Innovation in Los Angeles & Using Social Media as a Business Professional w/ Upfront Ventures Managing Partner Mark Suster

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April 14, 2021

As the Managing Partner of Upfront Ventures, Mark Suster has helped Los Angeles, where he and Upfront are based, reach the national stage when it comes to venture capital. The landscape was totally different 20 years ago and Mark/Upfront is a big reason why.

After two successful exits as a founder, Mark joined Upfront in 2007. Since then Mark has become one of VCs most prominent venture capitalists. The main reason being his savvy business decisions, but he’s also always been ahead of the game when it comes to social media.

Between his blog (www.bothsidesofthetable.com) and Twitter, he has always made his presence known by sharing fantastic insights into the world of venture capital.

During today’s chat we discuss what has changed in venture over the last decade and where it’s moving forward, Mark’s take on how VCs should think about branding and social media, and how to balance politics and business.

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Transcript

MPD: Thanks for being on.

Mark Suster: [00:02:27] Thank you for having me. I'm excited to be here. All

MPD: [00:02:31] right. Uh, first let's start off with the high level. Would you mind telling us a little bit about upfront?

Mark Suster: [00:02:36] Sure. So up-front ventures is a, as it sounds venture capital fund we're based in Los Angeles. Um, we are actually not that new of a venture firm.

We've been around for 25 years, if you can believe it. And, uh, we've been investing, we invest about 40 to 45% of our dollars in Southern California from Santa Barbara to San Diego. But most of that is in Los Angeles. As you can imagine. Um, but I like to tell people we're not a regional VC, so less than half our dollars go to LA, which means that the majority of our investing is outside of this region.

Uh, we invest at the seed in a stage to give people perspective on what that means today, because they know these are moving targets as rounds and dollars seem to be going up. Our median first check Mark is a three and a half million dollars. Okay. And so we're taking what I like to say. We're not stuck.

That's a weighted

MPD: [00:03:33] average with seed and series a or that's, that's gotta be more your series

Mark Suster: [00:03:37] eight deals. Yeah. So immediate media, just being exactly, as you would imagine from the statistics definition, we do equal number below equal number above in terms of dollar size. Um, but you'll find that most of our rounds are three to $4 million.

We don't define them anymore. Let me tell you what I think has changed. How about F. Pose the first question and answer the first question what's changed Mark about venture capital is. That I used to be able to wait nine months to kind of follow a company's trajectory and then do what I would consider to be an a round, which would be about $4 million.

Now I have to make a decision really early on whether I want to go on a long-term journey with this entrepreneur. I'm still writing that same three to $4 million check, but the difference between me and a seed only from, because I would call that a seed check. The difference between me and a seed only firm is that when you go to raise your next round, I will write another 4 million.

So we'll end up around 700 and I have to $8 million after your a round, but we are not stock pickers. So I'm not trying to do 50 to a hundred different investments. We are a company builders. So we join your board, help you, uh, recruit team with pride facing communication, product strategy, and then hopefully attracting downside capital.

MPD: [00:05:05] Can I just clarify something in there before we move on? So you're talking about putting three to 4 million bucks in the first investment, and then the second, if you do the seed and the a, do you continue to do more than pro-rata. Uh, in subsequent rounds, are you a lifecycle fund or are you just at early stage?

You'll do those first two rounds heavily. So be very

Mark Suster: [00:05:23] involved thereafter to be clear, there were a lifecycle fund. So in our biggest deals, we have $65 million invested. So we also have grown funds. So we've will lean in, uh, as your company becomes bigger with respect to just being specific, we will either do less than prorata.

Prorata or super prorata depending on what the situation warrants. Sometimes we do. I like to write more than prorata, but that opportunity is not available to us. Uh, sometimes it doesn't make sense and sometimes companies, frankly, just aren't ready for their follow-on rounds. So what really is helpful about upfront is if we're in for a penny we're in for a pound, if we wrote the three and a half million dollar check metaphorically, Um, and if it's taking longer and we still believe in you and the product we're willing to write the next check, whether the market is totally ready or not, we will do check sizes, the smallest half a million dollars.

If the situation warrants and our first ever our biggest ever out of the gate, we wrote a 27 million.

MPD: [00:06:30] That's a huge first check. Is that it was that a later round, or that was an early company that you felt needed a lot of capital.

Mark Suster: [00:06:37] It was a later round that is now a tremendously successful and growing business in the sustainability space.

That's called insect, like the word insect, but with a Y on the front and what they do, Mark, just very briefly as they use, uh, robotics and control systems to grow worms at industrial scale, with the express intent of creating sustainable fish farms.

