Welcome back to Inside the Mind of an NYC VC, a new series at AlleyWatch in which we speak with New York City-based Venture Capitalists. In the hot seat this time is David Goldberg, Principal at Corigin Ventures (now Alpaca VC), an early-stage venture firm focused on consumer, marketplace, and real estate tech. David stopped in to talk about how his first business was inspired by Rent the Runway, what the next generation of venture firms will look like, the importance of entrepreneurs having a chip on their shoulder, New York vs. SF vs. LA, and much, much more.
If you are a NYC-based VC interested in participating in this series, please send us an email. We’d love to chat. If you are interested in sponsoring this series that showcases the leading minds in venture in NYC, we’d also love to chat. Send us a note.
David Goldberg of Corigin Ventures
Bart Clareman, AlleyWatch: Tell us about your journey into venture and how you came to build Corigin Ventures?
David Goldberg, Corigin Ventures: I started my career in law. I was an Assistant District Attorney in Brooklyn. But I had always realized that might not be my final destination, so I gave myself a Plan B in the form of getting a JD-MBA when I was in grad school.
I left law to pursue more traditional finance, first at Merrill Lynch and then at Jeffries. I was in the wealth management practice, building my own book of business. They had a pretty standard training program, but I was never too interested in following the ‘standard playbook’. While everyone else was calling people who had a lot of money right now – doctors, lawyers, C-suite executives – I tried to play the long tail. I would try to work with entrepreneurs who I believed in and who would take my call. I could add value to them and build a relationship, and hopefully they would come into big liquidity events in the future. To build out my pipeline, I would scour the blogs and press releases – there weren’t nearly as many back then.
But what I found was, I was more interested in learning about their businesses and helping them with their businesses than I was about their personal fortune that didn’t exist yet.
I came across this press release for an interesting company that had just raised their Seed round called Rent the Runway. I was really inspired on multiple levels, from “hey, we have this problem and are going to solve it ourselves even though we’re still in school,” and more specifically, to what they were doing with collaborative consumption, which wasn’t the buzzword at the time – they kind of led that movement when it came to fashion.
At the time I was at Merrill Lynch surrounded by a bunch of white males who all wore suits and ties, and I started thinking about what I could do that would be relevant to my world. I started testing things out and talking to people about where their pain points were, and thinking about my own pain points.
I looked at my closet and noticed I had about 45 ties of which I probably wore a dozen, and certainly only one at a time. So you have 44 idle at any one time. My idea stemmed from there; it was to launch a collaborative consumption service for accessories: ties, bowties, pocket squares, cufflinks, a little bit of jewelry, and eventually watches – basically, the interchangeable items for the urban millennial.
Mid-2011, after launching it and seeing some real initial traction I quit my job – I was tired of taking phone calls from the bathroom. I wound up running FreshNeck for the next three years or so until a small exit in 2014.
How did life change after the acquisition?
After the acquisition I had to stay on a little bit part time to help transition. I started doing some consulting, working with the earliest of early stage founders, often two founders and a pitch deck – maybe they’d have a product, maybe not – and I’d help them get to a Seed round. So I’d help with growth hacking, strategy, fundraising, really anywhere that I could fill a gap.
It was at that point that I fell in love with the other side of the table. I loved meeting all the seed stage investors then, and then serendipitously met my now-partner Ryan Freedman, who had this amazing, innovative, forward-thinking real estate company who was doing some early stage venture investing on the side, and coincidentally was looking to bring someone on to basically build that business from scratch.
I looked at that opportunity less so as becoming an investor and more so as my next startup. Just my next startup would be building a venture firm from scratch.
So that’s what we did. Three years later we’ve proven out our model; we found product-market fit, we developed hypotheses, quantified and measured everything, , made some mistakes – we weren’t afraid to take big risks because it was our own money – and now feel like we’ve figured out our playbook.
On your website you refer to the past four years at Corigin as your “Seed Round” – let’s start there: what has that consisted of and what have you learned in this phase?
What that really meant was spending the first six months with Ryan, who sits over both the real estate and the venture businesses, to understand his vision and my own vision as to how can we be different, what does the next generation of venture firms look like?
We use a lot of the startup terminology because that’s how we’ve thought about building our business in terms of coming up with theses based on pain points that I’ve had as a founder and other founders have had. We look at our founders as our customers, so how do we serve them best? From there it’s the same things as it would be in any startup – it’s a matter of talking to your customers and trying to leverage data and analytics to make better decisions.
That’s what we’ve tried to do. Everything from quantifying our deal flow and their sources and the quality that comes along with it, to quantifying our decisions, to thinking about how we build out our team a little bit differently than some venture firms.
