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Interview Guest: Nick Moran (@TheFullRatchet)
What is New Stack Ventures?: New Stack is an early-stage venture capital firm investing in IoT, Deep Tech, Smart Hardware, Marketplaces / Platforms, and Under-Capitalized Markets / Geographies. Portfolio companies include Draftbit, Curv, and Flamingo (check out the full portfolio, here).
What is The Full Ratchet?: The Full Ratchet is “the 1st Podcast dedicated to demystifying Venture Capital.” Since starting The Full Ratchet in 2014, Nick has interviewed ~400 investors including Mark Suster, Jason Calacanis, Mamoon Hamid, Semil Shah, Cyan Banister, and Richard Kerby (my former boss 😁).
Quick Note: This interview was recorded via a phone call between Nick and Michael in early August.
(Massive thanks to Andy Cloyd for connecting me with Nick!)
Michael’s favorite quotes from the interview:
- On New Stack Ventures focus: “We like to get involved at company formation, and we like to lead deals as the first institutional check invested…. The standard formula of Stanford educated, Google trained, Bay Area-located, young, male, and technical is not what we're looking for. We believe in mission-driven founders with an irrational commitment to their cause — regardless of location or circumstance.”
- On investing in the Midwest: “If you're investing in the Midwest, you really can't just focus on one city and build a portfolio. There's not a critical mass of startups in one city to build a top decile fund. So, you need to cast a broader net, which changes the dynamic for investing….You don't get the same sort of benefits of proximity and networks as you would in San Francisco. You really have to refine your thesis, refine your investment process, and be comfortable with investing over Zoom and meeting people over video or over the phone, like we're doing now.”
- On starting The Full Ratchet: “…the same can be applied when it comes to networking. I asked myself the question, “How do you get orders-of-magnitude more benefit out of your efforts to connect with folks?” And so, I needed a one to many platform, and it had to be quality content.”
- On breaking into venture: “But, in terms of getting a job in the industry, and I think Bill Gurley said it best, you have to figure out where to specialize and then you have to prove that you have better knowledge than others in that area.”
- And, my favorite quote: “You can't change your IQ. You can't become the smartest person overnight. But, you can change your earned knowledge and if you have more knowledge than the next guy or gal, you're set up much better to succeed.”
Michael: To start, it'd be great to get a super brief background on how you got into the world of venture and, in particular, came to be a GP at New Stack.
Nick: I was very fortunate young in my career in corporate America to retire at about age 32. This wasn't real retirement, but it was the ability to take a few years off and have solid financial security. I moved back to Chicago with my wife, and I began angel investing in startups, which took me down the rabbit hole of venture pretty quickly. The Midwest at large is severely underserved for venture capital, and so, there was a tremendous opportunity. I went from independent angel to angel group leader to running the largest AngelList syndicate between the coasts to managing a venture fund, which most people are familiar with now, New Stack Ventures.
Michael: That's all really exciting. To dive deeper into New Stack Ventures, what exactly is New Stack Ventures? What size checks do you write? And, what industries or verticals do you focus on?
Nick: New Stack is a Chicago-based venture firm. We invest as little as $200k and as much as $2M at pre-seed and seed. We're generalists and are pretty open-minded from a sector standpoint, but we do have an early seed focus. We like to get involved at company formation, and we like to lead deals as the first institutional check invested. We do have some specialty areas as a firm. We like to invest in “exceptions” as we call them. These often include founders with non-traditional profiles, locations off the coasts and startups with contrarian models — maybe hardware, deep tech, logistics, legacy industry, etc. The standard formula of Stanford educated, Google trained, Bay Area-located, young, male, and technical is not what we're looking for. We believe in mission-driven founders with an irrational commitment to their cause — regardless of location or circumstance.
Michael: I grew up in New York, but I go to school in St. Louis and was interning at Equal Ventures last summer. Rick Zullo, who is one of the GPs at Equal was formerly at Lightbank in Chicago, so I have learned a bit about the Chicago startup and venture ecosystem through him. I know a bit about the St. Louis ecosystem too, from going to school there. I'm curious, from an investing perspective, how does being in the Midwest and, more specifically, in Chicago impact the investments that you make and the deal flow that you see?