MPD: [00:07:06] Hmm. Very interesting.

Mark Suster: [00:07:08] I love that. So, yeah. And it's now, well, they do good.

It's booked hundreds of millions of revenue now. And, uh, the company was started in France. Uh, and we'll hopefully I, I think very soon be in North America.

MPD: [00:07:23] Wonderful. Okay. So let's, uh, let's touch on that for a second. Do you have a geographical focus? Is it mainly U S only U S was France an exception or.

How does it?

Mark Suster: [00:07:32] So, so we do, uh, as I mentioned, 40 to 45% of our investing in Southern California, um, we do about 25% of our dollars in the San Francisco Bay area. So let's say we're about 60% California. Uh, I'd say the pro we will, we invest nationally. We have deals in Seattle and Chicago. We've invested in Baltimore, Las Vegas.

Uh, we've invested in Texas. No problem. I'd say one additional unique thing about us is that we're very interested in cross border between Europe and the United States. So the founder of upfront a colleague of mine, I've worked with him for 21 years is Eve system. And as you might guess, he's from France.

So we do a lot of cross border with France. He's from Leo and he's still a full-time partner. Um, I, myself lived and worked in Europe for 11 years. Um, so I've been doing cross border with the UK. I have a partner who invests in video game sector. So he's done some cross border with Finland and we've been doing cross border with Israel and innovation around Israel overlapped in the United States for a long time as well.

MPD: [00:08:37] What's great. So can you give us a rundown on the current assets under management and that's AUM, if you hear that acronym folks who are less familiar with it going through this. Yeah.

Mark Suster: [00:08:45] So you guys manage it's North of $2 billion.

MPD: [00:08:48] Okay. And how much is in your active fund for early stage or growth? Are those pooled together or do you have two separate

Mark Suster: [00:08:54] vehicles?

We have two, two separate funds. We try to keep our hay funds between three to 400 million. Yeah. And then growth is just the F it becomes appropriate. If we hit a growth stage, it allows us to lean into our winners with more capital, which we think is a benefit both to our LPs, the people that invest in our funds and to entrepreneurs as they need more capital.

Right. How large is the growth fund? Well, we have several growth funds. So we also have several hundreds of millions of dollars in growth funds. And that allows us, as I mentioned to lean into winners, examples being bird. So we've been a very active investor in every bird round. If you look at ring the security doorbell company, we did the seed round.

We did the seed round. We were in the very first round, but we did the aid, the B, the C, the D, and the E round. We did the round right before Amazon bought them. Uh, with our growth bond, um, we've been able to invest in goat, the sneakerhead platform. We were the seed round of goat, but we've been able to invest in all the rounds of goat, including in their growth rounds.

So, um, it allows us to follow the entrepreneurs, start to finish.

MPD: [00:10:04] I love it. I love it. Uh, for the folks listening for entrepreneurs and our LPs, you've touched on a little bit of this in terms of the hands-on operating support. Why should they choose upfront? Maybe you can answer the question twice first for entrepreneurs.

Mark Suster: [00:10:20] Yeah. So if you're an entrepreneur, I think if you're looking for capital that gives you money and leaves you alone and just lets you get on with your job, we're probably not the best fit. We view. And I viewed this when I was an entrepreneur as the best capital as being a sparring partner. Think of it as a coach in the stands who can see the whole field.

And in fact has the time because we're not playing the game every day to see multiple fields and therefore bring experiences to you, but like a coach in the stance, it has to be. Uh, our perspective that you're the one on the field making the hard calls, because it's easy from the stands to think, Oh, I know what to do, but really you only know what to do when you're on the field.

So we like to be a strong sparring partner, and then we need to step back and say, you got to make the hard calls. I'm here to bring perspective, but to let you make the hard calls and that's kind of how we view up front. So you should take us if you want someone super active in your, you know, side of the court.

MPD: [00:11:24] How does that scale for you guys? As I think about the volume of deals you're doing, um, it feels like one of the, the ongoing constraints in venture is

Mark Suster: [00:11:34] boards. It doesn't scale. We're not, we don't seem to scale. I just want to be clear. So I think there's two models that work in venture, and I'm not going to say one is superior to the others, but I want to describe the two models.

Mark model one is I have, I have a wide aperture. I want to do a lot of deals and I don't necessarily want a super active role in each now to be really good at that. You have to have a wide aperture and you have to be really good at harvesting downstream investors from you. So if I'm a seed investor, I have to have really good respect and trust and relationship with a and B investors because.

They will represent me on the board and a factor. They will be representing the interests of shareholders on the board. And, uh, so if I can attract great down, down stream investors, you don't have to play that active role. And I have a wide aperture. I probably don't own as much of the company. And frankly, I don't have quite the insights into how well is the company doing, because I'm not there at board level doing the day-to-day.

