Matt Cohen of Ripple Ventures

Welcome to the Puck Venture Capital and Beyond, a show that examines the changing landscape of our world. We'll have candid conversations with VCs, entrepreneurs, and thought leaders grappling with our current challenges and providing solutions to key problems we face as a nation. I'm Jim Beer, president of CMBG Advisors. This podcast brings change makers to the table to discover the inner workings behind their decision making strategies and ultimately to how they got to where they are today. I think what people should realize is that it's really easy to be an investor.

It's really hard to return capital, especially in these markets. You know, the saying, like, 80% of the accidents happen on the way down from Mount Everest. A lot of people can get to the top, but a lot of people can't make it back down to base camp. That was Matt Cohen, founder and managing director at Ripple Ventures, an early stage venture fund focused on b to b SaaS startups. On this episode of the Puck, we discuss his background growing up in Canada, starting in finance and trading, and then moving from operations to investing with Turnstile, his first startup, and exit.

Matt has since formed Ripple Ventures and the newly formed Ripple X Fellowship Program, a training platform committed to guiding the next generation of entrepreneurs. Matt Cohen, welcome to the Puck. Before we get started here, why don't you take a moment and give us a little bit about your background and how you got to Ripple? Yeah. Absolutely.

Thanks again for having me. You know, my background getting into venture capital and and sort of private equity investing was not the traditional path. You know, I grew up in a family of pseudo entrepreneurs. My dad ran a fruit and vegetable store. My mom was, like, a florist there.

And so I was always in, like, the small business mindset growing up. Luckily, I had an older brother, much older, that was in finance and, you know, stockbroker investment advisor world. So I learned a lot from him growing up. And, eventually, I started my career out of university working for Royal Bank of Canada, you know, country's largest bank, working directly on the trading desk, covering global hedge funds, and working in the merger of an event driven trading strategy group. And this was at a time, 02/1956, when hedge funds were all the rage.

Everyone wanted to go work for a hedge fund, just like everyone wanted to go work for a tech company for the last several years. And so I was there during the start of, like, you know, really fast paced trading and hedge fund life in Toronto. And then I moved down to New York in 02/1978 right before the crisis started to help build out the US team there. And I spent a couple years living in New York, working on Wall Street, learned a lot about, you know, risk taking, proprietary trading, running, you know, liability trading for the bank's business, as well as working with customers, sales, you know, smile and dial kind of stuff. Never really had any exposure, though, to technology and start up investing until I moved back to Toronto in 02/1213 from New York, and I wrote a check to start a tech company with two buddies of mine called Turnstile Solutions.

And it was a check that was a meaningful amount of money to me, but I thought of it as a way to get my MBA, which I never ended up getting just a regular BCom degree in economics. So I ended up, writing a check to start a tech company that was focused on Wi Fi marketing analytics in 02/1213. And, you know, at the time, there was really no venture funds in Canada. It was a couple, like, you know, small family offices, some angel groups, and things like that. And so, you know, we pitched everyone else to try and put money into the company as well, but with no avail.

And so I had to learn the hard way of, how to build and scale an early stage technology company, you know, with the founders day and night, basically, bootstrapping it until we got to, you know, several million recurring revenue, 50 employees, profitability by the end, and eventually, led us to an exit to Yelp in 2017 for for about 30,000,000 Canadian, which was a great experience and a real humbling experience. So that's sort of what got me into it. In between that time, I went to go work for a fintech company called Street Contacts, still around today. It was kinda like a Mailchimp on steroids for the capital markets industry. Lived in Boston, selling enterprise SaaS solutions to large banks, asset managers.

And during that time, on the, you know, weekends and evenings, I spent a ton of free time hanging around the Boston startup ecosystem at MIT and Harvard and Cambridge, seeing all the amazing things that were being done there. And because I had already, you know, done my first angel investment and had an exit, I obviously saw the desire to do more of that. But I realized quickly that just sending an email as mattcohen@gmail.com was not going to get me into the inboxes of some of the top founders coming out of MIT and Harvard. And so I had to come up with a a name and a brand and a bit of a platform. And so Ripple Ventures really emerged as my own sort of name and brand for angel investing early in 2017.

And, eventually, after having another few exits along the way, some family offices from the Toronto, Boston, New York ecosystem asked if I would invest some capital on behalf of their family's assets. And that led me into launching Ripple Ventures formally as a venture fund in 2018, which is $10,000,000 on their first fund. Wow. So as we're sitting here today in terms of what you've learned from your startups and what you're doing with Ripple, what what would you say is your number one differentiator at Ripple? Yeah.

I think, you know, from the early days of helping start, launch, and build and eventually exit turnstile, I realized that a lot of the shit that hits the fan at the early stage of, startup building happens way more often than not. First off, I always tell a lot of our teammates and and a lot of our founders, like, separate emotion from every decision you make early on because it's gonna be a long journey. And if you get really emotional today, it's gonna stop you from moving forward to the next, you know, battle you're gonna have to face or fire you're gonna have to put out. And so we try to work really closely with our founders, both from, like, a mental standpoint, but also from an execution and operational standpoint. You know, what does that mean exactly?

