Brett Calhoun | Redbud VC

[Music] Hello everybody, welcome to another episode of Fun Raising where we interview top early stage investors and ask them all the questions that you as a first-time fundraising founder want to know about the fundraising process. And today I have Brett from Redbud VC. Could you give it introduction a little bit of the fund, what you're investing in, check sizes, stages and in those things? For sure. Yeah, so I'm a general partner at Redbud VC. We invested the pre-seed stage and how we think about that is first check to first institution around. average check size is about 400k in this fund. And we invest some people who don't give up. So really it's a super generous thesis across industries and technologies. About 15% of hardware, little bit in life sciences, a little bit of consumer and we have done quite a bit of vertical over or for horizontal. Really like folks who have unique insights, secret about industry, founder market fit, distribution or crafty ways they can hack through distribution. I love that. Is there a particular sector that you're excited about right now or more interested in or is it still just almost looking at those founders? We definitely have a ruthless strategy around sourcing and pulling in as much talent as possible. So casting a white net with the philosophy that the higher the quality of the pipeline, the more you grow it, the higher chance of success. You have picking a solid founder. We have had a lot of success in healthcare, in Fintech, in the built world, industrial type investments and some in like hardware and robotics. Yeah, love it. Let's take a step back, Brett. What were you doing before you got into VC? And why did you choose to get into VC? Yeah, so I had a Hodgpaj journey, untraditional path here. I did have a couple of companies I helped co-found was on a first person on the team for an incubation at the legal tech fund called Capgains. Co-found a lending startup for veterans called Charlie Mike, the finance closing cost of the mortgages, worked with the legal tech fund, worked with a fund model in grad school, Missouri that was just focused on dusting and Missouri based founders. Was an early employee at a company called Patient. But before that, I mean, I grew up in small town. Arkansas, lived in Missouri, Illinois, played football at a D2 school, like did not come from like routes that are like typical to getting into VC. Was lucky to meet some of the right people that opened up their networks for me. One of those guys was Jay Malik, who had started firm called Countdown. So yeah, very much an untraditional path, but a bit of finance, entrepreneurship and VC in there before. I feel like the untraditional paths often make the best VCs in my maybe selfish opinion. But what is your favorite part about the job? What is your least favorite part about the job in being a VC? Favorite part is meeting all the amazing people who know so much about their specific niche. Yeah, that is the joy I get. I mean, this is a relationship business and if you don't like that, you should not be in VC. What I least like about venture is probably telling everybody no because now the climate has to tell somebody that their dream and passion and life work is not good enough for your capital, not because it's not good, but just because we have a finite capital. So I think, you know, when you first get into VC, it's like a candy shop, everything looks good. And then you start, cynical, it's probably not the right word, but you start to move the bar. And then you start saying no to pretty much everything. So let's try them the worst part of the job. Absolutely. Along that line, is there anything that you wish that more founders maybe understood about being a VC? Common one is that, you know, we have to say no, the vast majority of the time. Is there anything you want to touch more on there or anything else that you wish founders better understood? I think there's a couple things. So two big ones I think I would touch on. One is that the venture math is like really hard. And I don't think people understand that. So yes, we're like super open minded about terms and valuations, all that stuff. But if you, if you're 5X, the median valuation, you have to be 5X, the exit outcome. If that's not the case, then you're squeezing venture margins. If venture margin gets squeezed, it's hard for anybody to raise additional funds. And so don't think a lot of entrepreneurs realize how hard it is, you know, at the preceded stage with future dilution and whatnot to actually return your fund. And then the second thing I think is so many entrepreneurs look at VCs that is like you're like sitting on this throne and like, oh my gosh, I'm pitching an investor. It's like, dude, I'm just like you. There's literally nothing special about me. So yeah, those would be the two big ones. Yeah, those are good ones. Final question here. Why should founders pick you or Redbud VC to be on their cap table? Yeah, so we're a collaborative investor, I think very complimentary to the cap table. We come from Columbia, Missouri, which is pretty unique. I mean, one, we're the only fun in Columbia. And you know, it's not like there's that much capital going to the coast or outside of the Midwest from Missouri. And so a couple of things that we have are one is like a completely different network of potential customers and talent in the middle of the country that most of our co-industries don't have. So we can fill that gap in the network effects. And the second