Josh Manchester | Champion Hill Ventures

[Music] Well Josh welcome to the podcast. Could you start with giving us a little introduction about yourself and the fun? Sure. I manage Champion Hill Ventures, close to $100 million on our management across a number of entities including a fun three that we're investing right now. Yeah I've been an inventor now for 17 years and this this business started as a side hustle about 11 years ago. I started doing SPVs on the side of my day job in the industry and then I turned it into a real company about eight years ago and that's who we are today. Sorry. I love that. I'm a huge fan from a far of Champion Hill and I think any founder that goes and looks at the website, the brand, the companies that you've invested in. I think that there's a lot to like and it's one of the part of the reason why we're excited to have this conversation today. Can you shed a little bit of light if you can on the types of companies that you are investing in and perhaps the stages and check size range and some of those little details there? Yeah absolutely thank you and thank you for the kind words. So we are have historically always been a deep tech investor bias towards atoms not bits with a handful of different vectors along which we look for ideas. You know so we've always looked for just large problems hiding in plain sight as we say things that for whatever reason have not attracted solutions have not attracted capital or founders but which perhaps should and could be quite valuable if somebody does solve them. We've also had an interest in just things that Silicon Valley is less familiar with industries that Silicon Valley might be less familiar with. You know industries that perhaps are primarily located and other parts of the country that their average early stage of investment in the Bay Area does not interact with. Another great vector along the same lines is just to ask yourself what is taboo in California? The understanding that the vast majority of early stage risk capital in this industry is domiciled in the Bay Area and so what is your typical person there not allowed to think about? That's just a great way for for idea generation to happen. And so this has led us a number of areas over time. We're probably most well known for defense and I would say that in the period of time that was sort of I'd say seven to three years ago we really nailed defense investing really before a lot of the market was thinking about it or had rotated into it. That continues to be an area of interest for us. I was before Inventure I was in the Marines, you know have a lot of operational experience and just get did a lot of things in that domain quite this way as does my research partner Robert who was also in the Marines although he was in the 80s. Having said all that we're interested in a number of things and we have done a number of things over the years. The day you know I would just say at a high level you know what is fundamentally anti-mimetic within deep tech you know what is fundamentally a zero to one type idea or founder but that could be a large business. More specifically things that I've been just personally churning on lately. I think anything that touches population growth is extremely interesting. The decline in birth rates which has been going on now for 25 years and is a global phenomenon and seems to possibly be accelerating is I think one of the largest problems as a society as a civilization that we have today. So that's extremely interesting going out from and we've made some investments around that I should say as well. Going out from there into just health broadly what I call vitality there's there seems to be a difference today between the the nature of the the stack that people use people who are into performance and into taking care of themselves the nature of that stack and its legibility to the the healthcare system. There's a massive chasm there that's very interesting a lot of things that are in the stack that people use you know on an idiosyncratic basis are often quite heretical to the medical system as it exists that's also extremely interesting. So these are just areas for idea generation you know health span performance optimization. This is quite interesting to us and we think there's going to be a lot of great activity there over time. One step further into the realm where you you could encounter some FDA risk I would say human enhancement is on the horizon in one form or another. And so depending on what what the company might be and what the opportunity might be that could be interesting. Going in a different direction I think as a society we have what I have termed portal fatigue portal fatigue you know none of us want nobody wants the in plus one SaaS subscription whether you're a business or an individual or a household nobody wants that getting your portals to talk to each other and we're getting the right information from one to put into another I want these things to be seamless and to happen without me having to touch or look at a screen and I don't think I'm alone. So that's just an interesting vector for you know idea discovery and and and founder discovery. I'd also say this is one of my uh you know just flights of fancy you might say but I have a little bit of a prepared mind around anything that concealed something whether it's physical or digital concealment. We live in this world of pervasive and growing surveillance of all kinds all the time everywhere everything you know I have satellite companies that can take very very you know radar pictures of my house and one day they'll be able to take radar video I would imagine why not and and so just any anything that that conceals that hides whether it's a person a thing digital activity I think that's just quite interesting as an idea vector and then of course we have a few defense ideas too you know we've done defense for a while we have a little bit. But those are sort of the things that are most top of mind for me kind of over the last six months. I love that I love how broad it is and I think that it's always interesting and I always tell founders if you can find there's kind of no middle ground I think I think you can find investors that are very hyper focused and whatever it is that you're building. So if you're a biotech founder finding investors that hyper focus and biotech is great. But I also think that there's incredible value in having investors on your cap table that have maybe a specific thesis or rough kind of idea you know they're not necessarily investing in the next enterprise AI SaaS along with these super advanced bio technologies they have some thesis that they believe in a better world or their new technologies to make America great again all these things. But having that broad sense I think is a is a valuable trait that that founders should look for. So thank you for painting that picture. I know some of the companies that that you are mentioning and there's some some great ones in there. Van over it true and omelie is one of my favorite people he's a fellow caller aden as well. So always love seeing investors and investing in some of those spaces. Let's let's dive into maybe a little bit on the VC side itself. I think one thing that I see founders constantly asking are unsure of is what is it like to be a VC? I think when you're a first time fundraising founder the three F's which is a very common use case that we see for folks coming in they have no experience or understanding of what it means to be