We’ve also learned how best to leverage one of our competitive advantages, the strategic LP that backs us. That didn’t come on day 1 – rather it’s been continuous iterations. The “end product” is a set of efficient processes with the real estate team to foster open lines of communication. So whereas in the early days we used them to reactively help us diligence a company/product, now we are in tune and understand their pain points so we can target opportunities proactively.
You mentioned a question you and Ryan posed to yourselves was what the next generation of venture firms would look like. What does that next generation of venture firm look like to you?
It’s certainly more incremental innovation than the companies that we invest in, but I think there are a few things that I look for.
One, it’s trying to leverage data. Though gut instinct will always play a role, it needs to be supplemented by data. The first version of this, which we’ve begun to execute on, is looking backwards to understand what we’ve done well and haven’t done well and quantify it. There are so many data points that are hard to quantify – think founder characteristics – but correlations will uncover themselves. The next logical step is to leverage AI and predictive analytics to source and score founders.
Two, I think it’s the people and the mindset on this side of the table. I think venture is becoming a young person’s game. You talk about things like Snapchat or technologies that are targeting and driven by millennials or even younger, it’s very hard when the person writing the checks says, “oh yea, I think my granddaughter uses that technology,” versus having an investor who can invest in what they know. For the same reason we would not want a founder who does not have domain expertise, I don’t believe a VC can be super effective with that disconnect either.
I think the other shift we’re starting to see is diversity. Of course race, gender, cultural – but also diversity of skillsets, experiences, and viewpoints. I found many venture firms are a bit hierarchical; power is maintained at the top, partners almost have their own silos. We have tried to build a much flatter hierarchy, where everyone gets exposure to a lot more aspects of the job, which helps them do better and improve at an accelerated rate; and it also helps the firm accelerate. We believe in collaboration, in constructive debate – even our analysts are encouraged, expected even, to give their opinions.
One other aspect where venture has started to move is becoming specialized. That can mean stage or sector or business model or type of founder. As large amounts of capital have entered the ecosystem, and the entire industry has become more transparent, it’s become necessary to be the best at something and not just mediocre across the board.
If indeed the period just concluded was your beta test, what was learned and what comes next?
There’s not enough time in this interview to discuss all the learnings of the past four years. But the major takeaway is to have and execute a clear and narrow focus and a real strategy, where we were a little more open and flexible to find our path before.
Specifically, we have found there is real power in the ability to lead. But ironically there’s also power in the flexibility to not have to lead. We’ve seen the dynamics around fundraising in the Seed round; it’s really all about that lead investor. They’re the first phone call, they wind up with control both in terms of the economics and inside the company. And those who lead tend to get first dibs on deal flow – and that comes from founders but also from investors who can’t lead who turn to you.
We’ve also found that there is a gap outside of San Francisco between investors who focus on Seed and who can lead those rounds. In New York there’s probably less than a dozen firms that focus solely on Seed that can write $750K checks or bigger. In LA, which is a market I’m extremely bullish on, I don’t think there are more than five such firms. That’s the space we want to play in.
Part of what comes with that is raising some outside capital. We have been investing off our own balance sheet, thinking of it as a $20M Seed fund, with $15M deployed to date. We’re going to raise some strategic LP capital, because we’ve seen the value of strategic LPs ourselves, and probably look to raise $35M on top of the $15M we’ll anchor with, so that we can have a more traditional $50M Seed fund. We’ve targeted that number to optimize returns, not fund size.
Have you begun that process?
Not yet. We’ve been preparing; we’re looking to go out around June.
To date Corigin Ventures has been all self-financed – no LPs. How do you expect life to change once you have LPs on board?
I think there are benefits and drawbacks. The biggest benefit is more firepower, both because we’ll start generating management fees, which we can use to build out more infrastructure. I am a fan of having a powerful team behind me. Even now when we probably don’t invest enough to cover the operational expenses we have, we believe in building a foundation.
It’s the same for our startups. We want our startups to take on venture capital and operate at a loss so they can grow faster and build an amazing team – we’ve taken that same approach for building our business. We have a pretty incredible team, we’ll be scaling our team to six people.
And two, check size. Right now we’re writing $250K-$500K checks, and we’ll be moving up to the ability to write $1M Seed checks.
In this series we often compare New York and the Bay Area, but Corigin’s focus is on New York and LA – compare those two ecosystems. From an ecosystem maturity perspective, is LA in 2017 what NYC was 5 or 10 years ago, say?