thing is like, we have phenomenal operators in the team. So my one of us came from flashy backgrounds. My partners didn't go to high school or college, took a company through YC and that company just went public two weeks ago. It's like eight or nine billion market cap eight thousand employees. So like that right there is like a potential customer for anybody in construction finance and employer benefits. I mean, there's we're able to leverage them a lot. So those are some reasons. Yeah, love that. That's always that's that's great. I think getting out of the bubble and having these sees that are out of that bubble is a great addition to the cap table. All right, we're going to go to the fundraising process now. I like to call it kind of the three phases. The first for a lot of the folks listening that don't have a network. They've never done this before. It's how do they get the initial meeting? How do they go from not knowing anybody that's talking to people and getting to the first conversations? Second phase is you've had those first conversations. How do you continue the process? Get the second meeting and then ultimately close the round and then the third phase being kind of closing around and then how do we handle things from there? What happens after we close the round? So starting with the getting in the room. Is there anything that you would recommend to these founders out here when they're building? A lot of them have this initial list. It's a list of you know, 20, 50, 100, maybe a thousand VCs that they should at least start reaching out to or thinking about. What are some of the things that you would recommend these founders index on when looking for the VCs for them? Yeah. So one, it's obviously making that list and obviously cutting it down to a pretty targeted list. I mean, I would not go screen pitch book and then reach out to a thousand VCs at once. That is, I've seen a lot of people make that mistake. See, I won't getting the prospect list really down to your ICP of who the investor is. And then even before you want to raise, I mean, months before that, you're tinkering with an idea like I would be networking with other entrepreneurs who have a network of VCs who've raised funding before. One is like mentorship, but then also who can open up their networks. If they see you're that you're executing and have a high velocity moving fast, I mean, I'm sure they'd be open to you know, suggesting introductions to their current investors and whatnot. So that this is more, I'm telling this more for the point of view that you're a first time founder. Never really been exposed to VC. So that's a really good intro path. I mean, there's, I would obviously try to find VCs, you know, who accept cold outreach, engage with their content on socials. I mean, we get hundreds of pitches a month in bounce and DMs on Twitter and like, that just doesn't like, we try to go through it, but it's really hard to spend a lot of time. So if you don't have like incredible pedigree, you're not going to raise any eyebrows on like the cold outreach. And so, yeah, I mean, it's, yeah, reaching out to people, adding them to updates. Like I would be approaching this more as like, hey, I want feedback. This is what I'm building. You've invested in XYZ company. You could probably share some insights as opposed to I'm raising a million dollars. I have nothing raised. Like that is you have zero leverage going into those conversations. So if you're coming into it more for like feedback and mentorship and yeah, you're updating people. Once you get to the point where you're ready raising me even, I had having to just start asking like, Hey, are you taking money yet? So, yeah, those are the approaches I'm attaic. Yeah. Larsen, Jensen, our the GP here in Harpoon, as a saying, that I always love, which is that if you want money, ask for feedback. And if you want feedback, ask for money. And I think it's so true in this case, for whatever reason, it just triggers something in our brains to be a little bit more open to at least opening the door and then having that conversation. So you kind of thought a little bit about maybe some of the good things or write things to do when reaching out to VCs. Are there wrong things or the things that you see that just don't work and it's like, Hey, founders, don't waste your time on that as far as reaching out or trying to get in front of VCs. I think it's trying to play the game too hard. Where you're telling somebody like, Oh, I have commits it like a 12 post would have like, if you commit now at an eight, like, I'll look, you can have it. It's like, Okay, clearly like you're you're selling to me. Like I like I over time, if you're talking to good VCs who've been around for like a few years, they're able to spot people who are selling to them and have the spidey sense to sniff out what's what's real and what's not. And so to be honest, like the fault, I think it's to just be honest and have good integrity. And that is like very important. Like that's one of the top things like resilience for us is like that one thing, but like if you don't have integrity, like we can't partner with you, like that is and no stop. So I would say like that's that's something that a lot of founders. who get bad feedback from other people, certainly lead into, and yeah, I would watch out for the-- - One of the things that we all read, so we get, like you mentioned, hundreds of emails, DMs, but ultimately we get a lot of pitch decks or memos sent to us, and I find that a lot of