a VC. Could you share maybe a little bit for some of these folks that don't understand what is your favorite part about being a VC and also what is your least favorite part about being a VC and like opening the door a little bit to potentially some of the highs and lows that you can have in this job. Yeah my pleasure. I'd say my favorite part is sort of the social aspect to this business. You know any can at a hedge fund consider the desk and press buttons right and make trades but this is a an extremely social business particularly even more so at the pre-seed state I didn't answer your question there earlier. You know we are a pre-seed or inception stage investor investing as early as possible and nothing too early for us do anywhere from $252 million. We can flex as needed but I would say the the earliest stage is particularly social you know we have this even with other managers there's a sense of co-op petition between other pre-seed managers right where you're sharing deals and also somewhat competing and so very social and I like that you just build very deep relationships both with other managers and with with founders themselves and and that's really great and then you get to watch and observe as these very talented founders build pretty incredible teams to accomplish what people didn't think was possible or what they thought was difficult and it's really incredible to see you know hyper growth where something goes from two people to a hundred in you know 24 months or something like that is pretty incredible. I also really like just we get a tremendous perspective on what's coming next and you can't get too high on your own supply so speak you just have to have an open mind that you could be wrong you know the the future will be different and very agitated in ways that we don't expect and understand having said that I think as an investor you get a very broad perspective on on just society on trends on the future and that's just very rich and rewarding. My least favorite part of the job, uh, yeah, that's a great question. I would say, look, we got to manage a lot of service providers, right? I got three different sets of accountants that I got to crack some, you crack skulls from time to time or make sure they're all talking to each other or whatever. So that can be frustrating from time to time, but that's just part of the job. Yeah, I would say that's the downside, right? Like everybody thinks, it's so sexy to have this money and be able to invest it. And nobody thinks about hiring an auditor or, uh, yeah. Like one of the things that, uh, founders maybe don't realize is that they're fundraising and going through that process and talking to VCs. VCs also have VCs known as LPs where they're investing into the fund. And there's a process very similar to founders where you have to be accountable, have the fiduciary responsibility, which means doing all the books and there's a lot of hoops and things to jump through. So you're exactly right. Some of the logistical pieces of running a fund are, are really difficult. And I have known many of investors that certainly like solo GPs and early stage smaller funds that walk away because of that. So they're like, I just, it was too much and it's not, I can't do it anymore. And then I'm just gonna go write angel checks or something like that. But, um, but yeah, I can understand that being a big pain for sure. Last question before we dive into some of the fundraising pieces, what do you think makes a good investor and even kind of take me into a personal level? What do you think makes you and champion Hill a good investor to have on a cap table? So they could be the same thing. You give the same answer for what founders should look for in a good investor. And that's also what you offer. But they could be different as well if you wanna have two answers there. Sure. I think a good investor is going to have some kind of prepared mind at least a little bit around what you're building. You know, we used to say back when I started my career as an LP, we used to say we were looking for experienced investors who were fully engaged. And, you know, that could apply across a partnership of a few GPs or could or could apply to just one person. So if it's a if it's a few GPs, you wanna make sure you have the old and experienced and the young and hungry and the partnership and that, you know, there's good chemistry within that partnership. It was just a solo GP experience to fully engaged. You know, they're hungry, they're working hard, they're not spending all their time, you know, designing their B-touse or whatever it might be, managing the vineyards. You know, you want somebody who is in the height of their career and really trying to put points on the scoreboard. And I think the best investors, even after they've made it pad a lot of success, are still pretty deep in the weeds. They're not outsourcing their diligence. They're taking the calls, they're going deep in the models, you know, they're coming to the answers into the realizations themselves. And so, yeah, some prepared mind, experience, engagement. I think chemistry is really important. You're gonna be presumably, you know, things are gonna work in which case you're gonna be working together for 10 years. Obviously, if you're working either that long, that means it's worked very well. And more capital has come in and more investors around the table. So, as an early, very early investor, you know, you may get a little further away from the business. Just, you have something that the others who come in later don't have, which is time series data on the business. And that has a lot of value, right? So, chemistry, right? I think those are all important. And then I would maybe lastly say, just the, I'm gonna be sensitive to chasing a brand versus the person you're getting who represents the brand, right? There's lots of brands in this business at the earliest stage, you know, an early stage startup is essentially, in a way, one way to think about it is renting the brand of the fancy firm that might be leading the round. That's one of the reasons why that's valuable because nobody's heard of the startup, but everybody's heard of the venture firm until a few years later where that may be inverts, right? But, you know, maybe the person representing that brand is not somebody you like hanging out with, or maybe they are, or maybe they have no power in the partnership, or maybe they do. Just, you have to think about those things, right? So, those are some high level answers. And then, for me, I'd say why pick me, look, experience, I'm kind of the grand old man of precede. I've been in the asset class a long time. I started as an LP, I know where a lot of bodies are buried. I do not have aspirations to exit this stage. I really like the preceded stage. And so, as time passes, my knowledge of working with startups at this stage will continue to compound, and it already has compounded. So, hopefully that's valuable. I think I have an ability to think really big. That's what people tell me. I think really big, and that's valuable. I'm around the table. And then, lastly, just as far as interaction style goes, I do my best to have a hands-off user interface, if you will, breeding model is air support, right? I'm air support. You're down in the trenches. I'm not gonna bother you. I'm not the bright idea, Fairy. But if you have a problem, I will do my best to help you solve the problem. And if I can't, then I'll get out of the way, because again, you're in