“They’ve Got No Leverage”
Learnings and Realizations from 2014
The Importance of Celebritization, Part II
The Importance of Celebritization, Part I
Food 3.0 & The Instacart Anamoly

“They’ve Got No Leverage”

There are a lot of things that in the VC world that bug me. One of them is hearing other VCs talk about companies and as part of an argument or plan mention that they don’t have any leverage.

On the one hand, I totally understand where those in the investment community are coming from. Our job, as venture investors, on a fundamental level, is to return money to the stakeholders in our fund. Given that, it might seem that the best way to maximize returns is to negotiate for the best possible terms at the long-term expense of the founding team. A company with “no leverage” would therefore be more likely to face an aggressive negotiation.

But if I’ve learned anything from methodically studying winning consumer internet models, it’s that the best companies create a win/win outcome both for their customers and their employees. Let’s take Trunk Club, for example. Part of the company’s success is rooted in the fact that their stylists are extremely well compensated. Customers look and feel great while employees also win from the company’s success. One of the pioneers in this model was SouthWest Airlines: literally every employee from the pilots to the janitor participate in a company-wide profit sharing plan. It’s often cited as one of the reasons your service is so good – every employee is literally connected both with the overall status of the business and their own compensation.

The same applies to relationships with customers and building a growth base. Dan Goldman, former Director of Marketing at PokerStars, the undeniable category leader in online poker, relates that whenever he brought a marketing initiative to Isai Scheinberg, the CEO:

“Almost any time I brought some huge proposal to Isai, he asked the same question: “What if we just gave that money to our players?”

As a customer, we all felt that. While PokerStars was growing, despite the billions of dollars they spent on customer acquisition, it mostly felt that the customer was the focus and getting a great deal.

So if it’s true for employees, and it’s true for customers, why should it be any different in venture investments?

The inherent problem with the statement “they’ve got no leverage” is that it creates misalignment between investor and entrepreneur. It may well be factual. But if an investment is predicated on making founders (or employees) unhappy, I’d guess it’s likely to end badly (caveat: having only been in this business for three years, I don’t have a large enough sample size yet to know. But it feels wrong,)

Like everything in life, it’s ultimately a balance. Not every company can raise money at staggering terms with the founders feeling like rock stars (and investors feeling like rock stars for getting access!). In many investments we’ve made where I’d describe the process as “smooth” or “positive” there have still been tense moments and some unhappiness. Often, founders are unhappy about valuation, for example, yet that price is literally the only way to get a syndicate together. Alignment can sometimes be as simple as a transparent communication, where both parties air their priorities and concerns. I’ve found that when I relate to an entrepreneur that we’re not asking for a vesting schedule because we want to handicap them, but rather because it (a) protects them if a co-founder leaves the business and (b) we have a fiduciary responsibility to our investors to adhere to market norms, they get it really quick. Instead of being untrusting jerks, the conversation is re-aligned of one where both parties care about long-term success.

As with most of thoughts, tl;dr. But the point is to focus on win-win scenarios, not on besting another party. Frankly, it’s Negotiation 101.

Learnings and Realizations from 2014

It’s been a while since I’ve written about daily VC life issues on the blog. One of my new years resolutions is to get more active on here. To inspire myself to do so, I’ve installed a new theme that’s mobile friendly and easier to play around with!

I’ve met lots of students over the past 12 months, interested in VC, who’ve noted they’ve gotten a lot out of the blog. It’s rewarding and encouraging to keep writing. I will continue to publish industry whitepapers and analysis on TechCrunch, Venturebeat and re/code, but will post Junior VC related info and informal daily thoughts here.

As I look back on 2014, I figured I’d outline some of my biggest learnings and realizations from the past year.

1.  Turns out that I didn’t know what I didn’t know – As 2013 came to close and marked 2 years in the venture industry, I felt confident that I finally “knew what I didn’t know.” I was wrong. The scariest thing about this year was finding myself in more and more situations where I simply didn’t know what to do. And although it’s fun to always be exploring in a profession, it’s scary when you don’t have a roadmap.