times of VC has a specific slide that they get to, they scroll to immediately and they look at first, and then maybe if they're interested, they go back and they start from the beginning and go through. Do you have that slide, or is there an important thing that you are looking for in those initial outreaches that get you excited about having that first meeting? - Yeah, I mean, it's generally trying to get to the team slide. I mean, most of the companies we're looking at probably don't have a ton of traction. If it was in like a C-Sage investor, I'd go straight to the traction slide. But yeah, mostly the team typically glaze a bit over the problem slide. Just, I mean, if we're familiar with the industry, we're familiar with the problem. We don't really need to read too much into that. Assuming that it's, you know, unique wedge that could either be multi-billion or unlock multi-billion, maybe out of the team slide is most important to us. - Is there anything on that team slide that you think founders need to include or make sure that they talk about and how does the team slide stand out for you? - Yeah, one, I wouldn't put that. We have a combined 100 years of experience in XYZ industry. (laughs) I don't know why, but that is-- - Sometimes it's funny, I see those, and it's like one person that has thick 50, and then it's all these other folks that don't. But I think including like, yeah, what, like how you discover this problem, like why are you so passionate about it, what your unique insight is, and then how you met the people on your team, like if you guys worked together the past, I don't think people include that enough. It's more like, oh, I worked at SpaceX, and so like, you should invest in me. I think that's certainly relevant, but like, I think there's a bit more personal personality you could add to the team slide. That just saves us time, to be honest. It's like, there's like some things that, like, we try to check off. It's like, okay, this is interesting. I like that. I've seen a few founders do this, where I think it's great where they have the dedicated team slide, and they show all the names and faces. And then either on that slide, or even on a different slide, they have a quick little story of like, how they met each other. And I actually like that too, because I think there's shows some initiative, a little serendipity to it, 'cause typically it's like, well, how did three incredible people meet up? So I like that, that's a really good insight there. All right, let's say that they've impressed you enough, Brad and you're ready to schedule a meeting, they're going into this meeting. So now they're in the initial meeting phase. For your fund, for a bunch of funds, they all kind of happen typically around the same phase of the process here. What are you looking for as a VC? Maybe it's selfish, or what do you think broadly? Are you looking for in the initial meeting? So obviously, you mentioned the team slide is important. So probably some pieces on the team there. What are the things you want in that initial meeting? And they get excited to go to the next meeting, or the next phase of the process. Yeah, so I really don't like doing pitch presentations, I just feel like I'm sitting in a class and someone's talking at me, also probably partially my ADD kicking in. But really like to just get to know the person and understand what gets them excited and be able to see the passion coming flowing through them of what they're doing, why they're doing it, why when times get tough, this is going to be the, they're going to pull through. I'm just going to feeling for like, they're upbringing, how they grew up, how that perspective is like shaped, like what they're doing now, and how it's going to influence building their company. And then also understand like how detailed and thoughtful they are about it, and just making sure that it's, you know, it's not another sales person to the other side, just trying to sell me like I'm a customer, because I think a lot of people fall into that trap. Those are some good, some good green flags and characteristics. Are there any red flags or things that you see founders do in that initial meeting that ends up being something that has you running for the hills? - I would say the ones that go on a 20 minute ramble about their background and their company without even allowing me to ask a question or anything. Like I think that's like an immediate turn off because yeah, we want somebody who has good emotional intelligence and understands the room and wants a collaborative conversation or people who name dropped like 12 times in five minutes. It's like, you know, it just goes back to the sales person that I had mentioned before. It's like if you can spot somebody who's really selling you like that's, that's not necessarily a bad thing like having good salespeople on the team is awesome, but like you need to have the emotional intelligence of like when to push a poll on that skill set. - Yeah, and especially if it's not true, which happens quite a bit. It's not like it's lying, but there's definitely some exaggeration. - So much and especially now it's a, it's so easy to like spin up something and be like, oh, I have all this stuff. And then I mean, I've certainly had, this is one, I mean, an entrepreneur who got us all excited about how much traction they had and then you dig in and you're like, okay, well, like that's not AR, like that's an L-O-Y. You know, I'm really like that. It's, yeah. And so that stuff is, yeah, immediately