You know, taking out the fluff a little bit. It's like helping them figure out what their ICP is, ideal customer persona, their go to market strategy. Working line by line through creating their budget when they first get capital put into their bank account. A lot of these founders have never seen that much money before, and they don't know where to spend it. And they usually spend it on pretty stupid stuff.

So we try to hold their hand a little bit, not to control them, but just try to teach them and give them experience of, like, things that we've seen over, you know, dozens of companies that we've invested in. The mistakes we've seen, we don't want them to make it again. So we get very hands on early on with, like, our pre seed and seed stage companies. But then eventually, as we sort of see the companies mature up to the series a and series b stage, we act more as, you know, advisors, a bit of therapy, and a lot more coaching on more strategic initiatives rather than the day to day operational side. But that's the sort of thing that we like to to say we offer a little bit differently than some of the traditional just like capital providers in the ecosystem.

So as you're getting granular in coaching these companies, in today's environment, is there any change in your approach to what you're counseling them on? You you made the statement that you coach them to not spend money on, quote, stupid things. In this environment, are you changing your approach at all in terms of how you coach people? I wouldn't say we're changing it at all. What I'd say is we're being much more rigorous and much more stern in our approach to delivering that message.

Whereas before when capital was flowing around the ecosystem more freely, we would have been a bit more laid back in terms of our, you know, willingness to put the, you know, the gears a little bit to them. But now we're saying, like, let's talk the real truth here. Like, do you know how pref shares work compared to your common shares in a liquidity scenario? You know, we try to have those adult conversations a lot earlier now so that they understand the world that they're entering is a lot different than the world maybe six to twelve months ago. So I'd say that's the only change maybe from our perspective.

Got it. No. That makes sense. So what kind of industries or companies are you excited about right now? And what what are you focusing on?

Yeah. So our approach really from the first fund up into our third fund that we're investing in now has not really changed much. It's always been focused on b to b enterprise SaaS, given that's my background and that's where we understand a lot and see a lot of deal flow. We have a a bit more thematic approach to investing now, meaning we focus a lot more with a thesis on the workflow automation tools, the developer tool segments of the market, as well as web three infrastructure, a little bit more of the creator tools being developed out there is where we spend a majority of our time. But for the most part, we've always been, you know, sector agnostic.

It's easier to tell people what we don't invest in. So we don't do hardware. We don't do consumer. We don't do biotech. We're not doing sort of, like, traditional marketplaces, if you will, unless they have, like, an embedded fintech or infrastructure play associated with them.

So a lot of our companies start off as B2B SaaS, then they evolve into a marketplace or a network effect and embedded FinTech after that. We're very focused on like the fundamental utility of the business rather than like the niceties of being in a marketplace that costs a lot of money to get up and running. So those are areas that we're focusing on. But I'd say, like, for us right now, where we're really excited and where we see a lot of value is still in the recession proof software companies that we invested in from the enterprise side. So we have investments in logistics and supply chain companies, you know, focusing on optimization of your fleets, delivery of supply chain goods, providing you, you know, the data layer of information on business analytics across a horizontal, industry like ecommerce or even in the health care SaaS space.

So we have investments, you know, in companies like WiseDocs, which is basically helping streamline the insurance and workers' compensation world from taking away the pen and paper and, like, the manual labor it takes to go through tens of thousands of medical records from being offshore to India, doing it onshore safely, securely, and with software with the same compliance and accuracy for a fraction of the cost. You know, that's really exciting to us because one, those jobs like, you know, the the insurance industry and, like, the medical claims industry and stuff like that, that's never going away even if the economy has a little bit of a pullback. And so we're seeing a huge amount of growth and market share being gained by those types of solutions. Because when you lay off people, you still have to complete that job. And so what do you do?

You turn to software. Right? Because it's a depreciating asset towards, you know, human capital, which is a appreciating and inflation sensitive resource. So you talk about these companies that you're focusing on that are quote recession proof. Are there particular companies that you think are especially vulnerable to this economy?

And in those situations, are you counseling them to reduce their burn and make those tougher changes right now? Like, where do you see that? Yeah. Absolutely. I think, like, the first thing that we always see people cutting in a recession is marketing and ad spend dollars.

So if you're a software tool that is supposed to be helping people optimize their marketing and ad spend dollars, you're gonna see a huge amount of, like, pullback in your software in in the beginning because everyone puts a pause on, like, their go to market and ad spend dollars. But if you have a really good product, you may be able to use this time to defend yourself as a replacement to more expensive ways to attract customers and therefore rebound quicker and then see acceleration in growth. That happened in some of our other companies at the beginning of COVID in 2020, where initially, they saw a pause in the use of their software because everyone was just hitting pause on everything they were spending money on. And then all of a sudden they realized, wait. Like, our business is still alive, and we still need to continue to deliver a service or good.

And therefore, we need to go back to using those software tools, and then they end up seeing a huge rebound and a three four x in growth year over year. And so we're really telling the companies, don't look at this pause in the usage of your application today as, like, the end of it, but looking at it as it may be a remessaging of how your software can be utilized in a recession type of environment. You talk about a recession environment. Do you see this as being a bubble where there's gonna be a lot of air that's coming out, or do you see this as kind of a small blip? What's your prognosis there?

