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 Vasu Kulkarni, Partner at Courtside Ventures and CEO at Krossover. In Part 1 of our interview, Vasu spoke with AlleyWatch about the sports VC landscape, what he looks for in a founding team, why he wouldn’t have started his business in NYC if he could do it all again, and much more. Stay tuned for Part 2 later this week.
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.
Bart Clareman, AlleyWatch: Tell us about your journey into the venture business and how you came to be a partner at CourtsideVC?
Vasu Kulkarni, Courtside Ventures: There was a lot of dumb luck as is often the case. I started my company, Krossover, seven years ago now. I launched it here in New York; it was a two-man shop, which we grew to 100 people today.
Along the way we met a lot of cool investors, the biggest one being Dan Gilbert, who owns the Cleveland Cavaliers – he invested in the company in 2013. Other than Dan, there’s a whole roster of angels who invested in earlier rounds with me, and I became their de facto “tech guy.” Any time they saw a venture deal that had some serious technology in it, they’d reach out to me and say, “what do you think, should we do the deal?” I can’t claim that I made anyone any real money, but I can claim that I kept them from doing a lot of bad deals that they never should have done.
The same thing happened with Dan effectively. He took me into his group in Detroit, and whenever there was a sports related deal or any other large early stage tech deals he would ask me my opinion, even asking me to do due diligence if the company was in New York. Over the course of doing that I stumbled into venture and realized it was something I really liked to do.
Being an entrepreneur you have access to a ton of deal flow here in New York City through other entrepreneurs. About 18 months ago Dan and I got to talking, and he asked if I wanted to do the venture thing. He said, “no one’s ever built a venture fund focused specifically on sports, what would you think about that?” It sounded great to me.
A key thing was that we’d built a very nice community here at Krossover. It’s an ecosystem where we support a lot of other sports tech-related businesses, so it seemed like we had the insight, we had the background, we had the network, and we had this one business that touched so many aspects of sports that it made sense to put some money to work in the space as well.
Dan was the first one to anchor the fund. We then made a call to WPP, the advertising conglomerate, and they decided they were in. So with just two LPs we were able to round up the full $35M for the first fund and we were off to the races.
Say more about the sports VC landscape. Why was it so bare when you surveyed the landscape 18-some months ago, and how has it evolved in the time since?
Sports in general is a very difficult place to make venture investments. I personally have raised $28M for Krossover and got $0 from institutional VCs. I was turned down by every single VC on both coasts – I’ve been to all of them, and they’ve all said no to me.
Generally speaking, the reason is market size. It’s never about the team, it’s never about “we don’t think you can build a good enough product,” it’s none of that. It’s straight up, very few VCs believe in the market cap of sports-related companies, and they’re not wrong; I won’t say that they’re right, but they’re not wrong.
The vast majority of companies will not be able to grow and scale to a size that warrant venture returns, so it doesn’t make sense for most funds to invest in the space. That’s the reason I don’t think there are many VCs – or any VCs – that specifically focus on sports. It’s also the reason why I don’t think I would like to see 10 VCs focused on sports.
We’ve carved out a little niche for ourselves, and that’s good because of the 15 deals we did last year, I think 14 of them came from other well-known institutional VCs calling us to say, “there’s this group that came in to pitch us. They’ve got a pretty cool sports angle, and we’d love to have you guys take a look at it, vet it, and if you’re in then we’re in.”
We’ve managed to make a name for ourselves very quickly in this space. We understand the space better than anyone else, and I don’t necessarily think there’s enough room for multiple funds to be focused on this one space.
Even us, if you look at our portfolio, you would not look at that page and say they did 15 sports deals. You’d say they did 15 tech deals, of which probably 10 or 11 of them have a very, very legitimate sports angle, perhaps it’s the first vertical they’re going after.
Oftentimes, the way I think about technology in sports is, sports is a really good starting off point. You can jump into sports quickly. You can generate some buzz because the media loves to write about what the Golden State Warriors are using to try to win a championship.
That said, if you can’t get that tech to be applicable to other verticals, I think you’re in trouble because I don’t necessarily think you can build a big enough business just in sports.
The way we look at ourselves is, we’ll be able to make the company break in to the sports market very quickly. We can make a handful of phone calls and get them a bunch of demos lined up, and then it’s on them to sell. From there we like to see them have other applications of the technology outside of sports.
Is there a natural bedfellow vertical for companies that get their start in sports and go looking for other applications?
