Welcome back to Inside the Mind of an NYC VC, a highly acclaimed series at AlleyWatch in which we speak with New York City-based Venture Capitalists. In the hot seat this time is Michael Caso, Managing Partner at Rosecliff Ventures, now a stage agnostic NYC venture firm founded by leading finance veteran Michael Murphy. R0secliff is currently investing out of its third fund, a $250M fund focused on growth equity and late-stage deals. The firm launched with Fund I in 2016, which closed at $20M and focused on early-stage seed deals. Over time, Rosecliff’s investment focus has expanded to support their portfolio companies and their financing needs. The firm has made investments in over 50 companies including Ollie, Raden, True Facet, Cargo, Square Foot, and Allbirds.
Michael joined us to discuss his background, the transition to venture from investment banking, Rosecliff’s investment thesis, actionable insights for founders to successfully navigate the funding process as well as the investor/founder relationships, and much, much more including how he became the most followed NYC VC on Instagram…
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
Reza Chowdhury, AlleyWatch: Please tell us a little bit about your background, how you started in venture, and how you got to where you are today.
Michael Caso, Rosecliff Ventures: My journey into venture capital was atypical. It all starts back to when I was young and believed I was going to be the next Dr. Oz. Obviously, it did not happen, but I can honestly say there’s no other position I would rather be in than the one I am in today. I always had a passion to help people and to be a part of making people’s lives better. This desire initially made me want to become a doctor. My first two years in college were spent studying biology and chemistry. After being influenced by the NYC financial world and watching Wall Street over and over, I was convinced that I would thrive in an environment where I will help clients raise capital and successfully invest it. That’s when my career in investment banking started. It was a very rewarding career, with long hours. Investment banking gave me the foundation I needed to succeed. I came to the conclusion that I wanted to be more involved in the deals I was working on. I no longer wanted to be the middleman, advising and facilitating the deals. I wanted to be on the other side. I wanted to know what it felt like to actually give an entrepreneur a chance and watch him use my capital to change the world. My boss at the time, Michael Murphy, was one of the most successful and well-established individuals I knew. He began angel investing in startups and asked me to help him look into potential companies. After going 7 for 7, literally, he asked me to help him launch a venture capital fund, called Rosecliff Ventures. We started Rosecliff together as Partners in early 2016. In two years, we have invested in 50+ portfolio companies, raised about $350M across three investment funds, and built a very reputable name in the NYC venture industry. Some successful early investments we made were: Allbirds, Cargo, WheelsUP, Juice Press, Petal, and RTS.
You were recently named Forbes 30 Under 30 for 2018. Please tell us about that.
It was one of the biggest honors in my life. When I first started my career, I would look at that list every year the day it came out. I wondered how I can achieve this before the age of 30. There was never a moment in my life that I doubted myself. I believe I would make it there somehow, someway. The process was long with a lot of vetting. I didn’t really know what to expect. The entire process took a few months. It was a goal of mine for many years, and I am proud of the achievement.
Michael Murphy and I are the two managing partners at Rosecliff. I believe a major reason for our early success, is our relationship. I don’t think most partners have the bond that Mike and I have, it’s definitely special! We trust each other, work together and are brutally honest with each other. No matter what, we have each other’s back and are always pulling in the same direction. I think this should relate to not only other VCs, but startup co-founders. Your relationship with your partner or co-founder is almost as important as your marriage.
When I first met Mike, he immediately became my role model. Living in NYC with his wife and six kids, Michael Murphy was a successful founder of three financial services/real estate companies and a host on CNBC. To me and most people in finance, he was sort of celebrity status. He is one of the most down to earth people I have ever known. Never in a hundred years did I image being partners together in a business. He gave me the opportunity and I took it and ran. We shared a passion not just for venture capital, but for the entire ecosystem. Two years since the inception of Rosecliff Ventures, we are building something special. Our goal is to be a billion-dollar fund by 2020, and I have zero doubt we will achieve it.
If you had to give advice to the younger generation on how to succeed early in life what would it be?
It’s a great question, and I get asked this a lot. One thing I learned in my life is positivity. Many people tend to focus on the negative side of things. If you can stay positive and constantly figure out ways to succeed, you will reach your goals and milestones. I didn’t get to where I am today by luck or chance. I gave up my life to help build Rosecliff. Friends, family, loved ones all felt my pain. You need to create a mindset of never having an unsuccessful or “losing” month, week, day. You need to wake up every day and decide how you are going to achieve your goals. I will not leave the office until I can put my head on my pillow tonight and say I’ve won today. Create the mind and attitude of a champion. Achievement is defined differently and we all have many variables in our lives. But, the one common denominator is progressively advancing and succeeding. Always take a step forward.
Rosecliff is currently investing out of Fund III, which held its first close. Please tell us about that and the differences to the first two funds.