turns us off. Like we feel like we can't trust the person. It's kind of like a end of discussion at that point. So are there any questions that founders should be asking of VCs and that initial meeting? And I'm not thinking of it in the lens of, when you hear it as a VC, you go, that was a great question. I'm glad they asked it, but more. It's a founder process too. They need to take control of the process. What are some of the questions that maybe you would recommend that they take control of or ask during that first meeting? - Yeah, I would be one, I think founders should ask for referrals on funds before you're partnering with them, especially if they're taking like a significant amount of the round. I mean, I've certainly had entrepreneurs who are portfolio who have partnered with funds. They didn't do that. And then those funds ended up causing issues for feature rounds for them. And so, yeah, I would not view it as transactional. That's for sure. And it depends on the founder. Like there are some funds that want to meet by weekly. There are some funds that are a bit more passive. Like I try to figure out what kind of investor personality you want to have and how that fund likes to interact with you. How they view board observer seats, board seats, like more of the governance stuff. Like you don't want to run into issues where somebody's not signing documents for one of those reasons. And then I would really try to understand like how this fund is going to support your company in the long term. Like is it a fund with fall on capital? Is it a one and done? If you have a lead investor around in a pre-seat, you probably, you know, you want somebody who's going to be able to invest the seat or take a pro out or whatever or help raise those feature rounds. So yeah, I think that's the bulk of it. Are there any other pieces of feedback that you would give for founders that are in that initial meeting phase? Whether they're in the meeting themselves or just coordinating them. Any feedback, pitfalls, advice that you would give? Just be yourself. I mean, it's actually kind of funny to see the different types of interactions those entrepreneurs have if they're talking to my associate. But then if they're for doing a meeting together, they're talking to me. And then like if we do a meeting with Willie, I mean, it's my partner, Willie. I mean, it's like if somebody has consistent personality and acts the same and doesn't get rattled, like that is a great sign. But you can see a sense of like nervousness, like accelerate as they go through our process. And that can, we can see a bit of caution because like when we invest in people, we want to invest in killers. Like we want a player's only. And if somebody's getting rattled and a pretty informal meeting with us and that we tend to have a bit of caution and those folks may just need a bit more coaching and in time before before coming to us. So yeah, I would, yeah, I would just try to be really prepared and not be too stressed out and nervous for for meetings. Yeah, that's good feedback. All right, so that's say they've had these initial meetings. They're in the phase now where they're having second meetings. They're going through diligence processes. What does the diligence process look like at the at Redbud VC for you guys? Yeah, we try to move with the founders timeline. So if they need a response in three days, if there isn't really a timeline, I would say our average is about two weeks from first meeting. So we'd probably do three or four calls with the teams. You know, we're in Columbia, it was already some of the cam meet everybody in person with how to lead investors. So it's awesome if we get to meet people in person, but it's not the end of the world. Dilligence these days is like, I mean, it's so much easier with like deep research on GPT reason clogger. (laughs) I mean, so a lot of the research and like being able to understand what somebody's doing is great, where we spend the most time, obviously is trying to get to know the team and understand them, but the second thing would be just cross referencing your hypothesis and like some of the secrets and unique insights that you're sharing with us are true. And so we certainly like to leverage our expert and customer network and maybe even make intrus to customers through the diligence process is, you know, like, hey, talk to this company, maybe they're even interested. And if they're buying your product, obviously we're probably investing. I mean, then we love doing references and talking to their customers as well. If it's a fast-moving process, I think for founders, a good thing to do is to have like recorded testimonials or like customer calls recorded in your data room because you're gonna have a lot of these these as for reference calls. So why not just have those ready already? So I think that's like, if the founders trying to expedite something by like a week, like you have to have customer recordings, like that is the easiest thing for us. And then investment memos, I actually like way more than Dex because just there's something with the writing and how much research and thoughtfulness goes into the memos versus just having a slide deck. So yeah, that's kind of what we look for. - Yeah, that's great. What are some of the things that founders when they get to this phase, sometimes they'll have to make some choices. And a lot of times it's a good choice. It's a fun place to be. But you all have to pick which VCs you will submitly let in. What are some