Not always. If you think broadly about something like analytics, once you’ve set up a database and the right data structure, you would think if you can work with sports data or fan engagement data for sports teams, you can then take that same data structure and apply a new data set of entertainment or music or a whole host of other types of data and still be able to provide a relevant output to a customer without having to completely change your product.
I do think there are a number of types of products that can easily scale across verticals, and then there are some that just can’t. It may also be that sports is a white space in a given area, so you get into sports and then if you try to get into other verticals you find there’s already three or four other players who are doing what you’re doing and you can’t really break in.
We try our best to invest in ones that will translate across verticals.
Does that put an extra burden on the entrepreneur to tell you a story not only about sports, but about 3-4 other verticals that that may try to penetrate someday?
When I have pitch meetings I’m very candid. One of the things that we pride ourselves on is being brutally honest with entrepreneurs, and, if we say no, I try my best not to say the words “it’s too early.” All VCs say “it’s too early,” but I try my level best not to because that’s not constructive criticism for these companies.
Instead, I try to explain to them how we’re thinking about the market potential, and how we’re thinking about our returns – in terms of our obligations to our LPs – and why it may mean in a given case that we can’t do a deal.
Just because we think a company can have a $30M exit someday, that doesn’t mean it’s a bad business, it just means it’s not a good business for a venture fund to be investing in. I say to that type of company: go take $2-3M in angel money, don’t raise more than $5M or $10M, and if you have a $25-30M exit you’re going to do really well – but we as investors just can’t do that deal. I try to explain that as candidly as I can to as many people as possible.
I also say to them, “we need this to be scalable across other verticals, but don’t make up a story because you think Courtside will invest only if they hear this. It should come naturally. It should be that you’ve decided you want to build a massive, venture-backed company, you’re planning to raise a lot of money, and you’re doing that because you’ve realized there are other applications of this technology that you can easily, reasonably enter without having to reinvent the wheel for the company. If that’s not the case, don’t make up a story to make Courtside’s investors feel good about the deal.
Do most entrepreneurs who pitch you come in understanding how VC economics impact your assessment of the opportunity, and do they understand the limitations of building a business that can’t expand beyond sports?
Most entrepreneurs need to be a little delusional and a little naïve. If you’re not, I don’t think you would ever jump head first into something. But I do not find that the vast majority of them are realistic in the early days – that’s not specific to sports, that’s across the board, and I would say the same for myself seven years ago starting out. I was probably delusional, and if I wasn’t, I don’t think I ever would have started this company.
But I don’t think I was realistic until about a year or two ago about how much work it is to actually get to $100M ARR, which is always that secret number that VCs talk about. If a VC can agree there’s a clear path to $100M in ARR, then we’ll invest.
After we sit down with some of these guys and we put the numbers on a spreadsheet and say if all the stars aligned and if Jesus himself came down from heaven and helped you, we think you’ll be able to get this business to $25-30M in ARR. That’s not a bad business, you can do really well at that level and we may still invest if we think there’s a very clear path getting to $25-30M. But there’s a lot of businesses I see where I can visualize the entrepreneur spinning their wheels for five years only to end up at $10M in revenue. If you realize that that early enough, you can plan to spend less, take less money, and still have a very nice outcome for yourself and it should not involve a venture capitalist.
I ask you this as someone who understands sports obsession – I have an unhealthy relationship with the Mets. Do you ever wonder if your life would be better – more productive, better adjusted – if you didn’t have the game of basketball in your life?
There is no chance. I don’t even know how I’d function. I tore a ligament in my knee 18 months ago. I made 10 phone calls and got to the US National Team doctor who worked on Paul George’s knee, because I needed to make sure I was in the best hands here.
I went in and they said to me, you have two choices: you can either get surgery, which would mean you would be guaranteed to be out 9-12 months, no basketball at all, or you can do really hardcore physical therapy for three months, see if you beat it, if so you’re back to normal, great, otherwise you’re 12 months over on top of the three. I obviously said to the doctor, “there’s no way I’ll survive being out for 12 months, so I need to do PT.”
I did PT for three months, knock on wood, managed to get back out there three months later. But those three months were legitimately the worst three months of my life. I couldn’t function right, I was getting sick often. I did not know how to continue on without being able to play basketball, something I do five days a week.