I mean, look, I'm not a macroeconomist, and I think everyone else in the world is trying to pretend to be right now on Twitter and social media, so I'm not gonna jump into that fire. But what I will say is it's pretty obvious when the largest tech companies in the world are slowing their hiring pace. We see the investors, the capital providers slowing their investment speed. We see the ability for people to purchase goods and services slowing down as well, even though the prices have gone up. So we're seeing the demand side already starting to pull back a lot.

So you have to be cautious of that. You can't bury your head in the sand and say, oh, this will be a blip in the market. Like, prepare for the worst and then optimize for the best is what we are telling our companies to do. And what that means is, like, yes, you don't necessarily need twenty four months of runway, but you better optimize for it because if you don't and somebody else is, they're gonna outlast you and then gain your market share that you should have gotten because you didn't optimize for that. So we're saying optimize for the twenty four months kind of runway because it may take that long to hit your next milestone.

Plus those milestones have now been risen from where the benchmark was prior to the the downturn. Yes. People were raising at a 100 x ARR. That's great. It's dropped considerably from that multiple, and the bar for where you're gonna raise your series a or b is also much higher.

And the metrics and the efficiency of which you're using new capital is also gonna be judged more seriously. And so you need to think about those things. So we're telling companies, like, we don't know how long this will last, so optimize for twenty four months. Continue, you know, optimizing your capital efficiency, spending money on things that really can make a dent to the metrics that matter. And don't try to build a business for ten years from now.

We have a lot of companies who are like, my mission is to do this and we want to build towards that. I'm like, well, I understand that. But if you don't optimize for the next six to twelve months, you'll never reach that business vision you have. So focus on the things that will get you to the next stepping stone in the ladder of growth, not the one that will be maybe achievable three, four years from now. When When you look at your portfolio and the types of companies you're investing in, geographically, where are most of them set up?

Yeah. So in our first fund, we were 70% Canadian, 30% US, and that was just a factor of, like, where our deal flow was sourced from, our network effect, and things like that. In our second fund, we are fifty fifty US and Canada. The reason we went more in The US was truly because our Ripple x fellowship program, which I can touch on, generated a ton of great early stage deal flow for us from a lot of the university and college ecosystems that we partner with. And then now in our third fund, we're gonna be 60% Canada, 40% US.

Now that US can be globally built, but they have to be incorporated in The US or Delaware C Corp. So we can invest globally. Got it. So tell us about the fellowship program. Yeah.

Absolutely. So this program started out three and a half years ago, essentially, when we started the fund by my partner, Dominic Lau. We both kinda had this experience where we went to schools in Canada. I did a co op internship program with Dalhousie University. He did the same thing a couple years later at Waterloo.

And we realized that one, in order to do an internship program, you have to be out of school and in a job placement. So you separate yourself from the ecosystem you have at school and you go put yourself into a work environment ecosystem. So they're very separated. And the other problem was a lot of kids, especially ones that don't come from a well-to-do background or have a good network behind them in their family, or have a friend that works in private equity, venture capital or technology, don't have access to this ecosystem that we are fortunate to be a part of in building in every day. And there was this gap in the bridge between helping mostly underrepresented students gain access to the startup and technology ecosystem that we took for granted when we were coming out of school.

And so we came together and we said, why don't we create a give first approach to university students who are typically in third and fourth year, but they can be in any sort of year of college and university, but they have to still be in their programs and give them the tools to be able to understand how to be able to be a founder, a builder in a startup or tech ecosystem, or an investor, like a venture capital or private equity focus person. And so what we did is we created this curriculum online, teaching them everything from cap table analysis, due diligence, go to market strategy, options, how to think about like proper due diligence on like customer interviews and things like that. Like the raw things you should know about going into this world that we would create for you with one on one sort of advisory and mentorship and then collaboration and project based work all online remotely that we have basically created on a learning management software system to give students access to that while they're still in school. And so far we've partnered with over 60 universities across The US and Canada.

We have over a thousand students globally now accessing our program. There's a private program where people have to apply and get accepted into. We get over, you know, two fifty applicants every semester. We choose about 10% of them. And then there's an online public program that you can do at your own leisure that now over thousands of students around the world from 26 countries have signed into and gone into it to utilize themselves.

And we've also created an online community through, like, social with, Slack channels and Discord channels for people who are in the sort of early years of their journey to collaborate, find their co founders and share ideas and build together with. That has just been an incredible success story for us, where we've even seen some of our graduates go on to raise $50,000,000 combined in venture capital dollars, go to work at some of the best venture capital firms, and then well, receive capital from ourselves at Ripple to be investors and lead investors in their seed rounds after they've gone out and built their companies after graduating the program. So when you look at incubators and accelerators and different programs people have, How would you, again, differentiate what you're doing with this fellowship program and why the fellowship program as opposed to these other approaches? Yeah. Sure.

So let's lay the definitions out for what each of those mean. So an incubator is a place where you can go and basically pay like a debt hot desk rate, like a rework, has no defined time period, but you're surrounded by other like minded people or advisors that can help you, whether it's in, like, biotech, health care, insurance, fintech, whatever. Those are what incubators are. And they don't have a demo day, typically, and they also don't take equity in your business for any capital they give you. You basically just use it as a collaboration space.

