it's like a bad name. I think it's just a name. Okay. Right.
Peter: And I don't know how they're.
Peter: Structured, right? Are they structured where every single credit union is a limited partner or are they structured where, every single credit union is part of the AP Right.
Jon: Peter This might be the one chance in my life I've always wanted to invent a term. If you and I kind of enforce this with the size of our audience, we could make a VC collective is like a new term that shows up in Moody.
Peter: All right, let's do it.
Peter: So if you are a venture fund that is backed by.
Peter: Predominantly or entirely of industry participants of a specific industry, then you would be a VC collective.
Jon: They should start teaching this at Harvard. I'm serious. And then life goal and like, have you ever have where isn't.
Peter: This just isn't this just like.
Peter: A venture fund backed by strategics?
Jon: Well, yeah. Let's create a better a better term, though.
Peter: A strategic collective.
Jon: Strategic vision.
Peter: Now. But you.
Peter: Need to like.
Jon: It rolls off your tongue. If you see collectives, let's buy VC like this dot com.
Peter: Another domain for for Johns portfolio perfect.
Jon: All right. Well, that's all I had here. Anything else you wanted to add now? All right, go to venture capital firm. All of our links are there. YouTube, Spotify, Apple, Google Podcasts, and we will see you on the next episode. We're trying to right now to publish every about twice a week, so about every Tuesday and Thursday. But sometimes we just get really busy.
Jon: Peter's funding the deal. I work with clients. Sometimes life gets busy.
Peter: Unfortunately, but I can subscribe. We'll see you next time.
Jon: I thanks, you guys.