I think that’s pretty spot on. I view LA as the third biggest ecosystem right now, and it’s accelerating quickly. Even back as an entrepreneur I was always looking at secondary markets. We were based in New York, but we had tons of inventory and physical space was expensive. So I looked at Miami, Detroit, and the downtown Vegas project when that was hot back then.
When I became an investor I had this inclination to try and be a big fish in a small pond to uncover opportunities, especially when we didn’t have the brand or the wallet size to really compete in San Francisco.
I spent some time in some other markets, and without naming cities, we just hit a lot of dead ends. We didn’t see things moving quick enough. Then I went out to LA for a week, met with all the investors, some entrepreneurs, and some of the middlemen in the ecosystem, and really came away inspired that something special was happening there. You fast forward to a few years later, and they’ve even exceeded my expectations.
I think there’s a few different things that are happening there. One is, you get this natural trickle down from San Francisco. Maybe some repeat founders or investors, who see the opportunity to be a bigger fish in a smaller pond and who appreciate the lifestyle so they come down. On top of that you have the great schools, the really interesting content, media, consumer ecosystem there. And then most recently you’ve had this extra firepower come on in the form of some big winners, and some anchor companies coming out of there – specifically Snapchat, Dollar Shave Club, Honest Company, TrueCar.
So I’m extremely bullish on LA. We’ve been spending some time there and will probably look to have some boots on the ground out there whether it’s a full time person or some venture partners.
Back to New York – how has the NYC ecosystem evolved in the six years since you founded FreshNeck?
I think New York is the clear-cut number two ecosystem. I think there are a few things that are really special about New York.
A ton of people move to San Francisco specifically to be in tech or in the startup ecosystem, and they have an amazing talent pool because of that. New York is an amazing city that truly talented people from all walks of life move to, whether they realize someday they may or may not be interested in tech.
We have this incredible pool of talent from media, traditional finance, consumer companies, etc., which, over the past few years, as startups and technology have become more mainstream, the tech ecosystem has pulled talent from all of those other ecosystems. I think Wall Street is the perfect example – there are a lot of really smart, passionate, hungry people on Wall Street, say what you want about it as an ecosystem, and you see them now becoming really great operators.
I think what it gives New York as far as our ecosystem, and what I think has always been a part of New York in any endeavor, is the diversity. There’s this really unique diversity of types of people and skillsets who are now part of this ecosystem. I worry in San Francisco there’s a little bit less of that. I think that plays out in some of the culture of the companies that are built here.
Nevertheless, San Francisco maintains a sizable lead over New York in terms of financings. What do you think is holding New York back?
I don’t think anything holds New York back, but what gives San Francisco that advantage is the huge head start, which has created this flywheel of all the biggest investors went out there, so all the best founders went out there, and it just keeps continuing from there.
It’s going to take something huge to break that. It’s going to take the next Google or Facebook or Amazon to come out of here. It’s tough. I don’t think it changes, but I don’t think it needs to change. I think both ecosystems are enormous; if anything, I actually have some confidence that as technology makes global communication and accessibility an option, I think you’ll start seeing other areas come to the forefront, and the way it probably happens is through specialization. So instead of a situation where all tech comes out of San Francisco, maybe it’s Miami or Nashville that specializes on healthcare, for instance.
On the website it says your decisions are based on a combination of research and raw instinct – tell us more about that. What research do you perform and where does “raw instinct” come in?
Let me clarify – the earlier stage you go, the more instinct or pattern matching comes into play, just because you have less data to go off of.
In the early stages, the research that is done, is on the three legged stool of founder-market-product. At the very early stages we put the most emphasis on the founder, and specifically on founder-market fit.
We’re not just looking for really smart, hungry, empathetic entrepreneurs, but also ones who are specifically advantaged to take the opportunity they’re pursuing. We often ask ourselves this question, “if we took a Harvard Business School operator and a Stanford engineer and put them through Y Combinator, why would you have an advantage over them?”
Describe the prototypical Corigin portfolio company?
I think one great example of a market we don’t understand very well but we saw this team and thought they were not only great entrepreneurs in a vacuum, but they were specifically ready for this business was one of my first investments – a company called Transfix.
Transfix is a B2B marketplace for long haul trucking. Many refer to them as the “Uber of trucking.” It’s not a space I know anything about, and not a space I was targeting, and we actually found them through a referral as we were looking through the on-demand consumer space. Transfix was kind of an interesting play on on-demand except on the B2B side.
The CEO, Drew McElroy, is a big, hefty guy with a deep, raspy voice who ran his family’s trucking brokerage for a few years. He looked liked a trucker (no offense, Drew), and the fact was he was his own customer.
