This is the second installment of my series on young VC’s in New York. I’m interested to learn what processes, frameworks and mental models these new VC’s are adapting and using to evaluate early stage companies.
The goal of this series is threefold. First, understand the mental models that each young VC has developed for him- or herself. Two, learn from them. Three, showcase their ideas and insights for others to learn from.
This interview is with Mat Kaliski.
Mat appeared on my radar at one of the Founders Friday events he hosts. He is often the person interviewing the founders and isn’t afraid to ask the hard questions. He currently works at Rubicon VC as a Principal.
Let’s get started:
Jaap: Tell us a little bit about yourself and your role at Rubicon VC
Mat: Originally, I was born and raised in Poland where I spent the first ten years of life. My family immigrated to Connecticut to pursue the American dream. With the hard work and sacrifice of my parents, I was able to attend Boston College where I got my first exposure to startups and the VC ecosystem. While at Boston College, I helped to run the BC Venture Competition for about three and a half years. As a student organization, we organized initiatives on campus which would give students exposure to tech and startups. We wanted to show that tech was a great alternative to a career path at the Big 4, consulting or finance. Over the course of the academic year, we ran a year long competition that was broken down into a series of different events that would teach people what it’s like to start a company. Think elevator pitch competitions, mentorship sessions, professional services, and advisors.
My work with BCVC introduced me to the Boston startup ecosystem. Eventually this created some interesting opportunities and I joined WePay over the summer, which was founded by Bill Clerico who also started the venture competition. I moved to Palo Alto and worked in sales. WePay was 15 people at that time and I got to see what it’s like working at a small startup in a sales team (the company was recently acquired by JP Morgan). Looking to learn more about different types of companies, I did the complete opposite a year later. I joined Barclays in their fixed income research and sales department in NYC for three months.
After college, I went into investment banking with a focus on technology. For two years I worked with established companies and innovative, young startups alike. I realized I really enjoyed working with these early stage ventures. I also felt I was most effective when I was able to help multiple startups at once. This prompted me to start looking towards VC as a career path.
While still in banking, I cold emailed the partners at the micro and seed VC’s that were emerging in NYC. This is how I met Joshua at Rubicon VC. Over the next year I helped him with market research, events and sourced startups. After banking I went to travel for five months and when I got back to NYC, I joined Rubicon full time as an associate. Now I work on everything from sourcing and evaluating companies to supporting the existing portfolio. What most people don’t realize is that running a VC fund is like running a small business. There’s a lot happening behind the scenes, that’s not just writing checks to startups. I’m fortunate to work with the Rubicon team, as I get to experience what it takes to run a fund.
Jaap: What mental frameworks/models or processes do you use to evaluate an early stage company?
Mat: We operate at the late seed and series A stage and typically look for companies with around $1M in recurring revenue.
The first questions I ask when evaluating early stage companies are:
- Is this a feature or is this a company? Is this company tackling a big enough problem, whereby you can build an entire company around it? Can the team build additional products and revenue streams?
Feature companies can be great businesses and might result in an acquihire or a small acquisition but they’re hard to justify for VC funding.
2. Is this product a nice to have or a must have? How does it help increase revenue or decrease expenses? Does this product automate a lot of work? What is the frequency of using the product?
We’re basically trying to understand if customers will stay if it would come to an economic downturn.
Founder motivation tends to be the next part of our research. We want to make sure the team running the company is doing so for the right reasons. Over the past five years entrepreneurship got very sexy. You can find MBA’s white-boarding a solution and start a company and people that are experiencing the pain point themselves. It’s important to understand if the founders are just trying to make money or attempting to solve an actual pain point? We look for founder-market fit.
Next, we tap into out network of corporate customers and industry experts. We ask them to talk to the startups. This helps us understand their product and market better. We tend to put our companies into live due diligence to see how the founders perform.
After that, we conduct a more quantitative diligence. How much capital does this startup need? How big is the market? Can this market support multiple winners? How much more capital will they the company to raise?