An accelerator like Y Combinator or Techstars is a condensed period of time where you take money from them in return for equity anywhere from like seven or so percent. And they have a demo day at the end of that condensed period where they give you a lot of the framework for how to build and scale your company. The fellowship programs out there that a lot of funds have been running are mostly focused around deal flow access. They give university students the leisure to go and network, share their friends' startup ideas with the the venture fund, and then they say, thanks very much, student x. Appreciate you introducing us to the next Airbnb.

Pat on the back and maybe we'll hire you as an intern. That's sort of the way that a lot of these fellowship programs were set up, mostly as scout funds, if you will. And then sometimes they'd give you some capital, 25 ks, 50 ks allocations to go and give to your friends' companies. What we decided to do with the Ripple X fellowship program was not associated with deal flow, demo day, pitching, any of that. It was all about education at the core and how to give the right skills and tools necessary for the next generation of future founders and future funders.

That was the initial goal. It has now blossomed into a deal flow mechanism, a recruiting mechanism, a networking mechanism. All of those things have kind of come out of it. So the ripple effect is happening within this fellowship program that we've even received tons of partnerships from some of the largest corporations in the world looking to gain access to it. Why?

Because like I said, the talent coming out of it from a recruiting standpoint is phenomenal. Even at Ripple, you know, a majority, if not all of our associates and analysts have come from the graduate program from fellowship. We've seen a lot of our existing portfolio companies hire graduates from the program, and we've also seen a ton of great deal flow for us to invest in or other friends of ours in the in the venture community to invest in. And lastly, all these students who wanna become venture capitalists go and work for some of the best firms like Iconic or General Catalyst or Cowboy Ventures and creates a network effect for us to now go build relationships with those firms to co invest with later on, which is also amazing. And you're talking about students that are in, you know, these colleges, for instance.

Is there a program that also is ancillary to what you're doing for people that are not in college or is this only for students? Yeah. Great question. So in the beginning, it was just for college and university students across Canada, The US, because we thought that that was the best place for us to get people at the right early stage when they were just starting thinking about their career moves and also benefit from the network effects of being physically on a college campus when we were before COVID. However, in the last six months at the, I believe it was last Christmas, we decided to open up the program publicly because we were receiving a ton of inbound from people around the world outside of North America, as well as graduates, MBA students, or even, you know, people still working in startups and technology who wanted to be able to learn a lot of the things that we had.

So we took the curriculum, remodified it, put a lot of video tutorials into it, and made it publicly available. Anyone can access it. You go to fellowship.rippleventures.com, and you can go through the public course material at your own leisure and binge it like a Netflix episode. It's totally up to you. So we have made it available now.

And what's happening is people are completing the course, signing into our Discord channel as just an independent, and then meeting people who are alumni of the actual private program as well as the public program and creating relationships online through it, which is really cool to see. So when somebody goes through the fellowship program or this more public approach, do they have the opportunity to find other founders and people to partner with? Absolutely. That's the really cool thing that's happening. So one, we're also seeing alumni from prior cohorts bring in future fellow students to join the program, and then they become alumni and they keep giving back.

So we have alumni from, like, the early days come and speak to, like, the current cohorts. But then we have people on the public side interacting with people on the private side and talking about things, you know, in the web three space, obviously, which a lot of Gen z kids are all really excited about, you know, metaverse, consumer apps, or people are just saying, look, I'm looking for a cofounder. If anyone knows anyone, whether they're a Ripple x fellow or not, please introduce me. And they're creating these huge online communities for them to build and grow with, which is really exciting. So we are seeing that happen as well.

Historically, there's a lot of concentration of portfolio companies in certain urban areas. Obviously, Silicon Valley, Southern California, Boston, otherwise. Are you seeing this where people go back to the communities they're from and start companies in places they otherwise wouldn't be starting companies? 100%. So one of our companies in fund two was a Ripple x graduate.

Adity Gupta started a company called Lula. He had started with initial company that was not for us at the fund level, but eventually graduated to something we could invest in at the fund. And he's decided to build the company in Philadelphia. Graduated Drexel, wanted to stay locally. He had the chance to go into the valley and work there and build the company there, but he decided to stay local and it's been a great, you know, impact on the local community as well.

So we are seeing a lot of students stay in their, you know, either their college town or their hometown to build the next generation of companies. And it's been incredible for us because we don't have this sort of like, well, I'm in the Bay Area, so I'm gonna go to Sand Hill Road and talk to these people first because they're down the street kind of thing. And it really opens up the ecosystem to a lot more partnership, which is great. You know, that's kinda how Toronto got its start with a lot of people saying, you know what? I don't wanna deal with visas.

I don't wanna move down to The US and deal with, like, the health care there. I'm gonna stay here locally in Toronto, build a company, and get funded here, and it starts to, you know, fulfill itself kinda like the way the Shopify ripple effect is starting to happen as well here. In this kind of I was gonna refer to it as a post COVID world, but I'm not sure we're out of COVID yet in terms of people's focus on it. But in this environment we're in right now, do you see the way people approach work in terms of going into the office versus remote? Do you see a permanent change out there?

You know, it's a great question. We talk about this a lot. So, obviously, we were remote like everyone. Before we started with COVID, we actually had our own incubator space called the tank. That's how, you know, we kinda came up with the name Tank Talks because we had people coming in to our physical office working every day.