2.  Behind the Scenes > Public Decisions – Much of the Twitterati and VC blogs focus on investment theses, emerging technologies, industry whitepapers, etc. And that’s clearly an important part of the job. But I have to admit…I don’t think it’s the most important part of the job.

About a year ago I started wondering to myself why VCs are (theoretically!) so well compensated when the checklist for making decisions (founding team, traction, references) are fairly straightforward. Again, I feel obnoxious underplaying the investment process but the truth is that I feel that there are many smart people who could be great investors (I felt this way about poker players too!).

Where I think great VCs differentiate from mediocre VCs is in process, communication, empathy and management. What I realized in the poker world is that fundamental skills were ultimately secondary to bankroll management, game selection, and emotional balance. I made multiples more money than players that were 10x better than me, because they took unhealthy levels of risk or were emotionally volatile. I think the same concept applies in VC: you can have the world’s greatest theses, but piss everyone off, run deals from start to finish terribly and never become great.

Tl;dr: I believe that the behind the scenes intangibles create more value than the public theses.

3.    Have Convinction – This was certainly the year where being contrary became cool, culminating in StartupLJackson’s “The Counterintuitive Thing About Counterintuitive Things.” It got so over the top that I started to wonder if the counterintuitive market had matured to the point where being cliché and simple was the new counterintuitive thing?

In all seriousness, this is a tough business to be confident and different. It is so easy to follow others – whether that be other venture firms, other advisors, etc. Following is the easy bet; no out-of-town associate ever got fired for following Andreeson-Horowitz.

The good news is that I learned what I need to feel in order to have conviction. There was one moment this year – one entrepreneur, one company – where I simply knew I was right. Sometimes you meet an entrepreneur and can just sense that they will literally brute force their own success. I was 100% sure this person would do good things. My partnership didn’t like the model and I dropped it after 15 minutes of pushback. It’s hard to gauge success but all indications point to this one being a homerun.

Whether or not that deal ultimately turns out a winner, I learned my own sense of conviction: that feeling of energy, enthusiasm and confidence that will enable me to pound the table and fight for an investment in the future.

4.    Take Personal Risk – I am really passionate about diving deep into businesses and connecting with the leaders who aren’t CEOs or COOs. The most important people in an organization can often be lead engineers, VP Sales, VP of Care, etc who simply fly under the radar.

I realized that I wanted to connect with more of these people because I thought about their jobs all the time. While it started selfishly, I figured that other people also wanted to geek out about similar topics, meet like-minded people, and hang out. I thought being at a venture firm (and thereby relatively unbiased) provided a unique platform for putting people together a room and taking responsibility for the evening.

And so I started an event series called the Building series. Most people I spoke to about it were dubious. I’ve even been paying the $700/event overhead costs out of pocket because sponsors were skeptical. I could’ve really tarnished my own reputation if people had hated the events. But I’m fortunate that they’ve been a real success. In addition to some phenomenal speakers from Uber, GrubHub, Handy, Trunkclub, and SpotHero, we’ve had attendees ranging from local executives of billion dollar SF companies, to execs from local growth stage companies, to unfunded super early stage companies.

Most importantly, I’m starting to make friends through the effort. I love making new friends. New people to bounce ideas off…ask for feedback on an entrepreneur I just met. I can’t wait for the next event and they keep me going when things are slow.

5.    Stay Proactive – One of the struggles of the Chicago Ventures team is that the GPs are well connected and big personalities. Everyone knows them and they have wide networks.

This poses a problem for me working up the ladder. I saw that I ended up spending so much time being reactive to their dealflow and relationships that it hindered my ability to develop my own value. At the same time, the quality of inbound companies and relationships was so high that it was hard to argue I should be prioritizing my time on lesser opportunities simply because they were my own. In my opinion, this is one of the great catch-22s of the venture business: you need to build your own value chain and brand – but being a true team player is often the most value additive thing for the firm. That said, if I’m not creating my own unique value then I’m a commoditized grunt and they could hire anyone.

Like everything in life, it’s a balance. But I realized that in order to feel fulfilled I had to create my own fate: start producing my own content, start my own event series, build my own relationships, find companies and spaces that I alone was passionate in.