the trenches, and I'm just F-18, right? But I'm an F-18 with a big network and network leverage. And if you're trying to get in front of somebody, planning the next fundraise, trying to close a hire, whatever it might be, then maybe we can help. So, that's how I think about it. - That's a great balance. And I think that it's more rare, I think than founders would think. But every now and then, you do have an investor on your cap table. That is the idea, Fairy, and you'll get texts or calls at crazy hours or whatnot. It's like 3 AM, and I wake up, and I have a text from an investor with the incredible next great idea that I need to implement on my go-to-market strategy. And what'll happen is, I don't respond or something, and then you'll have a two weeks later, like, how did you implement that strategy that I sent over? So, and if any VCs, listening, don't do that. It's not as appreciated. It is tough for founders, 'cause at the same time, we feel like as a founder, when you raise capital from VCs, that you're our gloss, there's this weird thing. So, when you ask founders to do something, even if you're just giving ideas, it can sometimes come off as like, we need to change our whole focus on doing that. So, I think the air support is a great analogy there. I think that's exactly what it is. And maybe the last message to founders is, you need to take advantage of your investors when you can, especially if they're offering. So, if you have a Josh on your cap table, that's offering support and help, it's amazing to me how often founders don't seek it out. And I think it's for the same reasons. It's their little intimidated. They don't want to admit mistakes or that they don't know what they're doing. And, but I find that the best relationships, 'cause you are in this for the long haul, are gonna be talking to your cap table and the investors that are willing to help and actually having them help. So, it's great to hear that you guys are on that train. - Thank you. - Yeah, that's right. I agree with all of that. - Perfect. So, we're gonna dive into what I like to call the three phases of the fundraising process. If founders are watching this and they're visiting the site, it's most likely because they are in the fundraising process. And one of the things that we realized is that, there's not a lot of content out there for founders to better understand what it means to go into this fundraising process, especially at the pre-seed. So, part of the questions that we'll go into now are to add a little bit of light, maybe some hope and some tips and tricks on how they can shine during this process. We're gonna split it into three different waves. One, we're gonna call Get in the Room. How do you go from, I have this idea, I have this pitch deck. How do I actually get a meeting with the Joshua Champion Hill? The second is you landed that first meeting. How do you impress the people in the room to continue the conversation and go into that next phase? So, it's a short step, but it is just making a good first impression and having everything ready for that phase. And then the last one is just getting it over the finish line. So, you've made some good impressions. You've had maybe multiple meetings. What does it like to go into the diligence process? What does it like to have those kind of conversations towards the end and filling up your round? And then we'll have a couple questions at the end that are more what happens next, 'cause that's another thing founders never think about or understand. It's always focused on the fundraising process, but there are some things that can make it a little bit easier right after the fact. So, we'll dive into those. Start with getting in the room itself. When you're thinking of a founder, they're waking up, they have an idea. Do you have any advice for a particular feedback? You give this somebody on how they should look for a VC. Obviously, there are resources out there and they can find these lists, but what is something that some of these founders can do in finding the right VC to even reach out to in the first place? - Yeah, I would say if it was me and I was starting at zero, I would first sort of, my founder buddies to say, who are the, I'd reach out to my two to five founder buddies who were closest to me and say, who are the three to five firms each that you think are who I should be talking to? And then I would go look at, is are there aspirational deals in the very broad domain that I might be in? Are there aspirational deals that you could look at the sequencing of capital over time and say, who are the very first investors in these aspirational deals? And how can I find them? Anyways, I would make a list, I would try to make a list doing that. type of research. Try to get to at least 30 line items, right? Or 20 to 30 line items before doing any outreach. And I guess my main point there is I would not rely upon some list that's been curated by somebody else and just solely rely on that. Like I think that's a great resource. You can look at that. But you know, that's a broad generalist resource. You want to try to tailor it back towards yourself. And then I also think you should very much discriminate, discriminate based on stage. I give everybody the advice not to go to the multi stage firms right off the bat. I think, you know, in many cases going to a multi stage firm, you only get one bite at the apple. And if you're going to ask for that bite at the apple, you want it to be for 10 or 20 million dollars or more. You don't want to go to fill in the blank multi stage famous firm to raise your $3 million seed. This is what I tell everybody. If I'm, if I'm at the point where they haven't already done that, but many of them do it anyway. But I would not do that. If you're successful raising your first round, they're going to come to you. They're going to hear about it come to you. So I would try to develop like a curated target list. And there's going to be a probably a lot of firms on the list that you may not be familiar with, but people have told you that they're good people that you trust. And that's valuable. And then I would try to get warm intros. I would almost always try to get warm intros. I think that is almost always better. 98% better, 98% of the time that's better than then going cold. Now I will say cold is okay. There's a period in my career when I had to do tons of cold outreach. And I built relationships from that that I slept today. But you know, the yield is like one out of 100, right? And it's just not a great, it's not an ideal use of time. And so I would say if you go cold, it needs to be in a concise, highly scripted message, but then which is also tailored to the investor that you're approaching to say why you're approaching them and how you heard of them and even like, you know, whatever might be like why? Because like I get all kinds of cold stuff in. And most of it you can just tell I'm one of a thousand that they're reaching out to and there's no, there's no nothing there. Yeah, so I would just try to spend the time to go a little deeper than just, you know, whatever, the minus list. I would go much deeper than that. I would try to be a little more tailored, try to use my own network to get in front of groups. And I would not rely on multi-stage firms at the at the earliest stage, the very first round. I would not rely on famous multi-stage firms. That's a great advice. I think all of that, you mentioned some good tips on how to get in front of some of these folks as well. Is