Our portfolio companies were working alongside us, and the collaboration around us was incredible. The energy with, you know, 50 people, five to six companies working at a time was just very captivating. Then we went to this remote world, and we all took it for granted. You know, no commute, wearing your p g a's to the office was great. But then we all started getting pretty frustrated and tired, so we started going back to the office.

We actually went to go work at our portfolio company's office because they had a lot of people and a ton of extra space, and that was really energizing. And in fact, this month, we decided to rent, like, a WeWork style co working space for our team to get together, and that has been incredible. I've been going in a couple days a week. The other teammates are there full time. And just the ability for you to pop your head out of a room, say, hey.

I need your advice on something, or, hey. Can you come look at this really quickly? Or, oh, by the way, I forgot to ask you. Those impromptu conversations just can't happen remotely. I'm sorry.

It was as much as we try to use Slack huddles and things like that, they're just not as impactful. And in fact, when we do our Monday meetings, the fact that we're all around a table now and can have like arguments around certain industries that we're passionate about, they come across more, you know, seriously than if they're done over video conferencing, I feel. So that's really good. So for us, I think we'll stick with the hybrid where people can work remotely for, you know, a couple days a week and other days they're gonna be together for our meetings and our thesis Thursdays we have and partner Mondays meetings and things like that. But I don't think if you're part of this sort of like apprenticeship world where where we are, I'm teaching the next generation of investors to come and work with us, how we think about things.

I think we need to be, sitting with them side by side for a majority of time. And I feel bad for a lot of young students that are graduating now who don't have the ability to have the experience of, like, water cooler conversations and impromptu, like, listening into a sales call next to the person while they're having, you know, partnership conversations. I feel like we have an obligation to society as people, you know, in their, like, thirties and forties and fifties who are still working hard to be able to teach the next generation of students and graduates what it's like to work in an office environment because there's a lot of things you you learn from that, and some of these young graduates are missing out of that right now, I think. Circling back to talking about mentoring and coaching. When you make these investments, how often are you going on the board of these companies?

Yeah. So in the beginning, we were on the board of almost every company because we led about 70% of our deals in fund one. I'd say we led about 60% of our deals in fund two, and fund three has just started, but we've already led our first one. We're either on the board or a board observer. What I will say is I've been enjoying being a board observer more than being a board director.

And the reason why is because I like to have very honest and frank conversations with our founders often, and I feel like I don't wanna talk out of two sides of my mouth where I'm a director who has a fiduciary duty to the other shareholders and have a vote and things like that, but then also give hard feedback to the founder that may say different things. And so being an observer, I feel like I can be a little bit more transparent and a lot less, like, you know, talking out of two sides of my mouth. So that we've been doing more. I'd say at the earliest stages, like the pre seed and early seed stage, we're definitely taking more board seats. And the reason we do that as directors is to set up the infrastructure of corporate governance and increase the muscle on how they report and have ownership towards the board.

But as soon as, like, a series a investor comes in, we're the first to put our hands up and say, hey. We'll transition to Observer now if you want us to, but we'll still be just as impactful and helpful to you if you want. We take a lot of pride in it, and I think our founders appreciate it. Matt, rumor has it you have your own podcast. Is there any truth to that rumor?

There is. Yeah. A lot of truth to that. As much as, I say that it's been great, it's a lot of work. So I give a lot of respect to people who have podcasts like you because I know how much time it goes into it.

But we do. It's called Tank Talks, and it really just started out where we were inviting people into our incubator space to talk weekly about things that were going on in the ecosystem or problems people were solving or needed help solving, like how to recruit, go to market strategy, like, very specific. And when COVID started, we had to go remote like everyone else. So we switched it to a Zoom call, then people called and said, hey. I wanna see the recording of that, or do you have something available on mine I can download?

And sure enough, one thing led to another to RSS feeds and YouTube videos, and now it's a a weekly podcast we release every Thursday. Wow. And in terms of what you're focusing on right now or any particular things that have stood out to you? You know, we have a mixture of operators, CEOs, founders, and investors, so we really like to change it up. But what I'd say that we like to really focus on is, like, real current problems people are facing that they need help with.

So whether it's, like, how to increase your win loss ratio for, enterprise sales teams or how to deal with the current, you know, talent wars that we're facing right now as a HR executive leader, how to think about portfolio construction theory as a venture capitalist. Very specific ideas or problems that people need help with is what we try to do, but we don't wanna make sure it's only focused on, like, B2B enterprise SaaS because not every listener, the tens of thousands we have are all only care about b to b SaaS. So we need to keep it, quite broad, but also quite focused at the same time. So we're we're trying to cover everything from an operator, investor, and founder level. As you're looking at kind of the challenges that people are facing and so forth, I mean, we talked about that people should try to get their burn down so that they can go twenty four months.

Are there other unique challenges that you're seeing in this current environment? We know interest rates, at least in the short run, are going up, and the question is, as a CEO that you're coaching or as you're trying to identify the challenges that people are focusing on, what do you think are gonna be those unique challenges that people should be trying to get ahead of right now? Yeah. I think one of the big things that we're really trying to focus on is understanding what makes your business work. Really, what makes it work and not try to, like, test every hypothesis you can under the sun too quickly.