I am happy to share the news – we launched Fund III which is a $250M venture capital fund. It is our third fund in two years, which brings us to roughly $350M in AUM. Fund I, our first fund, was a $20M seed fund which we launched in 2016. Most of our investments were in startup companies in their pre-seed and seed stages. We led a few deals from that fund and saw extremely successful returns. Fund II is a $74M venture capital fund that focuses on investing in companies raising their Series A round. So far, we have led series A rounds for Ample Hills, SquareFoot, Roomi, and many others that are yet to be announced (stay tuned). Fund III is our latest fund. This fund focuses on growth equity and later stage investments. We are looking for companies that have already achieved early stage milestones. We will also invest in secondary market transactions and special situation opportunities. We envision the Fund III strategy to mitigate early stage risk while finding liquidity in a shorter time horizon.
How is your role different when investing in early stage versus late-stage deals?
When investing in early-stage deals, your due diligence comes down to one thing – the management team. At Rosecliff, we find it so important to get to know founders before we invest. We want to meet them, visit their office, and really understand their vision. We need to be sure that our founders have what it takes to be a successful entrepreneur. Being an entrepreneur is sacrifice, persistence, drive, motivation and grit, all bottled together. The road for an entrepreneur looks like a puzzle, it’s never a straight path. Also, when investing early, we look to spend a good amount of time into helping the company and adding value as it scales. We can make introductions, help with business decisions, and assist in hiring quality talent. As for late-stage investing, it is more quantitatively driven. It’s almost like public market investing. You need to do your homework on the companies’ financials, growth metrics and draw out potential exit opportunities. It’s very much different, and I enjoy working on both types of deals. Early stage investing is truly something immersive and thrilling. There’s no better feeling than being hands-on with founders and helping them achieve greatness.
Is there a specific investment thesis that Rosecliff deploys? Where is the firm’s sweet spot?
At Rosecliff, we try not take a top-down approach in having an overall industry or strategy specific thesis. We invest in our founders and their vision for their startup. Each of our three funds really invests in a different stage of a private company. Our focus for Fund I is investing in early-stage companies. Typically, we prefer being the first money in a company. We look to own 10-15% at this stage and aim to take a board seat. Our investment thesis revolves around adding real value to our portfolio companies; If we know we can help a company get from point A to point B, it makes sense for us to invest. Fund II focuses more on seed and series A rounds. We look to lead the investment round and take an 8-12% equity stake. Fund III is much more focused on growth equity investments. Our check size is dramatically different, as we aim to invest roughly $7-12m in a company. For this fund, we will also look for special situation opportunities, such as secondary markets investments and pre-IPO deals.
What are you excited about right now, from an investment standpoint?
At the moment, we are excited about the entire Fintech industry. I believe multiples in Fintech are growing rapidly and there will continue to be massive consolidation. Banks and financial institutions are in desperate need to keep up with technology and the needs of the younger generation. Figuring out how millennials spend their money has become a full-time job. Acquiring early stage, fast-growing startups is more beneficial to the large players than spending significant resources over several years to build the technology. Specifically, in FinTech, I’m excited about payments/credit, personal wealth, and wealth management. The personal wealth and wealth management industries have become so valuable because of the data being collected. The value of this data is priceless to large institutions, banks, credit unions and lenders. They are willing to pay a premium for it.
There is so much money in the market right now for founders. Why should startups consider Rosecliff? What resources does the firm offer?
Rosecliff has become a well-known name in the venture capital market in NYC. We’ve all worked hard to build that reputation. If you look at our portfolio and founders that we have backed, the success speaks for itself. One thing we can offer is lifetime value. We have multiple different funds that invest in all different stages. Rosecliff has funds that invest early stage and funds that invest later stage. When we write a check, founders can rest assure that we are there to support for the life of the company. If we are leading a round and taking a board seat, we will NEVER write a check and disappear. We strive to support our founders in every way and truly become a part of the team. Every company that we have invested in, I can honestly say, we have added value in some way. One of our biggest resources, is our founder, Michael Murphy who brings in over 23 years of investing experience and expertise. He has an expansive network in all areas including: advertising, real estate, finance, and sports. Rosecliff also has a solid team of strategic advisors that help us find new opportunities and constantly create value to our current portfolio companies.
One of our biggest resources, is our founder, Michael Murphy who brings in over 23 years of investing experience and expertise. He has an expansive network in all areas including: advertising, real estate, finance, and sports. Rosecliff also has a solid team of strategic advisors that help us find new opportunities and constantly create value to our current portfolio companies.
What do you need to see from teams, both qualitatively and quantitatively, in order to invest?