there a wrong way? Do you ever see maybe it's advice that you're seeing other founders giving each other or the way that some of these founders are trying to get in some of those early meetings? Is there a wrong way to go about doing this process? I would say no, like wrong way springs to mind. But I would just say like, showing up at their house unannounced is maybe crossing the line a little bit. But you know, you don't want to do that. But look, if you know somebody that you'd like to talk to is going to be at some event and you're going to be there too, there's nothing wrong with that, right? Of course. I would say what, what rubs me the wrong way? Like I guess would be like overly excessively salesy techniques that are that make me feel like I'm on a used car lot and not, you know, building a relationship that might last 10 years does usually rub me the wrong way, right? Yeah. And I think that some of the you mentioned cold outreach is fine. But if you are going to do that to not be that used car salesman, write something that feels real and be authentic with it, we get hundreds of emails per month and submissions and pitches. And you can tell right away when it's the de facto blanket, hello blank name. I've been following you and company name for quite some time. And it's like, those don't they just don't work. So you need to be able to be honest and authentic. So I agree. The no use car salesman is a good one. That's right. Exactly. Are there any pieces? So if you're doing, go ahead. More comments. Sorry. One more comment is simply, I almost always take calls with college students who reach out because they have, I mean, most they have no network. You know, they may not have founder buddies to ask. They may not have anything of that. And also they are in a phase of their lives where the next the next three years, they can have a vertical type trajectory, depending on what they're doing, who they are. And so like it is, it does not be who anybody to be dismissive of college students. College students who are founders who are looking for funding. College students who are looking for a job. That's a different story. Like I have a can speech. I have a can speech. But yeah, I'll say all that. Yeah. I agree. I think there's the young minds and university systems we find even on the company side. I think there's a lot of innovation that's going to come out of these universities over the next five to 10 years. And it'll be exciting to see though. So I agree. That's a good one. So if you are a fundraising college student, there's some angles in here. What about in some of those call out reach emails and things? What are some of the specific things that folks can include in that email? Like should they include a pitch deck? Is a question I get all the time? Other particular metrics or things I need to include in the email to get you more interested to click on it? What are maybe some specific things as it relates to what you're looking for in those cold emails? Or even if it's a warm intro, what are some of the things that will help get you excited into scheduling that meeting or wanting to click in more? Yeah. When I get a cold inbound, I'm typically looking for going back to what I said earlier, you know, antimimetic zero to one. I'm going to leave a novelty in some combination with some kind of pedigree that indicates that they, they're, you know, their founder product fit or founder market fit would be high. So what are they doing? Why is it different? Do they have the backgrounds to pull it off? That's less, less about metrics. If I get something that says, hey, we've grown 247% in the last four months or whatever. That doesn't mean much to me. That just, that just feels like sales, you know, buzz, whatever. But like, who are they? What are they doing? Why do they think they can pull it off? Is it interesting and unique? The very next thing I'm going to do is just to go to LinkedIn and see who we know in common, right? Like, who do they run with? Who are their people? Are they, are they surrounded by, by winners that I may know? They could be surrounded by winners I don't know, of course. But that's just like the next step is kind of looking for, you know, just always looking for ways to find diligent shortcuts, right? And social proof is one of them. You can't put too many eggs in that basket, but it does help. Well, yeah, I think the novelties, a big one, I think sometimes founders aren't as specific or in some cases, they're almost too humble. So they'll say that they're building something or it's a sales pitch. We're reinventing the way that people think about AI. It's like, well, okay, you need to be specific and novel. I love the idea of, of making sure that you're making it easy for people to maybe get to know you. So whether it's linking to your LinkedIn or having a profile, making it easy for folks to find you and then making sure that when they do find that you're optimizing those profiles, if you can, to the best your abilities and making sure that it's, it feels impressive. I love the idea of who you're running with. I think that's a great way of looking at it. One thing that we get a lot of is with the pitch deck itself. Is there a particular slide in the pitch deck that you think is the most important that founders maybe either forgets or or not? But what is the slide in particular that you're looking for leading up into the first meeting? Yeah, I, that's a great question and I didn't answer your other one, which was, should the deck be in the cold email? It can't be, it can't, it cannot be. I prefer to get a deck. Like the first question I'm going to say is this is interesting. Can you see it send a deck if there's not one there? But yeah, what is important in the deck? I think it depends on what the company is. Sometimes it's details around market insight or product insight that they have. They're just unique observations or perhaps insights into human psychology. If it's, if it's a strange sounding market, then details around TAM. You know, if the TAM here is big as it needs to be to have the outcome that we want to have, so that could be important. So depending on what they're doing, I don't want to say which page of the deck is most important. The founders are the most important part of the whole thing, but it's also quite difficult to have. I can't tell you that, you know, having this incredible founder page in the deck solves that part of the equation, right? I think that the evaluation of the founders just happens in real time on calls or in person. And then in terms of like, what are least important pages in the deck? I kind of dismiss pages of advisors, you know, where you say, here's the two founders, here's the first hire, and then here's our whatever, two to six advisors with fancy titles or pedigrees or backgrounds and maybe they're famous or whatever that never means much to me. Like if they have, if they haven't quit their jobs to join the company, then who cares? Or if they aren't planning to, right? You know, we have a Nobel Prize winner, a four-star general and a former ambassador to Germany or whatever, like that means nothing to me. That just means maybe you're too well-networked for your own good and perhaps actually you're just you're just mimetic chasing trends, right? And so I kind of tend to dismiss those things. Now, like, if they're investing after tax cash, it's like a four-star general who's putting in 100 grand, right? I don't know that that is ever happening, but yeah, that's more