We've had a lot of companies, like, ramp up sales teams early on because they got some good early stage seed funding, and then all of a sudden they realize their product can't stand up to what it needs to, and they're rebuilding. And so we're trying to get companies to really understand their numbers, their metrics, their go to market flywheel effect, and the ways at which they're going to reach the next milestones necessary with the most realistic chance of probability. So we're trying to take the hope out of the hypothesis and this sort of, like, wait and see approach to a lot of the things that companies typically do at the early stage. Now we're not trying to predict the future because, obviously, there's a lot of things that go into creating, you know, the successful outcomes you want. But for example, one of our companies yesterday, when we talk in our Slack channel all the time, was saying how, you know, when it rains, it pours.

We've been getting tons of customers coming in this week. We just signed our biggest contract. We just got our biggest partnership opportunity this week. Like, all of a sudden, it's just clicking. I said, guys, I want you to realize it doesn't just click.

All the things you've been doing over the last six months have been building to this moment. It's just now showing proof and results today and yesterday. So don't think that it's just luck that created this stuff all of a sudden. You have to realize that all the building blocks, the Lego blocks that you're stacking on top of each other that may not show results the second you release them or create them is now just coming to fruition. And that's what we mean by building the infrastructure, the governance, the muscle memory, and all these things early on because they eventually will click and you'll start to see the results.

And it's that time period that a lot of especially young founders don't understand, like the instant gratification world that we all live in today with TikTok and Instagram and everything being fed up to you for that quick dopamine hit. It just doesn't work that way in business. It takes a long time to see the fruits of your labor, and we wanna make sure that founders understand that now. And in that regard, I mean, I think we've been in this environment where for young VCs and for young founders, wasn't there almost like an assumption going in that, you know, six months later, you could do a follow-up round? And as a result, there was a little more forgiving environment.

In this environment, when you're talking about going out two years, are you finding it necessary to kind of explain to them this new reality in terms of that if you don't get certain metrics or you don't get to certain levels of profitability, it's gonna be hard to bring in that next round of financing. Yeah. I mean, six months, we were seeing deals being done in six weeks post to, like, the last round. It was crazy. Right.

But I think, like, what I always say to our team is, like, it's really easy to be an investor. It is. Like, just writing a you know, signing a one page safe note and calling yourself an investor is pretty easy. Right. It's when you wanna return capital that becomes really hard.

And this is where, like, I give a lot of credit to, like, the private equity guys because they're doing a lot of hard work a lot of the time in finding companies, managing them, and then eventually exiting them. It's a lot of hard work. And so what I try to explain to a lot of our early stage founders is it's really great when you think you've raised, like, tens of millions of dollars, but let's just play back the math here on how much capital's been in versus how much you generated in revenue, and then what that would look like on an exit standpoint, and what your common shares are gonna be worth, and what these options are gonna be worth. Like, what are you actually gonna take home at the end of the day after you've done all of this? We need to talk about that earlier on with a lot of our founders.

And so what we say to them is, like, don't look at the next 10,000,000 you're trying to raise as a way to, like, increase the expected outcome. Because right now, we're dealing with some, like, private equity transactions as acquirers of our existing portfolio companies. And some of our founders are in for a pretty rude awakening when they try to understand, like, the waterfall on some of their ownership in the business. And so we say, like, really think about when you're going out to raise, what is that being utilized for? What are you trying to achieve with this new injection of capital to be able to show something that's more meaningful than what you currently have on today's, you know, cap table and, you know, revenue for it?

Because it's probably not what you think it is. Meaning, like, just because you're getting valued at 50 x revenue on today's cedar series a round, that's only for, like, you know, 10 to 20% of the company. You wanna go sell a 100% of this company, you still may only get value at the same amount of money. So think about it when you wanna take that capital, what that means overall for the business and your employees and your partners and all these things. So we try to play like this, like, we know that this is what you wanna do right now, but, like, let's just open up the aperture a little bit more and think about all the cause and effects and probability situations you're gonna run yourself into when you make these decisions.

And that's something I think we didn't do a lot of in the last few years. It was always like, get the money in and we'll figure it out later. So I am curious. You talked about there's a fairly even split between your Canadian investments and The US investments. Did your portfolio companies take PPP loans, for instance, in The US and or SBA loans?

And if so or if not, and then did Canada have similar programs? What was the effect of all that in terms of kind of where the world is today? Yeah. Great question. So some of our companies did take those PPPs.

It wasn't very large. It was pretty small, and a lot of them have paid them back. In Canada, we had a very similar thing. A lot of it came down to, like, commercial real estate given that, like, 60% of our economy is tied to to real estate. So we had, like, these rent relief programs and some of these small business loans that people were taking that don't have to be paid back for, like, three years.

I think 2023 is, like, the first payback interest free up to, like, maybe $60,000 or something. So it wasn't massive. There were a lot of people that took them from other businesses. But I think, like, now we're entering a phase of, like, a lot of people are talking about venture debt. A lot of people are talking about, like, you know, how to take a lot of credit and things like that.