Nick: It's a different environment. The coastal environments are dense. On the coasts, there are a lot of folks in concentrated areas. All the capital providers and a lot of the company formation happens in one region.Contrast that with the Midwest. It’s expansive. It's broad and it's wide. There ends up being a lot of dispersed talent. You have St. Louis, Indianapolis, Minneapolis, Milwaukee, Omaha, Nashville, Ann Arbor, Detroit, etc. If you're investing in the Midwest, you really can't just focus on one city and build a portfolio. There's not a critical mass of startups in one city to build a top decile fund. So, you need to cast a broader net, which changes the dynamic for investing. Everything is happening in Silicon Valley. If you get in the right groups, or if you have the right niche, you can see just about everything you need. When you invest in the Midwest, you have to develop relationships in a lot of different places, and you have to get the word out about your firm in a lot of different locales. You have to be really comfortable filtering and investing at a distance. You don't get the same sort of benefits of proximity and networks as you would in San Francisco. You really have to refine your thesis, refine your investment process, and be comfortable with investing over Zoom and meeting people over video or over the phone, like we're doing now. If the two of us were in the Valley, we'd be together in studio, like Jason Calacanis, at least prior to the pandemic. But, because we're in different cities, we're doing this over the phone. It makes it a different sort of a challenge to build the right relationships, to do so in a non-in-person environment, and to make sure that you're seeing enough deal flow and the right deal flow to construct a winning portfolio.
Michael: That all makes a lot of sense and is great to touch on and learn. One thing I'm curious about that you touched on in terms of meeting founders over Zoom: In a pre-COVID world, was New Stack still meeting with a bunch of founders on Zoom? And, if so, has COVID really even impacted much of your deal flow or investment process?
Nick: The investment side of the business is two-fold -- there are positives and negatives. The positives are that we have had a lot more time to do our job. Because we're not meeting people in person, because we're not going to events, and we’re not commuting, we're able to meet a lot more founders on a regular basis over Zoom. We've been able to accelerate everything we're doing on the deal flow side and on the investment side, which has been great. I would say the negative is that we've refined that muscle and built that muscle over the past five years, sort of finding deal flow in hard to reach places and connecting with deal flow. The negative is that now everyone is having to do that, so now everyone is forced to build that muscle, including the coasts. We're seeing more coastal influence and entrants in our markets. I'm hearing about large firms engaging with entrepreneurs in the heartland. That previously would not have happened. Everyone is becoming more comfortable with remote and that has had, at least, the feeling of the world becoming a little more flat, which is great for entrepreneurs. It does feel like the coasts are getting more involved in the middle of the country.
Michael: Kind of transitioning away from New Stack and onto The Full Ratchet, you started The Full Ratchet over six years ago and have done close to 400 episodes to date. (1) What made you originally start TFR, and (2) what are some of the benefits that you've seen as a result of running the podcast?
Nick: I started The Full Ratchet because I needed to build a network and doing that just within Chicago was not cutting it. I'm sure you've done the coffee meetings and the lunch meetings. That's not a good way to get network leverage at scale. We're taught in business, and we're taught in the technology world, that you need leverage. How do you get zero marginal cost-benefit out of a product? Software - build it once, sell a limitless supply. Well, the same can be applied when it comes to networking. I asked myself the question, “How do you get orders-of-magnitude more benefit out of your efforts to connect with folks?” And so, I needed a one to many platform, and it had to be quality content. I was fortunate to be able to leverage some of the best people in the business to help me create the content, via interviews. Back when I knew next to nothing about venture capital, I had Brad Feld on to talk about control and economic terms. That was a huge corpus of knowledge that I couldn't produce myself. It was a great way to gain some leverage and build a network. We've seen many intended and unintended consequences that have worked in our favor.