That's not the model we pursue, but I actually think it's a very successful model and venture. What we pursue is about two deals per partner per year. That's it. That's all we do. And so we don't, we're not scattered gun, you know, we're really looking for, I always tell people, we look for three things. One is the perception of product market fit.

I used to look for product market fit, but the true definition in my mind, a product market fit is when customers are really pulling your product out of your hands. And you're just filling orders. I can't invest at that stage because now that's the stage where people are giving you a 50 or a hundred million.

So I have to believe that product market fit will come. And partly what we're analyzing is unit economics, like, do we believe at a unit level, this is going to make fundamentally more sense than what exists in the market. The second thing I'm judging is founder market fit. Why are you doing this? Do you understand the industry better than we think almost anyone else we've met?

Do we have unique insights? Do you have unique insights into where things are heading? Because whatever the industry is doing today is not what it'll be doing tomorrow, but the third thing matters a lot to me, Mark, which is founder upfront fit. Are you the of, of entrepreneur that we want to go on a tenure journey with?

And are we the kind of investors you want to go on a 10 year journey with? Cause we go into every situation, expecting it to be a 10 year journey. And not everyone is like copacetic with how we work in vice-a-versa and that's okay. Like, sometimes we're happy just to be friendly with people, but not be their investors, but those are the three things.

Yeah.

MPD: [00:14:15] So when you say two deals per year per partner, how many partners do you have?

Mark Suster: [00:14:19] Seven invest check partners. Seven full-time investment. Okay. So you guys are doing

MPD: [00:14:23] 10 to 15 deals a year. Does that sound about right? That's it. Okay, great. Yeah, I think, I think the construct you're describing is the. Was the one that's been around longer, the more traditional to a couple of checks per partner go deeper.

I feel like the higher volume less involved is more of a manifestation. The last 15, 20 years as capital requirements have come down. Right. When I first started the industry, uh, the firm I was at was doing the same thing that you're describing. I think it's not uncommon for folks listening. Um, okay. Very, very helpful.

How do you manage, uh, one of the things that's come up, I had Ian Siglo on here recently. Uh, and we spent a little bit of time talking about their dynamic between their early stage fund and their growth fund, where there's different incentives. You know, how many early stage deals does it take to move the needle for the growth team?

Right. There's, it's a weird management dynamic as a VC. How do you think about the incentive alignment, getting all the parties to play together? Do you have different people managing the different vehicles at the same people? How do you think about it?

Mark Suster: [00:15:25] Uh, it's a very good question. It's a question I spent a lot of time thinking about, and it's a question I've spent a lot of time, uh, trying to inform LPs my views.

So here's how we do it. We have seven full-time investment partners. We only do see it in that we don't spend our time looking at growth deals. Um, so we're cDNA investors in the end. I did not bring on a separate team to do growth. And I'm going to explain that to you in a second. Um, one choice that some funds make is co-mingling into a single fund.

Let's say it's a $700 million fund or a billion dollar fund. And you do all your checks from the same fund. There's an inherent advantage to that, which is your LPs then are in every deal. That's great. That's fine. And everyone within your team and organization is incentivized and monetize in the same way.

The downside to it. Is a million or 2 million or $3 million check don't move the needle. It's just really hard to kind of drive the kind of returns that you need. So what I see firms often doing there is they'll write two to $3 million checks, really as options. And what they're really hoping is that eventually they cast wide enough net that they can write a 50 or $75 million check.

Cause that's what they need to really move the needle. So it becomes an option, the core business. Yes. And, uh, I, I, again, I don't fly any of these firms and I can't say that's the wrong model. It's not the model we chose. I care about. The $3 million check. I care about a five person organization that has big dreams in its eyes and is building at the foundation of my first four investments.

I sold one of them for 670 million and we own just under 20% of it. I, uh, one of them went, sadly, went bankrupt. Uh, the other two, which I did in 2009, I'm still on the board. They're still private. One is worth about 800 million. The other's worth about 650 million. And in each case we own more than 25% of the company.

Because I invested in the earliest round, I was on the board when it was an idea, not even customers and revenue, and I have invested in every round, uh, subsequent to that. And, uh, for me, that's what I mean 10 year plus journey. That's now, you know, what is that 11 year journeys on those two different cases.

So I just want to finish, I'm sorry, Mark, to be long-winded but this one thought. Which is, um, if you have a different growth team, that team truly is making independent decisions and looking for brand new deals to Groton hunt and do, which is good in its own. Right. Um, but it may have some conflict with the AA fund.