And, again, like, when we speak to our founders, we're like, never take long term debt to solve short term problems. Like, don't take out, like, $3,000,000 line of credit or a venture debt loan to pay your salaries because, like, it's gonna end up really poorly for you because they're at the top of the stack when everything, you know, needs to be liquidated. And so we try to make sure our founders are making conscious decisions and understanding the ramifications for a lot of things they're doing early on given that I spent over a decade in finance, I have a pretty good understanding of how these things work, but even still, like, there's a lot of details and stuff that we need to make sure they're aware of. So we bring in advisors and partners and all of this stuff when negotiating it. But the COVID relief was not as large as it was obviously in The US, and I don't think we had as much fraud as there was in The US as well, thankfully.

But it wasn't something that I think our startups were relying on. This may be a little in the weeds, but you have a great background in finance. So maybe this is something that would be interest especially to some of our VC listeners. One of the things that someone was telling me the other day was that if I'm a fund and I'm thinking about follow-up investment and what I'm gonna do in terms of backing my companies and putting money into those follow-up deals, one of the things I'm always thinking about is my next round of financing. And LPs who you could traditionally count on, I'm told, are going through their own retrenchment right now because there's a certain amount of money that they can allocate to the VC space.

And when you have the public markets down and you have bonds down, all of a sudden, the percentage of their portfolios that are invested venture capital has gone up because of the way things are mark to market. And, otherwise, there's a lag time there, but their ability to do follow-up investing in VC funds is somewhat limited. If we're looking out again where the puck is going, do you think that's gonna have an effect on the VC world? Yeah. So we call that the denominator effect, which is very true.

So the denominator of how much liquid assets, typically bonds and stocks, are available for venture capital has always been typically small from, like, the institutional, model anywhere from, like, five to maybe 15%. And if the denominator goes down, meaning the value of those stocks and bonds go down, you don't have as much free capital to continue to reinvest in these venture. Now the mark to market thing, I think, is more of, like, how much of a weighting is this currently from the invested side, but you're talking about, like, future investments. And I'd say the denominator effect has much bigger impacts than the existing, you know, investments already made, but it has some impact. I'd say venture capital as an asset class, I think, has over time performed exceptionally well.

But I think there's gonna be a lot more bifurcation in terms of, like, venture funds that make it to the, like, the three, four, five fund model and beyond. You know, we're on fund three, and hopefully, we continue to be able to get off to the right institutional path. And I think we have with our, you know, lead institutional investor on fund three. But I think, you know, there's definitely a lot of drop off in the emerging manager category right now from fund one to fund two. So if someone went out and raised like a small $10,000,000 fund like I did, you know, last year on AngelList or some rolling fund SPV style, it's gonna be harder for them to get to fund two in this environment for sure.

So you're gonna see, like, the thousand plus emerging managers we saw not probably make it into the next sort of iteration of of venture funds, but But I still think the asset class will be viable for the the long term. I think a lot of people understand the benefits of alternative investing and the returns that have been generated. And I think, like, the retail investor has also awoken to this, like, alternative investor asset class. So there's gonna be a lot of platforms created to help get traditional retail investors or family offices who maybe don't have always access to this investment class, get access to it through platforms like Allocate or something like that. Interesting.

And so when you look at also kind of the deglobalization movement going on right now, but also the government money that's going into certain technology and and moving things home, does that figure in any of the things you're doing in terms of the type of companies that are getting started or where people see the world of venture capital going? You know, in some ways, it does, but not really for specifically us. I've never looked at the government as a great investor. I think the government should be focusing on, like, ways to help society and and infrastructure and health care and education and not necessarily betting on, like, rockets and things like that. In The US, it's a little different.

You've obviously had a lot more of this cutting edge investments in technology with DARPA and stuff like that and partnerships with Stanford and the military and things. In Canada, we haven't had that type of funding for a lot of innovation. We've started to see a little bit more of it recently, and I think the funds that are focused on that type of investing, whether it's life sciences or, you know, cybersecurity or, you know, climate change, like, yeah, that makes sense. If you're gonna get the government to back it, you wanna be in those areas. But, like, I don't see the government helping our B2B enterprise SaaS companies that much.

The only thing we saw during COVID was, like, the investment in telemedicine. To be honest, it took forever to to get ruled out. So by that time, our companies were already well off and they got funding elsewhere. So I think they're just a little slow, to be honest, in moving. And therefore, like, I'm not gonna wait for the government to back something for me to jump on the bandwagon because by that time, the puck is already gone.

So, Matt, when you're looking at leading deals or partnering with people, is there any secret to kind of the types of funds you're partnering with in Canon and The US? It's a great question. So we've been very open and transparent with a lot of the funds that we work with. We love communicating with a lot of the funds in our ecosystem. In fact, we are probably the most well known for bringing a lot of the, you know, seed and series a investors around the table to invest in our following rounds because we brought them to deals.

And so we have a lot of great GP managers as LPs in our existing funds, which it also creates alignment. But what we do really is we send a biweekly update on all the deals that we've seen and passed on to a broad group of venture funds for them to have access to. We have a ton of catch up calls with other venture funds sharing a lot of deal flow. And, yeah, we're really focused on bringing the next round of investors around the table. I think that's what makes also a great venture fund is, like, you're spending a lot of time on the operating side, helping your companies on day to day, but you also gotta spend a lot of time in the other ecosystems in New York, Boston, San Francisco, you know, Chicago and Austin stuff, building relationships with the next round investors.