The only way to be great in this business is to be proactive. At the same time, there’s a danger of trying to push the pedal too hard and do too much. Again, it’s a balance. But if you’re reactive, then you’re a commodity.

 6.    I Need to be Independent Yet Need Mentors  - I think that a venture firm is one of the perfect places for me because I’ve never really done well working for other people. I’ve had two formal bosses (before CV) over the course of my life: Tina Wells at Buzz Marketing Group and Taylor Caby at CardRunners Gaming. In both of those roles, I was given nearly limitless freedom, budgets, and independence. At CardRunners, Taylor used to even jokingly call me “CEO.” 

Both Tina and Taylor were phenomenal managers because they both recognized that my personality was one that craved autonomy, decision making, and growth – while also demanding regular mentorship and positive feedback. I had a weird balance of both wanting to be my own boss, yet still requiring some positive reinforcement to keep on attacking.

I like to think I was highly successful in both roles because I understood the industries, understood the problems and just went out and creatively executed until someone told me to stop (or stop spending).

The venture world operates similarly in that it’s highly unstructured with little direction. Although I’d typically excel in this environment, I struggled at first because I didn’t really know where to start. I’d go to events and meet people but didn’t know what to do with that information or with those relationships. I would put my thoughts to paper but wasn’t quite sure who would read them or if anyone would care. I would write investment memos but wasn’t sure what analysis was helpful. I’ve figured most of that out.

All that said, I still have two weaknesses heading into 2015: (a) This is an apprenticeship business and I haven’t had the opportunity to closely apprentice an expert. I have mentors, and I’ve figured a lot of it by trial and error – but it’s the difference between having Tiger Woods’ swing and Jim Furyk’s. Both win majors, but Tiger’s is fundamentally beautiful. I don’t want to just be a winner – I want to be great. (b) The downside to having my personality is that I feel resentful and anxious when I’m not in charge of my own fate. VC is a business where so many things are out of your control –from company successes to downstream financing to fund management. It’s an industry which negates my inclination to have control at all times. Even in poker, while any given hand had an element of chance, I knew what sample size I needed to hit to outrun short term volatility. Sample sizes in all aspects of venture are so small – from financings to theses to career decisions. It is scary and I’ve got to get a better grip on it.

I’ve put a lot out there and hopefully someone’s gotten through it. I’ve decided to be more open and honest this year. Please treat that openness with respect.


The Importance of Celebritization, Part II

An emerging trend over the past decade has been the celebritization of leaders and influencers across nearly every vertical, hobby, and interest group imaginable. No longer are athletes and actors the only celebrities in the public sphere. One easy example – Swedish gamer Felix Arvid Ulf Kjelberg aka “PewDiePie” has over 30 million subscribers to his Youtube channel – more followers than Ashton Kutcher, or even Ronaldo.

In my view this is attributable to two main factors: (a) the rise of reality TV which has created recognizable personalities in hundreds of interests, ranging from food to polygamy and (b) the proliferation of single purpose interest groups across the web (discussion forums, content communities, etc), which cultivates credible influencers in a highly concentrated category.

It is the latter phenomenon, of digital celebrities – sometimes mere screen names – that has always fascinated me. In what I consider to be THE landmark e-commerce study, a 2012 Battery Ventures report found that celebrities were downright useless in influencing behavior, but that friends and family won the day. However, the report presumed that “celebrity” meant Kim Kardashian or Brad Pitt. What if you became so closely connected to celebrities that they felt like friends or family?

This is precisely what several of our portfolio companies at Chicago Ventures are doing. Here a couple of examples:


Florists are artists. Many have Masters in Floral Arts and create dazzling displays. But due to their reliance on the wire services  (1800Flowers, FTD) for business, they were relegated to de facto back office employees. Bloomnation inverted that. In creating the platform, they put the merchant first with content rich profiles that offer deep personality profiles of who you’re dealing with.