When looking into a new investment opportunity, we follow a thorough due diligence process and consider several factors before we can invest. Qualitatively, we look for companies that have strong management teams, large market opportunities, and a competitive advantage with a strong barrier to entry. Quantitatively, we focus on the financial information that the companies share. Our team analyzes both historical financials (if any) and financial projections to understand the financial position of the company as well as possible. Financial data should be done monthly, as most investors like to see month to month growth. Current income statement and balance sheet are important to understanding runway both pre and post round. This gets much more important in the later stage deals. Market data and research is extremely important to understand, it way more than just a billion-dollar number. An equally important part of the process is analyzing the cap table, mainly to understand ownership, dilution, and to price a deal.
What can entrepreneurs do to ensure that the relationship between the firm and companies is fruitful post investment?
One of the biggest things that I tell founders is to be transparent! If we can’t trust you, there is no relationship. All relationships are built on trust and being open with each other. I’ve seen companies fail due to lack of communication. If you’re an entrepreneur, lean on your investors. You have given up equity in something you put your heart and soul into building. Make your investors work for that equity. Never hide anything and always reach out when there are issues. A lot of the times, we can help.
What are some tips for entrepreneurs for structuring and assembling a board?
When building your board, you want to make sure you bring on people who want to be there and are going to give you the time you need. You are essentially entrusting this individual to help you make decisions that are going to dictate you and your company’s future. I’ve seen so many entrepreneurs bring on well-known VCs to their board and they add absolutely no value.
The goal is to bring on someone who is going to be there for you, who will help you make important decisions, who will challenge you. It’s especially important to have someone who will bring a different perspective than the current board. Surrounding yourself with people who are more knowledgeable and experienced has never hurt anyone.
One other piece of advice: monthly, in-person board meetings! Especially if you are an early stage startup. Meeting on a quarterly basis is never a good idea. Months, weeks, days are vital. January to April is a long time in the startup world, and if you’re running an early stage company you know how quickly things change for better or for worse.
Imagine this – an entrepreneur has courted you and you haven’t committed to the deal yet. When you are ready to pull the trigger and offer a term sheet, you find out that the round is filled. What are your initial thoughts and what do you do as a firm to ensure that this does not happen again?
If I told you that I don’t know what this feels like I would be lying. We see about 7-8 new deals a day. Some are going to work out, some aren’t. Bottom line…this is a very competitive industry. VCs are competing for deals and startups are competing for capital. My initial thought in this situation is that I am totally pissed off at myself and my team. My role is to operate and manage our investment team. So, when a deal falls through, I immediately blame myself for not managing my team. When we want to be in a deal, we will do whatever it takes to get in. I try to create an internal competitive environment at Rosecliff. I want everyone working hard, aiming for the same goal. How will I ensure it doesn’t happen again… motivate my team to grow Rosecliff bigger so we ensure we can never be shut out again.
So, when a deal falls through, I immediately blame myself for not managing my team. When we want to be in a deal, we will do whatever it takes to get in. I try to create an internal competitive environment at Rosecliff. I want everyone working hard, aiming for the same goal. How will I ensure it doesn’t happen again… motivate my team to grow Rosecliff bigger so we ensure we can never be shut out again.
What are some things that you repeatedly see early-stage companies and founders struggle with?
Hiring and waiting too long to raise more capital. The first two are self-explanatory. Many founders need help being introduced to quality talent. I’m a big believer that hiring a team is like finding missing pieces to your puzzle. Diversified skill sets spread across a team is so important. Some people are better decision makers, some people can build tech, and some people can sell. Most can’t do all. Build a strong, diversified team.
I can’t tell you how many times founders wait until the last minute to start the fundraising process. Sometimes, when runway is down to 3 months or less. When money is out there and it’s coming your way…take it. Never wait until your back is against the wall.
What’s your favorite restaurant in the city?
In my head, I am a part-time food critic. Go to my social media and you’ll realize I am a total foodie. Steak is my absolute favorite food, so I would have to say either Keens or Strip House are my two favorite restaurants in NYC.
What’s your favorite fall activity in NYC?
Fall is my absolute favorite season. Football, Halloween, haunted houses, apple picking, pumpkins, everything… how can you beat that. I love the entire Halloween season. Anyone who knows me knows that if they to find me in the month October, they just have to go to the nearest haunted house because there’s a good chance I will be there. By the way, Headless Horsemen in Ulster Park, NY is the best-haunted attraction around. If you haven’t gone, thank me later!
You have over 17.5K followers, making you unofficially the most followed VC in New York on Instagram. What’s the secret?
Engagement. You need to engage with your audience and let them know that you are listening. Start by figuring out what they want from you. You need to create an attractive brand around yourself. People want to see content that they can relate too. Followers want to follow someone that can motivate them. You need to create content that makes people come back for more. I’m also a gym rat. I go to the gym six to seven days a week. I love to post motivational lifestyle pictures relating to both fitness, food and everyday life.
Giants or Jets?
I’m going to get a lot of heat for this one. But, neither one. I am the biggest New England Patriots fan in NYC.