And mind you, I was still able to watch basketball, thank god, but I just can’t live without the game. If I didn’t have this obsession, A) I would have never started Krossover, if I had never started Krossover I may never have ended up starting Courtside, I’d be working a 9-5 dead-end job somewhere, I’d be really bad at it because I’m a terrible employee, I’d have probably been fired every three months from a job, and that’s where my life would have ended up if I didn’t have the game of basketball.
I can see it clearly playing out now and it would not have been good.
Your personal website reads like a love letter to the game of basketball. Select quotes: 1) “I’ve loved the game of basketball more than anyone has ever loved anything or anyone,” 2) “Basketball is my religion, Jordan is my God, and the Court is my temple,” 3) “The game of basketball has been a teacher of life for me… for the past 25 years of my life, the lessons learned have transcended the gym into every aspect of my life.”
Tell us about your introduction to basketball and say more about its importance to you.
I was born in LA, but I moved back to India when I was a kid and grew up there until college. My parents always wondered where did this obsession come from, because we’re a traditional Indian family. We frown on sports, we’re all about “go do your math homework.” And yet here was this one kid who just lived and died by the ball.
The only sort of small inkling of a guess is that when we lived in LA we lived in this apartment complex and both of my parents used to work. When I was a baby they left me with this former Army veteran who was a big basketball fan. He was 60-70 years old with nothing to do all day because he was retired. He would just put the basketball game on TV and leave me in front of it all day long. The assumption is I got obsessed because I was in front of a TV watching [Michael] Jordan and the [Chicago] Bulls in the late ’80s and early ’90s.
In any case, after that we moved to India and I always tell people that in India I was a big fish in a small pond. I was a big man at 5’10”. I could play every position. The competition was significantly worse than it would have been had I been in an American school. I became a star in India, and I almost felt that confidence being such a good player in India translated into my ability to play ball here. I ended up walked on to Penn on the JV team – none of that probably would have ever happened had I lived in the US and been a small fish in a big pond, where, I’m probably not the most athletic guy, and who knows if I would have even made the high school team in the US. A lot of it comes down to circumstance and luck; thankfully for me I’ve always had basketball as part of me life and considered to be good at it. Frankly, my entire management style and everything I’ve learned about life has come from the basketball court.
I have conversations all the time around teamwork, and I always say that guys like me who have played every day of our lives since we were 4-5 years old – not just basketball, but team sports in general – you learn something about winning and losing and how much it hurts to lose and how great it feels to win, almost on a daily basis. I play basketball five days a week, so on a daily basis I’m winning and losing.
Meanwhile, if you never played a team sport – and it took me a while to understand this, specifically in our own company where I see a big difference between the sales guys and, say, some of the tech guys. The sales guys are all former high school and college athletes. They’re guys that have always been on a team and I feel like the way they approach work is very different from potentially someone who has never played a team sport and has now been thrown into a company with 100 people and doesn’t necessarily know how to be a team player.
It’s something we take for granted as athletes, but it took me a while to understand there are people who haven’t played team sports their whole lives.
So for me, literally everything I’ve ever learnt in life has come from the basketball court. It’s a teacher of life, it truly is.
Tell us about how Krossover impacts your work at Courtside. What were the greatest learnings for you as a CEO, and how do you leverage those in your work with your portfolio companies?
First of all, the fund likely never would have come together without Krossover. I know people who have been trying to raise a fund for 2-3 years and are struggling, while I’m incredibly lucky to have had an investor who was willing to back me so quickly, and more importantly, to back me at the same time that I was running Krossover. There are very few investors who would say, “I’ll let you run and manage two separate companies at the same time.” They were willing to give me that sign of faith. That in itself was very important.
I’m a firm believer that it’s very hard to be a VC if you haven’t been an entrepreneur. I know there are plenty of examples of guys who have done it, but I find it very hard to believe that you can empathize with what an entrepreneur is going through if you have not been in his or her shoes at some point. If you haven’t worked as a 4-5-person team trying to build something from zero with no money, I find it very hard to believe you can be in that role and do a good job of it. I guess the guys who manage to do it without having been entrepreneurs must be really, really good at their jobs.
Someone like me, I’m not classically trained in finance. I’m not a spreadsheet wizard. You can’t throw a bunch of diligence my way and expect me to start building pivot tables and models to help me figure out what’s going on. For me, it’s all about understanding the team, understanding the operations, and then thinking back on all the trials and tribulations we went through at Krossover, and asking, “does this guy or gal look like the type of person who’s going to be able to go through adversity and come out on the other side without quitting?”