Second, they believe that florists need more opportunities to both feel and actually be important. To that end, they throw red carpet parties in cities across the country that are entirely florist-centric. The florists are the stars: they give the speeches, their designs are on display, and night is about them. And, perhaps, more importantly, they run a huge PR engine, generating hundreds of TV, magazine, and online press opportunities for the florists in their network – recognition the florists would never garner on their own.


One of the striking things about the Zipments website is its focus on the courier as star. When we were researching the delivery market before making the investment we were surprised to learn the subculture surrounding bike messengers. There are blogs, communities, even magazines dedicated to the bike messenger.

Zipments sought to leverage that when they built their platform. Couriers aren’t employees or even “team” members, they are the star. Zipments invests in professional photographers and profiles for their best messengers to ensure they feel important and respected as they’re building their brands. Most importantly, like Bloomnation, they make the courier the focus – with content rich profiles then allow the couriers to express themselves and their personality.


I don’t know who the first celebrity chef was (maybe Julia Childs?) but the obsession with culinary arts has surged ever since I first start watching Rachel Ray on the Food Network back in 2002.

Morsel’s thesis is almost a next level celebritization of the food space (celebritization 2.0), moving beyond the personalities of the chefs themselves towards the storytelling behind food.  It recognizes that just as we want to know more about the people we admire – their backgrounds, how they got to where they are – food itself is a dynamic process. What was the creative process beyond a dish? Its inception? Its development? Morsel plays into the human desire to consume content around the people who inspire us – except on their platform, it’s one part people, one part food.

My general recommendation for the startups I work with is to make the producer – whether the florist, the courier, or the chef/food – the focus of the attention. Consumers enjoy being catered to, but they also love to connect with inspiration. Give the producers the tools to feel special and consumers will come to connect.

The Importance of Celebritization, Part I

When I joined CardRunners in April of 2007 I recognized our company had a dilemma; although our content producers represented dozens of the smartest minds in poker, none of them were “famous,” or TV poker celebrities. Instead, our content authors were predominantly college kids or hard working young adults who had turned their card smarts into millions of dollars in profit. But without the famous and recognizable faces, it was difficult to secure the big business development partnerships that could increase our distribution and help our company grow.

My solution was to attack the status quo – and market our content producers as representing a “relatable fantasy experience.” I argued that recreational poker players couldn’t connect with old school road/casino gamblers turned TV poker celebs. But CardRunners poker pros offered an authentic aspirational experience – college kids, former high school teachers, high school athletes, etc – who had learned the game quickly and made big money. This was the thesis that drove our partnerships with Full Tilt Poker, World Series of Poker, Poker After Dark, The Golden Nugget and other big names that should have never talked to us in the first place.

When you consider many of the great connectivity platforms of our generation – LinkedIn, Twitter, Facebook, for example – you’ll see that they also leverage a “relatable fantasy experience” for many of the viral loops that drive engagement.

On LinkedIn, our status is a reflection of our connections. Being accepted by a contact with a greater degree of status than you achieves more than show you their e-mail address. It creates a permanent record that a higher status second party has confirmed their comfort level and approval of you. It is a powerful psychological tool. I would be shocked if the “Who’s Viewed my Profile” isn’t the most obsessively checked page in professional networking.

Twitter attempts to pull similar levels in driving an aspirational experience. The platform is highly democratic in that any user can send a message to any other user. A 12 year old kid in Iowa can send a message to @JLo (and sometimes she responds or re-tweets). “Favoriting” offers celebrities a minimal commitment tool to generate that sense of fulfillment and excitement amongst their fans.

The motivating force on many connectivity platforms is this sense of aspiration. And as the internet moves us further towards the democratization of everything, there is a unique opportunity to create celebrity and aspiration in nearly every professional services vertical or hobby.

In part two, I’ll discuss how some of our investments are doing a phenomenal job manufacturing this sense of “celebrity,” and why these vertical specific “celebrities” matter more to a business than actual Hollywood celebs.

Food 3.0 & The Instacart Anamoly

This blog was originally posted on VentureBeat on July 19, 2014

Instacart, currently the most well funded and fastest growing startup in the emerging food space, is an anomaly. The evolution in food startups – from the scheduled warehouse deliveries of the past decade to the highly curated, on-demand prepared food companies currently proliferating the Bay Area – seems to have bypassed Instacart’s elementary appearance as an un-curated, broad, digital grocery store. But drill deeper and Instacart holds the potential to be the most powerful consumer-facing food ecosystem in the market.