Michael: Using The Full Ratchet as a platform to expand your network and build leverage while also just learning from all the incredible guests that you have on is really amazing. Onto some advice related questions for our subscribers, many of whom are students. Do you have any advice for students who may be anxious about where the job market will be when they graduate in the next few years?
Nick: Good question. I think it's more important that you thrive in a role than just get a role. If your North Star and your internal compass is off when it comes to the types of opportunities you're pursuing, then you're setting yourself up for either failure or just substandard performance. If you just try to get into banking because you think banking is a sexy area to be in where you can make a lot of money, it doesn't mean that once you get there, you're going to thrive. My suggestion would be to focus on your internal compass and find your North Star as best as possible. You can follow what you're obsessed with or passionate about. Think about what you gravitate to and what you desire to read more about. I don't just mean hobbies. If you're really into baseball, you don't need to go become a baseball agent. But, think about your skill sets and think about what you're most interested in. What can you build a career around? If that happens to be technology and you keep gravitating towards technology, you can probably find the sub-sectors within it that are most appealing and then you can look there for opportunities. As far as getting roles, my suggestion is to never interview for anything. I’d challenge you to think about: “how can I get a job without interviewing for it?That can take many different forms, but one way is to hustle your way into a contributor role or an internship or a fellowship, where you're able to prove your value and prove your contribution and prove your effort without having to apply for a job. If you do interview for an internship, that interview process is usually pretty low intensity. And so, you can get into an internship and then you can win the job. You can show the people your level of commitment and why you're a great fit, and then you'll never have to interview for a full-time position. I haven't interviewed for a job since 2006. Now, I'm much further along in my career than your audience, but there's a lesson there. Once I got into the workforce and started producing value and building a network, the people in my network just wanted to work with me. They will try to recruit you constantly. You don't have to interview anymore once you've proven to people you are great.But, here again, if you get your compass wrong, or your North Star is off, then you're not going to over-perform in a role and you're not going to build that signal with your network. You're not going to have that same sort of virality effect in your career. Pursue the right things, and if you get into the right areas and really perform, you'll never stress for a job.
Michael: That's all really helpful. I was recently chatting with Blake Robbins (Ludlow Ventures), and we had an interesting conversation about how he essentially landed all of his internships in college through cold emails. I actually landed my internship this summer through at JMI through a cold email, too, so I think even without being in the workforce and having that background and repertoire and work experience to show, just working hard and showing that you have hustle can go a long way in terms of being able to land roles that maybe don't formally require you to do an interview or go through a formal application process. Off of that, for students who may be interested in getting into venture, I'm curious if you have any advice or skills that will be helpful in the venture capital world later on?
Nick: Venture is not a fit for everyone. A lot of people are drawn to venture for a variety of reasons. It's an investing job and is typically in the technology segment, so there's a lot that is attractive about it. It seems really interesting to folks. But, that doesn't mean it's best for everybody. I think if young folks are very optimistic but also kind of contrarian thinkers, then it can be a really good fit. If you're very outside of the box and creative, then venture can be a really good fit, too. But, in terms of getting a job in the industry, and I think Bill Gurley said it best, you have to figure out where to specialize and then you have to prove that you have better knowledge than others in that area. If you guys are at Washington University in St. Louis, you're not going to become the foremost expert in eSports and gaming in the country, right? Blake over at Ludlow has expertise in that space. You're not going to become the foremost expert in all of eSports and gaming in the country as a student at WashU. No chance. But, if you want to become the foremost expert at, let's say pre-series A eSports and gaming in St. Louis, you have a chance to do so, certainly at Washington University. You can definitely become the foremost expert in eSports and gaming in your region.Now, it's going to take a lot of dedication and work to consume every piece of content, every blog, and every podcast by the smartest people in the space, Blake included. But, if you commit yourself to a solid year or two of doing that, you're going to have more knowledge than anyone else. You can't change your IQ. You can't become the smartest person overnight. But, you can change your earned knowledge and if you have more knowledge than the next guy or gal, you're set up much better to succeed.Once again, my suggestion would be that if you can figure out what you really care about and what you're passionate about within the venture space and then specialize in that area and start building your knowledge there and learning how to demonstrate that knowledge to the folks in the industry that are interested in it, you will have opportunities. You just have to figure out ways to build it and demonstrate it. Whether you're blogging about it, you're writing about it, you're podcasting about it, you're doing short-form videos about it, or you’re creating groups to discuss it, there are a lot of different ways to creatively express yourself and contribute to other people out there. Give to others first before you ask for anything.Long story short, find what your outlet is, build your knowledge base, and then figure out a good way to educate others and help others.Also, always have a bias to create, versus just join. If you have the ability to create something, whatever it is, it can be a club, it can be a newsletter, it can be a group, it can be a wide variety of things, but if you can create something new, I think that that is a great signal to those around you that you're not just a thinker, you're a doer. Many people I've interacted with in life always have a bias for just joining things or consuming content. That's important and is a good step, but if you figure out a way to create things, like what you've done with The Takeoff, there's a lot of value that comes in creation. That's kind of the last piece of advice I'd give to the young folks.
