Duncan Davidson, Managing Director at Bullpen Capital, visited PIE today and shared valuable advice to all of us in the space. While all the startups asked him questions related to their specific businesses, I simply wanted to learn more of what it’s like to be on his side of the table. I didn’t pitch him, but I did ask him five simple questions.
What’s your most recent investment and what was the tipping point that convinced you to go all in with them?
Good question. [Yay, me! Starting off strong.] If I go through the last 5 deals we’ve done, they all have similar tipping points. Here’s a couple of those.
a) SpotHero, a parking company out of Chicago.
Parking is suddenly a hot category, and there’s a bunch of valet deals in San Francisco. SpotHero’s like Uber for parking spots, where they have deals with national garage chains.
We knew parking was big. We’ve watched parking for years. SpotHero was showing two things that was a tipping point.
i) They cut national contracts so they could go to almost any city with masses of available parking slots and parking garages (and with no extra work). They don’t have to go slug city by city.
ii) Their trajectory was taking off. Most of the other people we saw were struggling. We liked SpotHero’s trajectory.
b) StayClassy, a Saas for .org
Again, there are five other companies trying to do this, but it was theirs that had a trajectory that was taking off. That’s a common theme for us. We’re watching companies like they’re in a competitive horse race…when one takes off, that tips it.
What’s your process look like? How do you actually go about making that decision with the others in your firm?
Somebody comes in and pitches us. Everyone wants to show a demo and how cool their technology is. No, no. We don’t care about your demo. We want to see what’s your business, how well you’re doing, how fast you’re growing, and what’s your plan for the next year.
We start with a fact based–”here’s the reality of the business” approach. If you don’t get passed that filter we don’t take any more time on it.
Then the process after that is to have you answer a few very fundamental questions. We throw questions up at the person driving it. If they can knock the questions off, we go to the next five questions. When we’re out of your questions, we regroup and make the decision.
If we’re following a category (like parking), then we’re already well educated. So when a company walks in the door and shows they’re winning in that market, we can make a fast decision. If it’s a market we don’t know well, we either don’t do the deal or spend a lot of homework (and it’s a very slow process) until we get up to speed.
One of the mistakes venture people make is the grass is always greener. In a market we know very little about, everybody looks like a pretty girl. In a market we know well, everybody’s an ugly chuck. So we’re better off dealing with the ugly children than the pretty girls just because we have experience to tell us what they don’t know.
How do you interact with the founders after investing?
We have two types of founders. One type are experienced, they know what they’re doing. Our interactions with them are occassional and usually on-demand. If they need help, they call us.
We have another class which are newbies—in their first time through—and they just have to learn things. “How do you run a good executive meeting, how do you run a board, how do you deal with problems A, B, and C?” So in that case, we’re a lot more proactive in helping them through their problems. When we talk to the people that we deal with, they almost say the same thing:
“You’re not in our face like a lot of venture people, but you’re there when we need you.”
You’ve been on the other side of the table before–as the founder of a startup with a successful exit. What is the one thing startups should know when looking for investment?
You’ve heard of the three rules of real estate, right? Location, location, location.
For example, you’re McDonalds—where do you put a fast food joint? You find the best traffic pattern.You want a house? There’s a certain logic to why that house is the right house on the street and the next house is the wrong house. Location is everything.
Likewise, there’s four rules of venture capital. Ready?
Too early, too early, too early, too late.
The one thing to know, people, is timing. Timing is everything. All startups build on the shoulders of past technical development. There comes a moment where the technology comes together and coalesces–then new things can happen. If you’re too early, then it’s too expensive—you’ll never get there. If you’re too late, you’re not Whatsapp that’d already sprinted past you. So getting that timing right—when the coalesce of opportunity and technology hit—jumping on it fast is everything.
What do you know / have you heard much about the Portland landscape? What’s the startup culture look like to you compared to other places?
Startup culture is a type of culture that’s prevailing the world. I go to Australia, I go to London, I go to Japan, I go to Singapore and Turkey—you find that the startup culture is pretty much the same. They can read all the same blogs, like TechCrunch. They’re all taking hipster styles. There’s a commonality.
Thomas Friedman, from the New York Times, wrote a book called, “The World is Flat.” It’s actually not true. The world’s actually very spiky. But if you go from spike to spike, like Bangalore to Singapore and you skip over all the places in the middle, it all looks the same. It’s spiky, but there’s a consistency. So when you go from startup community to startup community, they’re similar all over the world.
I find Portland to be very similar. The people are technically really smart, they’re versed pretty much in what’s going on. Their understanding is pretty good. The bad part is that this is a very thin ecosystem—the depth of mentors, the depth of funding, the depth of other people challenging you.
There’s a reason why steel concentrated in Pittsburg and cars in Detroit. There’s a reason why Hollywood is where the studios are. And the reason is, there’s a certain economic force to get all the best people in the same place where they can deal with each other face to face. So people come to Silicon Valley wanting to be king of the hill and deal face to face with the best people they can. That sort of thing is almost impossible to replicate.
The main problem with Portland is you could have a very good startup culture, but you’re never going to match what’s down there. The answer is two fold:
a) either accept that and just do really cool companies (and maybe they get funded in Silicon Valley), or
b) find something unique in the Portland ecosystem that you can be the world class center of. You have some skills here to do that.
Seattle may become the cloud center because Amazon, Microsoft are there. I think of Portland as the new Tuscany. Dealing with different food ideas, craft coffees, beers (you’ve got the great Hops here). You’re in the magic latitude for hops and things like that. The point is: food. You might be the great advances in food if you want to be.
Or another is you have cheap energy here. You could become a great data-center / cloud place. You have economic advantages for that. If I were in the Portland community, I would try to figure out what we could do better than anybody else in the world, own that, and become the place that attracts people from all over the world for that because you have a great city, a great lifestyle, and a lot of educated people here. People want to live here.
Well, Portland…what do you say? The new Tuscany of the States? The data-center capital of the West? What makes Portland so unique? Let us know with a comment below.