So the series a, b, c, and beyond, teaching them all about what your companies are doing, keeping them up to date. And maybe they passed on the round you introduced them on, like the seed or series A, but they can come back around with a B or they may know someone. And then on the other side, it's also private equity firms. We have to build a lot of relationships worth because they can be an exit partner for us one day when there's liquidity. And so we do work building relationships with the summits, the JMI's, you know, a lot of the Tomo Bravos and insights and things like that on the private equity side as well.

And then what about on the Silicon Valley Bank debt side of the equation? Do you encourage your companies to take on debt? And then again, if yes or if no, do you see a change in the market there? Like, is there as much access to debt? Or have the banks and the non banks cut back in terms of what they're lending at this point?

Yeah. So I think, like, you know, venture debt is, definitely something that we always consider. We usually like to tie it to an equity raise. I mean, that's exactly what the lenders would say as well. You know, it's not usual for someone to have not done an equity raise unless they're moving towards profitability.

If they're still burning capital to go out and just get a venture debt, term sheet is gonna be quite onerous if you don't have any equity associated with it. So if we do an equity raise, we do like to do a little top up on the venture debt side. And we're partners with SVB and Royal Bank of Canada and all the venture debt providers out there. So we know what's going on. I'd say in this market right now, some companies that are still, like, early revenue traction are probably gonna get, like, maybe, you know, six times MRR.

So it's not a lot of money if you're only doing a couple $100 of ARR in terms of venture debt. And that's too small for like the Silicon Valley banks of the world, to be honest with you. But if you're up into the like 2 and a half, 5,000,000 plus $10,000,000 range in ARR, you will get funding on the venture debt side. And that could be sometimes, you know, six to 12 times MRR. And that's a meaningful amount of additional runway if you're doing, you know, multiple millions of dollars of ARR.

So we are considering that and seeing that right now to maybe bridge us a little bit as we get to the next funding milestone. I've noticed in talking to some VCs that valuations have changed. Right? So valuation seem to have gone down in the VC world. In terms of the availability of debt, has that gotten tighter in your portfolio world?

Well, like, the venture debt guys don't care about valuation. Right? Like, they're in the business getting their money back and a little bit of yield on top of it. So then they they don't care if you're valued at 50,000,000 or a 100,000,000. It's whether or not, like, are you a viable business?

Can you get your next equity milestone a hit? And whether or not they're gonna get paid back. And all the other business benefits that come along with it, like keeping all your cash with that bank and all the credit card accounts they can set up and all that stuff. So that's what they really focus on. But I'd say, like, yes, the venture debt market would have tightened for the companies that are really early revenue and don't have a good chance of raising your next funding round.

So that's why I say, like, if you can tie it to an equity raise, you're in a really good spot to raise venture debt. If you're just trying to do an outright venture debt deal and you haven't raised money in quite some time, you're kinda shit out of luck. And then the other thing is, like, they're looking for about twelve months of runway, and they'll put, like, a covenant on it of certain growth milestones and things like that that you need to hit. You gotta work within their band as well. Got it.

Because, again, some of these lenders, at least, it appeared in in an environment where people were doing these follow-up rounds that the warrant part of it was a big piece of it. It's, like, so small sometimes. Right? Like, the warrants are, like, 50 basis points, maybe 2%. So, like Right.

You may think that it makes a lot of difference, but, like, a warrant on a company to Silicon Valley Bank is not gonna change their profitability as a public company. Maybe for some of the higher, like, mid tier venture debt providers who were trying to cut into the Silicon model, but they don't have the same access to the capital. So their cost of capital is a lot higher, so they need to make up for it on the warrant side as well. But they're taking more risk that way. Got it.

Interesting. For us, it's really important for people to understand, like, when I started out to build Ripple, I wanted to build a franchise, not just a venture fund. And we've had that from the very beginning, from fund one all the way to currently fund three that we're still raising for right now. And we think that the people that we're trying to surround ourselves with see the world the same way, whether it's the founders, our LPs, our partners and institutional backers as well. They're building for the future with us in fund three and fund four and fund five.

And so I think our performance in in the early funds is what we are trying to prudently show that we're not paying for, you know, excessive valuations. We're trying to get capital DPI back to our investors. And I think what people should realize is that, like I said, it's really easy to be an investor. It's really hard to return capital, especially in these markets. You know, the saying, like, 80% of the accidents happen on the way down from Mount Everest.

A lot of people can get to the top, but a lot of people can't make it back down to base camp. And that's because they exert all their energy trying to get to the top, waste all their capital as a metaphor, trying to get to the top of the highest valuation, but then getting back down safely and returning that capital is where a lot of people fail. And we're trying to be very prudent and responsible about that. So we will take chips off the table early. We will try to reduce our losses in the portfolio.

We will make sure that our winners remain winners, and we don't try to over, you know, extend themselves so that we have nothing to show for it after, you know, seven to ten years of holding an incredible company's position. So those are the kind of things I would say, like, we like to make sure people are aware when they think about why we are what we are and what we're building. Matt, this has been terrific. Thank you for the time today. Thank you.

The POC Venture Capital Beyond is produced by CMEG Advisors. If you enjoyed the conversation and haven't subscribed yet to the show, you can find us on iTunes, Apple Podcasts, and SoundCloud. Check us out on Instagram and Facebook and let us know what you think about the podcast.