interesting, right? So yeah, I'd say that's the least important slide today. - That is a big one. I think advisors sometimes, it's almost a predatory, it can be a predatory environment. I see a lot of founders where they've had these advisors or people that reached out on LinkedIn, and it happens. So if you are a founder and you have people reaching out to be advisors, and sometimes I see it as a red flag, and I've seen investors that think of advisors, especially if it's someone who you look at and you go, "Well, they haven't really done anything. It's not a good choice of an advisor," so to speak. To brag about it or put it on there, can sometimes be a red flag, especially if it means, in the earliest of stages as a founder, you've given up equity and a cap table, and that can make things complicated. And I've seen founders that already have a board before raising money with some of these advisors. So I tend to say the same thing with founders unless there are very strategic, they're well known, and you trust them and have known them, and they're gonna be true value ads, that's fine. But sometimes I feel like founders too early, will start stacking up advice, and it's not always the best choice. - That's right, exactly. - One thing that we get a lot of, and I'm a designer by trade, and so I have a little bit of a biased opinion, but I like to ask it, is a well-designed pitch deck important? Does design matter when you're receiving or looking at a pitch deck? - Yeah, I think it does matter. I think the information in the deck is more important, but the design and the presentation does matter, and it kind of depends on the context. If something is really raw and early, and they haven't been fundraising, and they jam the deck out last night, so that they could talk to you about the idea, then that's fine. You don't need whizz-bang graphics or whatever. But if you're running a process, if you're running a process, then you should have a reasonably appealing deck that shows you've put some thought into it. I think some of the design choices that you make kind of reflect who you are, and it's not that hard to, if you're running a process, not that hard to go find some design talent to spritz it up, even if you're just starting with words, black text on white background. One thing I developed over the years is I have an aversion to decks that have calibri as the font, because it's the default font in PowerPoint. - It's so true, I think that I-- - They're saying like, having a-- - They didn't even go past the default font here. Maybe they're super geniuses, but I don't know. - Yeah, I always point people, I mean, fiber.com, there are good enough designers out there for $10. I mean, you could get a whole pitch deck done for under a hundred bucks, and the argument that I always have with design is that we do receive hundreds of pitches, we see hundreds of decks per month. If you do have a well-designed pitch deck, I can guarantee that it will have a higher chance, maybe not double or three X times more likely, but a slightly higher chance of just having somebody go through more slides or even look at it to begin with. And then it also is important to, if you have a well-designed deck, I think it's actually easier as a VC to surface or see the information that's most important, where if I see a poorly designed deck, it's more work for me to have to dig through, find the content, the text, the numbers I'm looking for, and that's what's important, I think, on the design side. - That's right, that's right. - So let's say I've knocked it out of the park. I've impressed you enough with my cold outreach email. My deck looks good. I'm going into a meeting with Josh and Champion Hill this week. What should I think of? What are you looking for as a VC in that initial founder meeting that me as a founder can start preparing for? - Yeah, I really, obviously we're gonna be analyzing the business idea to market all those things, but I'm really looking for who are they and why are they doing this, right? Why are they doing this? If they can build a multi-billion dollar business, presumably they could be doing a lot of things. So why is this the one thing they've chosen? What's gotten them excited? Why are they fit for it? You know, another thing I like to ask sometimes is how long have they labored an obscurity in this idea maze? Or how long would they laboring obscurity, right? If it takes longer than they think. I like to ask, you know, what are they breaking a rule? What rule are they breaking, right? An industry rule, some sort of common, you know, conventional wisdom type rule, you know, what's contrarian if anything about what they're doing? What do they know that others do not know? What have they figured out that others have not figured out? Particularly others who may have been working in the space or whatever they're trying to solve for a while. And then how do they know? Whatever the answer is, how do they know it? Have they tried every other solution and they know all the pluses and minuses or the capital market is ignoring the trend and they figured it out. And so that's all mainly about the founders. These are just things I try to tease out. And then just the problem itself, you know, how acute is the pain point? Is it such an acute pain point that if you have a good product and you can solve it, then the fish are gonna jump in the boat, so to speak, right? You're gonna feel such insane product market fit that it'll just take off and run. Or are you gonna have kind of a convincing process where you have to make the case that it's a great idea to buy it, right, which is less compelling? And then on the capital side, how much capital do they have to raise over what period of time to build how big of a business, right? I almost always ask this, three variables there. So it's, everybody has to stop and think a little bit. But this is very valuable to know, right? We're at the first round. How many rounds is it gonna be? What does those look like? What's the staging of the money? What does that get us to? Yeah. And I always like to figure out, do they lift? They lift weights on a regular basis? Do you even lift, bro? Yeah. It's an interesting indicator. It is. That actually would be a good micro fund. It's like you're only investing into founders that lift on a regular basis. And even then they got to send in their squat reports and the weights and those types of things. That'd be, honestly, that'd be an interesting case study. I actually might seriously think about about how that could actually work 'cause there's probably some correlation there. That from one of my own founders, who says that's how he makes Angel decision. Oh, that's smart. I love that. That's great. That's great. How much do you squat, bro? I'm in and show me before I let you write the check. I think that's great. What are some of the, during those meetings, what is a green flag that when you see a founder with this trait or what they're saying, how they're presenting, that gets you excited you're leaning in and want to invest? Let's say they're thinking big, which you have to listen for and tease out. You just ask the question, hey, how big can this be? Everything I say, oh, it can be huge. You know, they're gonna tell that to the investor, right? But you have to listen, you have to listen for the little things that they let out along the way that indicates that they're really swinging for the fences. That's a great kind of green flag. I think a good sense of humor is always a