of the pieces of feedback or advice that you would give those founders and what VCs they should let on their cap table versus leaving off? Yeah, I would. I think it's great to have big brand names. That's a big splash. I would be cautious about saying like if you're raising a three million pre-seed and then you know a larger fund what's coming to take the whole thing like ideas slightly gosh about that because if you have if you just slipped barely I mean maybe you didn't hit your metrics or whatnot now this fund doesn't want to support your next round like you're screwed. It's a very bad signal. Now I mean I think there's more funds being raised that are actually taking advantage of some of those opportunities but still I mean that's a big risk. Also when you're partnering with only larger funds it's a bit more corporate and so your time spent with that fund is not going to be as intimate as it would be with a smaller emerging fund like a Harpoon or like a Redbud. You're going to get access to partners more often. You're going to get folks rolling up their sleeves more trying to make customer interest rows trying to get data points so that they can raise their next fund and chill like this how I support it the portfolio and then certainly I think you don't only want specialized funds like I think you want a mix of generalists and specialized funds specialized funds could bring a network could add some credibility to all these people to diligence and whatnot but then I think having generalist funds is with good operators definitely provides a unique flavor and a different perspective than somebody who only knows that specific market. Are there any mistakes or hurdles that you should have founders watch out for during the the final closing you know days or weeks of their fund raise? Yeah I mean I would watch out for people slipping in terms or side letter is that you had never talked about before that could materially impact the company I mean I've you know it could be somebody who wants like warrants to buy you know stock in the company and subsequent rounds that fix valuations like that could cause impass or liquidation preferences or board seats or like I would be very cautious of that stuff and I mean I've even seen people request like legal reimbursement on safe routes like that is just. Correct. Yeah I mean like like you really want to work like you really want to start a relationship we're relationship off like that I mean I think having it as the market is so good and whenever the terms are pretty middle of the road where it's like leaning fairness for both sides it's not just oh my gosh we're gonna pay a hundred million valuation because we won the round like it needs to be pretty fair to have an efficient market and VC and it is a very efficient market and so yeah it's on those sides you want to agree with with both. It's great. They say they closed the round everybody celebrating champagne's pop in everybody's happy. What does the process look like for these founders right after let's start with maybe with redbud VC what is your relationship like with these founders right after the round closes and then ongoing. Yeah I mean I think the first month after investing we certainly have more touch points and you know I'm texting like you know what can we do how can we help but then there's a point where it's like okay I have this capital and most good founders we talk to don't really want to talk to investors that often I mean their heads down building their companies especially right after the fundraise it's like I just got done with this. Yeah I just want to stay out of the way like I I want to be on a text basis with all of our companies I want to be very personal I mean this this is typically a longer than a marriage I mean you're in these companies for 10 to 15 years so you know I want to maintain a good relationship over the course of that time I want you know if I'm raising another fund and LPs are doing reference calls on us like I want them to know that like we've done everything we could to support our companies and been there and and have had you know I integrity and been good kind of people but yeah I mean we don't we don't have a cadence of like meeting every month or biweekly I mean I send them annoying quarterly emails like hey update me on what's happening with the company and you know all this like how we make this more personal like I think that increases the quality of communication our companies have with us and and keeping us in the loop because we're not a lead investor so we're going to have a bit of a different relationship than a lead investor would um yeah that's I mean in a lot of the work I mean obviously you know our companies have founders splits or things happen and you know often times those things that are are pretty hard internally for the companies it's really good to loop willy on our team who's been there and done that and in higher thousands of people and had you know co-founders and whatnot um issues and so um on the other side where we spend most of the time the sell of our companies higher talent and get early customers and happy to roll my sleeves and either use my existing network or grow the current network and as we think about building a firm that's really important for us is kind of doubling down on this Missouri operator network and and having a unique gap in the market that most co-industries don't have yeah that's incredible and it shows that we mentioned earlier about having that VC that's on your cap table