His cofounder, Jonathan Salama, was an extraordinary engineer who came from Gilt. His expertise came around logistics. We met these two, and they didn’t have a product, they barely had an MVP, but they knew so much about their space and their customers that we had full confidence they could pull this off.
What would your founders say about Corigin as an investor?
We care. We’re transparent – and that comes both in good times and bad times. We’re not afraid to call bullshit, and we encourage our founders to call bullshit on us.
We’ve heard many times, even in some companies where we’re the third or fourth largest check, that we’re investors they’re very comfortable going to.
We’re very careful about knowing what we know, knowing what we don’t know, and playing our role. Sometimes we’re a lead investor for first-time founders and that means getting very heavily involved, sitting on the board, being a generalist. And other times we are one of four awesome investors, and there’s one specific thing around business development we can do around real estate and we hammer that home.
Your “Where Do Deals Come From” blog posts have proven quite popular. In your update on 2016 you said “we need to make industry deep dives a bigger part of our process” – what did you mean by that?
I would say 90% of the venture business is pretty reactive. It is VCs waiting for entrepreneurs to come to them, or waiting for referrals to come to them, and sitting on the laurels of their brand. That may work if you’re Andreessen Horowitz, but if you’re not a top 10 branded firm that doesn’t work.
If you follow that model, to my mind you’ll always come from a place of disadvantage. You’ll not be armed with the appropriate knowledge to source opportunities yourself, and you may be flat-footed when opportunities arise.
We do these market deep dives that start out really wide. The goal isn’t to necessarily look at all the companies in the space and find the best one. It’s to start from the bottom by talking to customers, talking to founders, incumbents, operators, anyone in the space to understand the nuances. What are the pain points? What are the workflows? What are the cost structures? And then, the ultimate goal is to understand where are the opportunities for disruption.
That can then lead to two things. Sometimes it leads to an immediate opportunity. Other times, the opportunity that you see doesn’t exist yet in terms of the right companies willing to attack the opportunity. But now you’re armed with the knowledge that when that opportunity crosses your desk, you know what to look for, you know the questions to ask, and you’re ready to pounce.
In a recent tweet you said you’re a firm believer in the “chip on the shoulder” in VCs and founders – what do you mean by that and what is its importance?
It was in response to a tweet by Steve Schlafman at RRE. I think when you think about how the startup ecosystem has shifted – founders, 5-10 years ago, typically were people who were real technologists, and often were a bit of the outcasts. Their involvement came from a position of passion.
More recently, one effect of startups being sexy is that it’s brought people from all walks of life to want to work in this field. One result is that I think you’ve lost a little bit of that passion, it’s almost just become, “sure, I’ll start a company, I’ll raise some money without putting in a ton of work and if it works out, awesome, if it doesn’t work out it’ll be another line on my resume and it’ll be great for my network.” I think those entrepreneurs aren’t as successful.
There’s something about the chip on the shoulder. Whether it’s the failed founder, or if it’s someone from an underrepresented culture, a female African-American who has been told “no” a lot in their life and is really hungry and out to prove something. I like to bet on those people.
And I look at my own team very similarly. I hire a little bit differently. We’re not just looking at the top tier schools. I have that chip on my shoulder: I did not go to an Ivy League school or spend years at Goldman Sachs. I went to the University of Miami and found someone with a similar profile in my first hire at Corigin, and the benefits to me were proven out.
What trends or sectors are you following closely in 2017?
I think we’re at a really interesting inflection point right now. I think there are a few topics that picked up a ton of steam recently that are huge opportunities.
You think about machine learning, AI, VR/AR, obviously huge movements coming down the pipe – but I also think there is still this immediate opportunity to massively improve some stale industries with, not basic technology, but with good, clean automation, digitization, and really, really strong operators.
One example is that you’re seeing a lot of new brands, often digitally native, make huge marks. Dollar Shave Club is a great example. They’re not using any VR, AR, AI – throw out whatever buzzword you want. They just had a really awesome customer value proposition, some great branding and marketing, and some kickass operators, and they created a billion dollar business. We’re starting to see that across many verticals of consumer products where the incumbents are slow to operate, have retail business models that really hold them back, and don’t have relationships with their customers in the ways that the new ones do.
One of your interests is binge-watching TV shows. What’s your most recent binge-worthy fixation and what’s in your Hall of Fame?
I probably wrote that before I had a newborn!
I think the last show I truly binge-watched, I’m talking three-days-for-a-season, was Stranger Things. Some all-time favorites: I’m an HBO/Showtime guy, so Sopranos was right in my wheelhouse, especially growing up as a Jersey boy. I liked Boardwalk Empire a lot, and Homeland, the early seasons. Oh, and the first season of both Lost and 24 are in my Hall of Fame.