Over the past couple of years, I’ve watched the food industry closely and worked with a number of Chicago Ventures’ investments in the space such as AgLocalFood Genius, and Morsel. My thesis of the industry’s evolution has largely bucketed companies into three categories:

Food landscape

Food 1.0 – Traditionally defined by Peapod and Freshdirect, with new competition from Amazon Fresh, these online shopping experiences require advanced scheduling and item by item selection from thousands of SKUs – effectively, a digital grocery store. These service companies typically own large warehouses where they stock food, and deliver via a hub and spoke model, making dozens of deliveries throughout the day.

Food 2.0 – A digital update to traditional meal subscription services (popularized via dieting programs) but re-programmed for a Top Chef culture, these mail service delivery companies tapped into consumer demand for curated recipes – packaged with the proper amount of cooking ingredients and detailed cooking instructions. These companies reduce cognitive noise and solve the frequent “what’s for dinner?” questions as well as mitigating any food prep time.

Food 3.0 – Tapping into the evolution of single purpose on-demand mobile services, these food companies facilitate ordering via a couple of taps on a mobile app, offer ultra-curated menus, and deliver food in as little as ten minutes after confirming. This experience entirely removes all friction from the food experience, unlike delivery platforms such as Grubhub, PostMates, and DoorDash where consumers have to select from hundreds of restaurants and thousands of menu items. It fully completes the evolution of reducing cognitive overhead to a couple of menu options and three taps.

And then there’s Instacart. And it doesn’t fit in to any bucket.

Ostensibly, Instacart is merely a Food 1.0 company that differentiates by offering on-demand delivery by leveraging the “people economy,” as opposed to scheduled trucks. It achieves this by picking real items from real stores as opposed to Peapod, Fresh Direct and Amazon Fresh who own proprietary warehouses, inventory and delivery trucks – thereby leveraging the best of brand preference with the advantages of on-demand delivery. Still, on the surface, Instacart seems to ignore the trending consumer preference towards making choices easier via focused curation, or reducing friction via ready meals or pre-prepped ingredients.

But that’s the surface; underneath, Instacart opens up into a powerful food ecosystem that reduces friction both across yet to be cooked meals and ready meals. In September 2013 Instacart unveiled “Recipes” – just like the ones in your cookbook except hyper-linked to real world items deliverable within an hour. These recipes, curated by an editorial team, deliver to consumers the exact amount of product they need (1 apple for example, not 6). A single click delivers all the ingredients necessary for a meal – without requiring decisions the week before, thereby reducing friction further than the subscription services.

Further, while the influx of on-demand food companies must sustain capital intensive investments in cooking facilities and chefs, Instacart can leverage the existing prepared food counters of high end retailers such as Whole Foods to deliver a deeply curated, high quality set of ready made foods. Given prepared foods’ importance to grocery retail as one of their few high margin items, there are big incentives to partner with Instacart in ways that facilitate better logistics and allow food to stay warm en route to the consumer.

Behind the scenes, it’s possible that the real bet taking place is one of single purpose applications versus multi-purpose ecosystems – with the prevailing belief being that more complex applications will be rejected by consumers in favor of simpler decisions. But if that’s the reality – and if Instacart has powerful economic advantages in each of the three food categories – then it would only be a matter of time until Instacart unbundles into three unique offerings: grocery, recipe, and prepared foods – all leveraging the same group of delivery agents (a big liquidity advantage).

Where the food evolution goes from there is beyond my field of vision. But as foodie culture continues to grow, and as Americans increasingly care about the source of what they put in their body, there will undoubtedly be continued innovation in the food space. And no doubt, Food 4.0 is right around the corner.

Ezra Galston is a Venture Capitalist with Chicago Ventures and the former Director of Marketing for CardRunners Gaming. Follow him on Twitter @EzraMoGee and his blog BreakingVC.

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