benefit, right? When the chips are down, are they gonna have like a, you know, be able to just kind of laugh about it and keep going? Maybe even a little bit of dark sense of humor, like we can develop in the military. Yeah. The ability to appreciate that. Yeah, then just other references. You know, when I say anti-mimetic, have they heard that before, right? Like just things where they might key in on things that I say that just indicate maybe like a shared cultural awareness of how to think about startups, right? On the other side of that, what is a red flag that when you see a founder present this trait or in this way, it kind of gets you leaning back a little bit and you're counting down the minutes until the meeting's over. You know, excessive name dropping for FOMO purposes, that doesn't really do it for me. It usually feel the opposite. You know, in many cases, the name will be dropped and I'll say, oh yeah, I know that guy. If I text him, what's he gonna say about you? But like, you know, I don't know, you pick a, pick a, pick a, I don't know, pick a famous tech, super angel, guru, famous tech person type. You know, those folks have a totally different set of return hurdles than a venture firm does, right? I'm not picking on them. I mean, if I shut this down and retired, I'd be in the same boat. Like, you know, what I mean is, you know, a venture fund has to return the whole fund before Kerry gets generated, right? That's not the case if you're just investing personal capital. You might be thrilled with the 10X. You might be thrilled with the 10X, right? And so there can be some misalignment there. So like, I don't necessarily know that it means as much as people might think it means to say, I don't know, I just pick on somebody like, "Navall." Like, I don't, you know, "Navall's a great investor, a great guy," and so forth. I don't know that it means that much to say, "Navall's investing." Are you in or not? Like, I don't know that that means a ton, right? Um, you know, there's a signal there of some kind, that's interesting, but I don't know that it's like, "Oh, wow, yeah, I got a, I got a wire today." Yeah. There's the, the FOMO kind of creep is, is definitely some I see founders do quite a bit. I think the biggest piece of feedback there, that I see quite often is don't lie about it. It happens a lot. So like, where founders will, and lying is maybe not the right word, but maybe they, they ran into somebody at an event, and then they're putting them in their pitch deck as somebody that was very excited about what they're building. And to your point, it's a small community. VCs typically know each other decently well, and to text another VC or somebody, we're willing to work with each other on those things. and the rest of the world. they'll be the first to admit, I don't even remember that person. And it's a double negative. It's not worth the mention if they cannot sing your praises. So you definitely don't do that. It's a major red flag and can bite you almost 100% of the time. I've never seen it work in your favor if it's something that you're trying to push on. So I agree. I think that's a big one. Switching, you're kind of flipping the tables a little bit. What are some of the questions that me as a founder should ask you as a VC during those meetings? So let's say that if things have gone well, before we hang up, if there's time, what are some of the questions that founders should ask VCs in this process? I would say, you know, you should be evaluating the VC in the same way. Chemistry, what types of successes they've seen in the past. Well, of their successful deals, what do we remind you of? That would be a good question, right? That can be a rich answer there. I would also say like, it'd be very useful for more founders to think about how they present the company and the opportunity by working backwards from what returns the venture fund of the person that you're talking to. If we put a million bucks in today, let's say we need to turn that into a hundred million dollars. So what has to happen for the million dollars that we put in today at the price that we're roughly talking about? What has to happen for this to be worth a hundred million dollars, including some delusion along the way, right? So that implies a certain size of outcome. And so then just work backwards from that. To get to that size of outcome, how many customers are we gonna have, whatever the business model is? How many customers are we gonna have? Like what's the sales cycle? How long do we take us to get to this? 'Cause how much capital do we need along the way to get there? So I answer the delusion question. I think if founders can put themselves in VCs shoes, I just don't think, this is not difficult. I just don't think a lot of people know how to do it or think about it. It's not difficult at all. But if you can actually work through that sort of mental model yourself and present the opportunity that way, I think it pays huge dividends because it allows you to talk to the investor in a better fashion with more confidence. So that's something I would do. I love that, that's great. So let's pretend that again, knocks it out of the park in these meetings, Champion Hill's interested, you're interested. Let's move into the diligence process phase. So this is typically, it takes longer than I think than founders think they assume it's gonna move fast sometimes it does, but it can be a real drag in the middle and it's certainly not guaranteed. Can you maybe shed some light for some of the founders out there of what happens during this process where let's say Champion Hill is interested, but you need to get to conviction. What should founders be prepared for during this process? And it's probably a big answer, but what should they think through as they go into it? - Let's say for us, we try to come to rapid yeses. Generally it turns into sort of we're chasing down and getting comfort and conviction in like one or two things, right? Like, maybe there's like a little bit of market work we wanna do. Like we're sold on the team, I think they can do it, but we wanna go do a little bit of market work on our own. Alternatively, like we like the team, we think they're great, but maybe we need to do some reference calls on them just because of the channel that they came in. Like maybe the channel is a little less warm, we wanna know who they are better, know it makes them tick better if we can, but meanwhile we're not worried about the market. We know the market's great, right? Maybe we need to try the product or maybe we need to go try other products. Maybe we need to go try competitive or the incumbent products to just understand is the opportunity, is there as little competition as we think there is, right? Maybe it's worse than we think it is. And then I think meeting in person is important. It doesn't happen all the time. That's how the industry at this stage has evolved, but if you can make it happen, you should on both sides, right? Yeah, so just being willing to get on a plane and make the day trip and even meet in the middle of the country if you have to, you know, you meet in the DFW Airport. Yeah, I think that's important. When you have the time and the window to pull it all off, I think that's important. Yeah. The face-to-face piece is an accelerant for sure, especially if you can meet in person. There's so much that you as a VC can understand and learn about a founder during that phase. The hard part I think about this phase too is different VCs are