I’m a believer that a startup never dies until the founders quit. It doesn’t matter if you run out of cash, as long as the founders are still working, the company’s not technically dead. I want founders who aren’t going to walk away, they’re not going to go call Goldman the minute things get tough and try to get a quick job.
I think all of those things we went through at Krossover – we have been out of cash multiple times, there was a day we were down to $1.87 and I had to make an $80,000 payroll in four day’s time and I had to figure out how to get it done – I want to back entrepreneurs like that, who can come up with solutions when their back is against a wall.
With early stage investing, after you’ve figured out the market size and you’ve made your peace with product-market fit. After all that’s said and done it’s still essentially throwing a dart against a wall, and the best you can do at that point is go on gut feel and back a person rather than back a company.
How do you tease that out about the entrepreneur? Is it asking “tell me about a time when you failed” or how do you gain confidence that an entrepreneur will burst through those walls if they haven’t ever had to previously?
I think a lot of it is trial and error. For me it’s a bunch of telltale signs. It’s making sure you don’t see the red flags and then you can try to look for the white ones. I like to email entrepreneurs in the middle of the night, at 12:30 or 1am, and I like to see when they respond. If it takes them two days to respond to me now when I’m trying to invest in their company, that’s not a reason to not do a deal, but it’s one data point that I’m going to question. If that entrepreneur gets back to me at 1:30 in the morning, OK, I’m a little more excited about this deal now already – not knowing anything else about them.
I like to see a little bit of craziness, but I also like to see people being realistic. If you don’t have anything to show and you come in here and you start talking about $20M valuations, I start to think this person is not in touch with reality or they’re trying to pull a fast one on me, both of which I don’t want to back.
There are all these things you look for – humility, do they take feedback, when you try to give them feedback do they instantly push back on it? Those are the kinds of people you don’t want to work with.
It’s amazing how quickly people reveal these things about themselves. Within the first meeting I feel like I can tell whether or not this is someone I want to be in business with. Even interviewing candidates for your own company, it’s the “go get a beer test,” is this someone who you’d want to get a beer with at 5pm on a Friday night? If they aren’t, they probably are not a good fit for your company. I think about investing and entrepreneurs exactly the same way.
You said once if you could do one thing differently it would be you wouldn’t have started Krossover in New York, because of the cost of living. Is that still how you feel?
Yes, I stand by my statement. I believe there are few companies that you need to be in NY or SF for. If you’re going to do fintech you need to be in New York for the most part – not saying there haven’t been successful fintech companies elsewhere, but I do think it will greatly help you to be in New York. If you’re planning to build the next social media platform, you probably want to be in San Francisco or LA. If you want to do entertainment you wan to be in LA.
But if you want to build a sports technology company, I don’t think any of the major tech hubs offer you anything other than a very fast burn rate. I truly believe I could have accomplished all that we accomplished here at Krossover in the last 6-7 years for about half to at most two-thirds of the money we’ve raised. We’ve raised $28M, I think we could have gotten to exactly where we are today for somewhere between $15-18M in investment money raised. It’s a huge difference, that’s a lot of percentage that we gave up, at exit that’s going to hit us unless we get super lucky.
I absolutely would have started this business in a place like Austin or Kansas City or Chicago – places where you’re still in a hub but you’re not having to spend so much on cost of living.
So not in NYC or SF or LA, but it’s still important that you operate somewhere with a tech ecosystem of some order?
I don’t think it’s a matter of life and death, but I do think it’s important to be in a hub. At the end of the day, what being in New York affords you is everybody comes through New York. Every single company has some sort of a satellite office in New York which allows for meetings to happen very quickly. New York and SF offers you acceleration in a small way, but I don’t think that acceleration is commensurate to the amount of burn you have to go through to be in these places. I don’t think those two things weigh each other out
How has the NYC ecosystem changed in the seven years since you started Krossover?
It’s night and day, and it’s not just New York either. When we started Krossover seven years ago, I think Y Combinator and Techstars Colorado were the only two actually known incubators in the country. Now everyone and their mother has an incubator. Literally there are two accelerators on our block in New York City – two of them!
The early stage ecosystem to help entrepreneurs get started has gone from being basically non-existent in 2009-2010, to being absolutely incredible in 2017.
I say to people, “unless you have literally the worst idea in the world, in New York City you should be able to get seed funding through an accelerator at the very least.” And you spend three months on your idea and maybe you come out of those three months and you decide it was a terrible idea, but at least you should be able to vet it out through an accelerator in New York with the greatest of ease.