Jaap: Whose thought processes, besides Rubicon, impressed you and who do you look up to in VC?
Mat: It’s very difficult to answer that question. Self promotion is a big thing in our industry and it tends to compensate for results. The feedback loop in VC is quite long, so without seeing the returns of funds it’s hard to say who’s really good at it. The people that generate the best returns are probably not promoting or marketing themselves like crazy. That being said, I like and respect the entire Benchmark team. They are very low profile and are spoken highly of by many entrepreneurs and other VC’s. (their website is great). In New York there’s USV. Besides Rubicon of course.
Jaap: What do you like about these particular firms?
Mat: They tend to be very pragmatic. They really try to understand the pain point the founders are experiencing. These funds spend a lot of time talking to customers and up and coming technical talent. It creates a very strong network with great relationships.
Jaap: You’ve organized a ton of events in the NYC. (Founders Friday, dinners etc) What have you learned about the tech community in NYC?
Mat: I found it to be very cooperative and more inclusive than what I’ve experienced in San Francisco. VC is still a nascent industry in NYC. We don’t have the same level of competition between big funds, like you see in SV. Funds need to work together with other funds. I’m good friends with a lot of my peers at other funds, even though Rubicon competes with them on certain deals.
It’s unlikely tech will be the biggest industry in New York in the short term. This city is the capital of fashion, finance, art, media and real estate. It’s great to have that diversity of experiences and thought. Cross collaboration and pollination between industries is vital and has long term benefits, so I’m definitely bullish.
Historically, the strong suit of NYC has been adtech, real estate and fintech. The initial success in consumer and enterprise is bringing a second batch of companies in those sectors.
Over the past decade we’ve seen some successes come out of the NYC ecosystem. That successful talent and money is now being fed into the ecosystem. NYC is a city people want to live in. This creates societal problems that entrepreneurs want to solve.
Jaap: What’s your take on the importance of people/market/product/distribution. What should early stage founders optimize for?
Mat: The answer is that everything is important. For us at Rubicon, market is definitely something we emphasize. It has to have inefficiencies, space for additional players, or be a specific niche. The market dynamics have to be favorable.
Then product and team. I would bet on team over product, as you can fix the latter. The team should know how to sell, know how to reach a customer. And if the team understands the pain point because they experienced it themselves, the founders should be the best sales people at the $1M ARR mark.
Jaap: Bill Gates famously said:
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
What are people overestimating over a two year horizon, but underestimating over the next ten?
Mat: I believe autonomous driving, VR and podcasts will take much longer to develop than most people think. Some things are not happening as quickly as a lot of investors thought a couple of years ago.
Longer term, we’re underestimating the deployment of capital to non desk workers. Automation will have unintended consequences and will impact blue collar workers, but in what capacity? What are the opportunities to develop solutions for this large group of people whose job will change?
Jaap: What is a book you really liked?
Mat: Ghostwritten by David Mitchell. It’s a number of fictional stories that seem independent, but have a common thread.
Thank so much, Mat! Readers, if you’re young, hungry and interested in VC, here are some key takeaways:
1. Experiment early on. Understand what you’re good at.
“I got to see what it’s like working at a small startup in a sales team (the company was recently acquired by JP Morgan). Looking to learn more about different types of companies, I did the complete opposite a year later. I joined Barclays in their fixed income research and sales department in NYC for three months.”
Try things early on. Once you find your skill and type of business, you can go all in.
2. Be a VC before being a VC.
“While still in banking, I cold emailed the partners at the micro and seed VC’s that were emerging in NYC. This is how I met Joshua at Rubicon. Over the next year I helped him with market research, events and sourced startups.”
If you want to work in VC, you have to show that you can think through an investment and are willing to put in the work. Offer funds help on the side with research and events.
3. Ask your network for insights.
“Next, we tap into out network of corporate customers and industry experts. We ask them to talk to the startups. This helps us understand their product and market better.”
You can’t be an expert in everything. Leverage your network to better understand the market, product and technology of a startup.