gonna have different things they're looking for and I always call it, it's a race to conviction. Your job as a founder during this phase is to get these investors to conviction, meaning that they're convinced they have some sort of conviction that your product, your vision of the future could be a reality and there's gonna be a bunch of variables. Some VCs might have one thing that they're looking for to get to conviction. Your job is to figure out what that is and then drive them to it. In other cases, and there's no right or wrong way, some VCs are gonna need more conviction. They might have a laundry list of things, but your goal is to during that process, figure out what that means, drive them to it, give them everything that they need and have that relationship back and forth. The one thing that can happen during this phase, and I'm curious your thoughts on it, and I'm curious about how often maybe you see it 'cause I think it's common with good deals when a founder gets to the point where they're getting close to being maybe oversubscribed, maybe they are oversubscribed and they're kind of in the final phases of picking what are some of the things that you mentioned earlier what makes a good investor, but maybe as they're approaching the finish line and they only have a few different spots open, what are some advice you should give to founders that are thinking about these decisions? And should they increase the amount of money that they're raising to squeeze people in? They're gonna get a lot of pressure to do that. What type of thing should they look for in those final investors that are maybe coming in if they're trying to pit them against each other? Any advice for founders that hit that 'cause it is common with good founders, it's a nice problem to have, but I find that it is the actually the most stressful part of the fundraising process is that phase. It's all of a sudden the tables have flipped, the founders now in a little bit more in control and it means that they have to potentially let some people down and it's kind of a good problem to have, but a problem still. - Yeah. I would say the things I would think about would be who do you get along with the best and how well can they help with follow on capital? And so specifically, who do you think are your most likely sources for your next one to two rounds? And then who, the people you're talking with, how many deals have they done with those other firms, right? And who specifically do they know at those firms? Like that's really important, I think. Because when the next raise happens, I think the more that you run it as a very planned process with your entire existing cap table engaged, the better the outcome will be. And in terms of just like, should you increase the size of the round and so forth, if it's a very small round and you're comfortable taking a little more and you're comfortable with the additional delusion, then it's not a terrible idea just to have more champions out in the marketplace helping you. Alternatively, you can say, look, we've talked about it, we're only gonna take four at 16 and that's it. But you know, you can stay in touch with others and the beauty of safes is that you can tuck more capital in. Time, you can say, we're probably gonna be in a position to add another million bucks over the next six months, probably at a slightly different set of terms, but why don't we just keep getting to know each other and see how it plays out, you know. The beauty of safes is you can raise them on a rolling basis. So I mean, obviously that can turn into its own whole animal to manage. But so there's a couple different ways to think about it. - You mentioned the, I see this commonly, I did this when I was fundraising as a founder where we did the safes and multiple tiers almost and we made that clear going into it. Is that something that you'd recommend to founders? There's obviously some pieces on the back end of it that make it a little more difficult from a cap table, management when you do raise a full equity round. But I found that it is a decent strategy to add a little bit of urgency and to have this tiered structure. But I've also found during that process that a lot of VCs don't like it. It's really difficult for a VC to get, you know, last week it was this price. And even if I missed the boat, I don't want to write a check knowing that last week it was 10% less. What are some advice is founders go into the fundraising process? A tiered approach is something that is, in some cases recommended, what are your thoughts on that should founders think through that? - Yeah, I just think if you do that, I agree, say 12, I thought you said eight. It's like, no, no, eight was last week, Josh. Typically, I mean, that's gonna hit different personalities typically. For me, it typically makes me wanna walk, right? Just say like, well, this is a far more transactional person related to how relationship driven I am. And hey, maybe I missed this one. I'll go find the next one. But I would say, look, yes, you can tier and it really just depends. I would say like, you could say we're gonna raise up to 500 at a low cap and it's mainly gonna be friends and family and angels and that's just the way it is. And then we're gonna raise the next two million at a different cap and that's gonna be more of the institutional preceded round. And then if you're the investor and you get there, really you might say, look, I wanna take the rest of the 500, whatever's left and blend that with the two million that you had in mind or you could propose something else. right? Well, you just depends. But yeah, I would say generally speaking, it's a turn-off for me, if somebody says, um, yeah, I have a founder. We're actually made a couple of very high-value intros for him. And then he went a little quiet on me. Then he got back and he said, the round's kind of full now, but you can take a hundred. And I had indicated like 500. And I was like, no, man, I'm out. This is a bad signal of who you are as a person, but nobody deal. Yeah, I think, yeah. I'd say, I think it's best if you can tie, it's best to tie increases in value to milestones of some kind, right? And the milestones other than we just raised money, you know, like a product milestone, a customer milestone, right? And time helps as well, right? Like if the price is 10, fast-moving early company, well, in six weeks, you could presumably have done something pretty important, hired another person, closed a customer, built the product, whatever, and maybe now the price is 14 or whatever, you know, that's the way you're, that's the price you're asking for, right? You might not get. Yeah, I think that the important part that I tell founders is should be open and communicative the whole time. You can't, you can, but to go to go to Josh and say, hey, you know, we haven't spoken, you know, Josh is coming back from, you know, two days ago, you said it was this and now it's this. You can't really do that. You should be very vocal and adamant about keeping all the investors in the loop because those relationships, not that they're tarnished are only damaged if it's feels as though it's happening in an ego-driven way or a not nice way. If you can keep it above board and everybody's involved, I tell founders to treat it as, hey, we're going out to raise, let's say, you know, one million at this valuation. We have some plans if we, if we reach that, if we were to raise another for K, which we could do to achieve these milestones in addition to