Michael: In terms of balancing the risk of going and creating something versus joining something that's already there, that's something I think a lot about and I know a lot of my friends think through, too. Do you have any frameworks or any recommendations on balancing the risk of going and starting something, whether that's a company or a newsletter, podcast, or side hustle, versus just working in a more formal role and company with less risk but also less opportunity to be creative and take ownership over things?
Nick: Honestly, at your age, there's very little risk. It might feel like there is a lot of risk to you, but the biggest risk is choosing something you don't really care about. If it's not something that's fundamental to who you are as a person, that you're obsessive about, that you're going to be thinking about day and night, don't do it. That's the risk: pursuing something that you're not absolutely obsessed with and won't continue to be obsessed with for years. Especially when it comes to startups. If you don't give a shit about gaming and then you go and create this big gaming venture capital club or something, that's a terrible idea. But, if it's something you really care about, then value is going to start accruing to you and you're going to start providing value to a lot of other folks. You can always look at the amount of effort you have to put in versus what you get out, but if you find the area that you're most passionate about and you know that you are going to love what you do day in and day out, then just start creating. It doesn't have to be one thing. It doesn't have to be a podcast or writing a book or hosting a panel series, it can be a variety of things, and you can see what works best.
Michael: I really love that. I'm excited for my parents to read that because something I've had to think through and have had a lot of conversations with them about is looking at risk in potential career moves. Not just career risk and job risk but also looking at the happiness and mental ease risk, as I like to call it. So, you know, in that lens, doing something that you're really passionate about, while it maybe won't have the immediate payouts and benefits of pursuing something else, longer-term and just in terms of your mental well being can add a lot of value.
Nick: Even if you fail, if you really cared about it and you really did a good job and you built networks in the industry and you've shown people how hard you work and how much you care, there will be limitless opportunities available to you in that industry. Even if you fail. That's why Silicon Valley has so much density, because they embrace failure and even when failure happens, as long as you're a great actor, you're a good person, you work your butt off, and you're savvy enough, you'll get picked up the next day. I think a lot of parents worry that you're not going to have a security blanket and that you're not going to have a good company on your resume. The resume is dead. The network is alive. Think about the strength of your network, the way that you interact with people, and the way that you treat people. When we get off this call, the first thing you should do is write an email to me saying, "Hey, thank you for the time. That was great." Keep it really short, keep it really sweet, but do that with everybody that gives you time. That's just the first baby step that you can do with people. That's the smallest example of EQ and it shows that you appreciate people's time. As you build a network and you give people a lot of value, they're going to want you to be a part of whatever they're doing. You're going to have more opportunities than you know what to do with. I'm much older than you, I'm at a different stage in life, but there are limitless opportunities at this point and that's because of the strength of my network, not my IQ or my resume.
We hope you enjoyed the interview with Nick. We certainly learned a lot and hope you did too :)
You can find Nick on Twitter @TheFullRatchet.
I’m on Twitter @mspiro3 👋
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