that not isn't necessarily in the bubble and not that they forget about you certainly not but I think having somebody that can actually roll up their sleeves and be there for you when you need it is pivotal especially in that first month after the raise what is one of the mistakes that you see founders make immediately after the fundraise I've ever a variety of really good answers here but I'm curious if you've seen any that are common in your case I would say you now have a lot of cooks in the kitchen and a lot of people with strong opinions and I mean this goes to like picking the right people up the gate but if you have a board now if you have a lot of investors who have opinions like they're not the ones building the company and so you just have to have a really good filter on the feedback and insights that people are pushing on you and so good founders that we invest in certainly have very strong opinions and they will not move away from those unless there is there are good facts to tell them that they're wrong so hopefully we're not investing in having these issues but I've certainly seen it where you're taking bad feedback or you know let's say that you raised XYZ amount of money and VCs are like you need to go higher five more people right now you need to spend this money faster you should be like trusting your gut and building your company and not doing what investors are pushing you to do because they need faster results to raise their fund like that is like something I try to like stay away from like quick mark ups are amazing passing the hoppetata is awesome it helps you raise a fund but if an entrepreneur is scaling a business and they're like well I don't really need to raise and like I don't care like as long as we're investing in good businesses they're going to have massive outcomes that's all I care about and so yeah I would just push founders to really have a filter on their feedback and trust their gut know that they know what's true in their business not in the investors that's great advice you hit it out a couple maybe of these earlier but what are some of the common reasons that you see startups fail ultimately at the end of the day it's a very hard job it's the hardest job in the world to build a successful company most will not make it and that's okay what are some of the reasons that you've seen most commonly whether it's you have through your portfolio or in your past experience it's I really think it's like the velocity of like execution of teams I mean the two faster two slow or for both way too slow like it's I think velocity of execution too slow trying to be too thoughtful waiting too long to launch it's got to be too perfect like if you're moving like if somebody is like paranoid and moving fast and just a hustling you just resilient hustling you're gonna figure you're gonna find out quickly okay I had conviction in this but I have new data I have to move that those are the best founders and the ones that take too long to discover those insights that okay what I what I started building in my hypothesis turn out to be wrong are the ones that typically fail because then now you've burned 12 to 24 months if you're runway building something that's not going to work when you could have pivoted into something you know nine months ago that you had discovered and and so I would think yeah because if it's bad timing and you have a war chest of capital deploy in a great team like you have a team and you have resources you're gonna build something whatever we invest it in might not be the thing but because you move so fast you're gonna discover what that is and if you are moving fast and in your hypothesis turns out to be true well you're going to get customers you're going to scale you're gonna raise money and you have to out hustle everybody else in the market it's the same thing with DC yeah that's exactly right and I think that moving slow is being stubborn is another one where you mentioned you spend 12 months and you realize maybe you're whether it was your idea or the problem that you were tied whatever it was as wrong and I see founders that they don't pivot they they stay on it they get hardheaded I don't know what what's the right advice there because I've also seen where it ended up being the right decision and then they come out the other side and they were the only ones right this is more often than not I would say it's that they they don't move and they were too stubborn to move and it ends up being the the nail in the coffin but it's hard it's a hard world yeah I mean that kind of goes to timing it's like yeah you might be like 24 months early and if you stick it out and you're ready and 24 like that that's a good point so I should generally speaking that is the advice but overall it's not true for everybody's journey yeah that's the it's the standard DC answers it's like it's not for everybody but thank you Brett this was this was great any last pieces of wisdom that you would pass on to founders either fundraising or in those early stages I would not focus on fundraising at all and just build your company and naturally you know things will things will happen so thanks for having me and this was fun perfect any places where can people find more about you about redbud getting of you any any last comments there? Yeah, I met Brad at Redbud.vc or you can find us at Redbud.vc on X-Lecton. Awesome. Thank you so much Brad. This was great. Appreciate the time and we'll chat again soon. Awesome. Thanks man. Talk soon. Have a good one.