the minimum that we need at a million, we don't want to take as much dilution. So that extra 500 K if we get to that will probably be at this valuation. So just having these mentalities of, you know, we're raising this at this, but if things go well and we are over subscribed or all these things, then we might have these other, these pieces there and then just keep investors involved throughout that process. I found that that works out well. There's, at the end of the day, there's also really no clear cut way. It just depends, which is the famous VC answer, but if you can keep investors in the loop, that's at least one easy way to manage it. Exactly. That's right. That's exactly right. What is one of the thinking about this phase? So during that final step in closing the round, you mentioned some, perhaps, ways that that founders can mishandle those situations. What is a common mistake that you see founders make? And maybe during the entire fundraising process as it relates to closing the round up, what is a common mistake that you see founders make that folks listening can avoid? I would say kind of in the same vein of what we're just discussing, like being too greedy on terms, right? A little greedy makes sense. That's human nature. I would expect it, but, you know, retraining the terms at the last minute or attempting to, just being a little too greedy on terms, you know. Yeah. I would say that I can make you re-evaluate the entire opportunity. Yeah. Agreed. So let's say we've gone through the process. We've raised our capital. Congratulations. We're all happy. What is something that you should expect as a founder with the relationships that you have with the investors on your cap table? How should founders think about the relationship immediately after but then ongoing? What's some advice you can give there? Well, I think this isn't always the case, but it's probably usually the case that the excitement level is probably never as strong again as one of the CMakes first investment into the company. And so your job is to build a rich kind of multifastied relationship with your cap table so that they can be up to speed when there are either important decisions or tough decisions to make, which means just regular basic updates, right? I mean, you should put yourself on a cadence of monthly or six week updates, you know. And then after a while, if you get going, you can drop to a quarterly type cadence. And I would say like in my experience, like generally if a company goes kind of quiet, sometimes it means things are really amazing, but usually just busy, but usually it means something's wrong. It's much better to ask for help early. Bad news doesn't get better with age, you know. And so, you know, I've gotten the text on a Saturday that says, hey, do you have five minutes and it's never five minutes when you get the text on Saturday and it could be we just got preempted. What are your thoughts or it could be I need to fire my co-founder. You want to have his conversations. You want to say, okay, let's what's going on. Let's talk about it. Let's kind of work through this. But if your six is great. If you're sending that text out and the investor hasn't heard from you since they wired the money seven months ago, then, you know, it's harder for everybody. Yep. Yep, exactly. What's a common mistake that you see founders make immediately after the race? So they've just raised their first round of capital. It's a new world for a lot of these founders. What's a common mistake that you see that these founders can avoid? I would say just continuing to be primarily in fundraise mode. As everybody says, you're sort of always fundraising and yes, that's true. You're always selling. Yes, that's true. But you have the money now and you need to be building something. Sort of continuing to hang out in the market. I would advise against too much of that. So you know, I would say some founders maybe they wanted to raise, you know, three million and they only got 1.8 or something like that. And then they're frustrated. So they kind of keep hanging out in the market and maybe they go back to others who passed sooner than they should. You know, it's stuff like that. I was just like, look, you've got the 1.8. You got to make it work with that for a while. You know, there's a when firms have passed on what you're doing. You need to give you have to give them probably at least nine months before before you show it to them again. Just because like if you don't, then it's going to be like, well, I just saw this thing three months ago, right? Like how different could possibly be today? Like you need to show distinct progress and time has to pass before you go back. They need to probably feel more phono, right? Then they did before, right? If that's possible. So I would say just like, you've got the money, then you should probably go kind of dark. And to the outside world, you're updating your cap table, but to everybody else, you're kind of going dark and you're just building. Let's end final question on a high note here. You've invested in some incredible companies. What are some of the traits or characteristics that you see in some of these founders or teams or companies that you think you a lot of these founders that are just getting started should look to to emulate. Are there any patterns or things that you've spotted in those winners? Yeah, I would say deep, deep knowledge of a market or a problem set that for whatever reason, nobody is exploiting. Nobody else is building it. You mentioned true and onally. That's a great example. Andrels a great example, Flexports a great example, Umbra is a great example, just of companies where the the founder had very, very deep technical knowledge of an area where there were not many other venture back startups for any of the number of reasons, right? And then just just being bold and audacious to go do it and go make it happen. I'd say it's better to go very deep in one area that nobody else is thinking about than to kind of be in the scene and in the mix and who are all working on their stuff to like I think just being a couple of steps away from the flag poll so to speak is very valuable. You know, being away from the hype cycle. You can be in the Bay area physically, but being intellectually away from the hype cycles is extremely valuable. Yeah, I think those are just high level thoughts, right? This is how you land on something that is truly novel and maybe even monopolistic in nature. I love it. Thank you, Josh, for for taking the time today. This was I think very helpful. A lot of founders are going to really appreciate it. It's great to get to know you a little bit more and everybody should certainly go and explore champion hill. All the answers you gave today were great to help these founders in the fundraising process as well. Where can folks find you follow you any final CTA big news or things that you want to point people towards. Hey, yeah, thank you so much. This is a great, I appreciate it. Appreciate what you're doing here. Great resource that Harpoon's putting together. Appreciate you doing it, Matt. No, you know, champion hill ventures the website. You find me on LinkedIn because the email me, you know, getting intro if you can. Yeah, thank you so much. Just great opportunity. Really appreciate it. Absolutely. My pleasure. You have a good one. Okay, take it easy. ♪ The lines fast ♪ ♪ Vision's the ignition ♪ ♪ But the numbers still the right ♪ ♪ Conviction and precision ♪ ♪ Watch investors collide ♪