They may have different objectives. We don't do that. Our growth fund, 70% of the dollars go to existing portfolio companies. So in our industry, it's often called an opportunity fund. We've chosen to call it. Yeah, we've chosen to call it our early growth fund. So our goal posts are 100 million to $500 million valuations in existing companies.

In which somebody else leads the round and sets the price. I tend to write 10 to $15 million checks, maybe 20 into, around in which I'm the minority. So it might be 50 75, a hundred million, $200 million round. And I'm the minority of that round. We still do independent due diligence. We still have to underwrite the investment.

We still have to decide whether or not we're going to get, we believe we still need to get a five X return on that investment. So we don't do it in every company, but what it allows me to do is keep all seven investors focus just on cDNA, which is what we want to do on, which is what we're.

MPD: [00:19:07] So you're an early stage firm who takes the opportunity to VIG their upside with follow on capital.

Exactly. As other firms out there, which they'll have two business models, right. They'll have the early guys and they'll have the growth firm and they're completely autonomous in what they're investing in. So for the folks listening. Growth, uh, typical growth fund we'll invest in anything that it matches the stage and opportunity fund is specifically focused on doing follow on from an earlier fund

Mark Suster: [00:19:34] clear we can do up to 30% of our investments and Denovo new companies.

And we will look, we just don't spend all our time focused on, on that activity.

MPD: [00:19:46] Thank you. I think that gives people some helpful context about the firm, and I think that's a good baseline for informing the rest of our conversation. So thank you for going through all that. Sure. I want to take a moment and talk a bit about LA.

Um, geography is an important theme at the moment, particularly with the pandemic and remote work, uh, LA has been a major part of your story and your journey. Uh, it's my hometown, but I'm a new Yorker now. Uh, and you've got a hash long LA on your painted on your office and it's on the first page of your website, above the fold.

Um, can you talk to me a little bit about, um, what you've seen happen in LA, how that's, uh, transforming now, uh, perspective on geography and I'll, I'll, I'll dive in and poke some holes and cause some trouble as we go through

Mark Suster: [00:20:33] this. So I love New York also, um, and really sad. This is the first year I haven't spent considerable amounts of time in New York.

I'm usually there six to eight times a year. Uh, I'm not from Los Angeles. Originally. Anyone who follows me on Twitter knows that I was born in Philadelphia at lifelong Eagles fan, but I actually was raised in Northern California. So I'm kind of this may launch of different nationalities and cultures. My father grew up in South America, as we have discussed.

Um, and you know, he's what you might call it. He was what you might call a duty now. Uh, so a Jewish, Latino never heard that term. Yeah. To Tino. I first got that from Eric Garcetti, the mayor of Los Angeles who turned me on to that term. Uh, Eric has also, you know, um, and so, uh, what's unique about LA. So first of all, I want to point out that obviously it's the second largest city in America.

That affords it a lot of things. So, number one is we have large populations of people who can trial your products. Uh, we have incredibly diverse backgrounds and nationalities here for many countries. We are the second most important city outside of their country. So if you look at Mexico city, that's obviously the largest city in Mexico, but if Los Angeles was part of Mexico again, Uh, we would be the second largest city in Mexico with 5 million, uh, Mexican Americans here, but that's true of many different countries.

One just being example, Korea. We have the largest population of Koreans outside of.

MPD: [00:22:08] Okay, interesting. So that I would assume that's a lot of Asian countries that that comment is

Mark Suster: [00:22:13] about. It's true that it's, uh, the case for a lot of Asian countries, but we have an incredibly big Persian community here. We have incredibly big Israeli population here.

So I mean, it's really Asia plus, you know, there are other places around the world where people have been very attracted to Los Angeles, but the other things that I like to tell people about LA, so we actually graduate more engineers in greater Los Angeles than anywhere else in the country. We have more top 25, uh, uh, education universities for engineering than anywhere else in the country.

In greater Los Angeles, we have what we consider the top science oriented program in the country. You could argue is at MIT, but, uh, Caltech is based there and Caltech, academically, uh, ranks in the tops of the United States. Now we are the place that designed a rocket that put a person on the moon. Uh, it was done at JPL, a jet propulsion laboratory affiliated with Caltech.

And so when people think Elon Musk, they've always thought Silicon Valley, but Elon Musk. Until recently lived in LA. I mean, some people say he lives in Austin now. I don't really know, but, um, but, uh, space X is in LA. Like a lot of people don't know that space X is in LA, so we've always done hard sciences, uh, USC as amongst the best robotics programs in the country.

UC Santa Barbara has amongst the best material sciences program in the country. Uh, UC San Diego a little bit further afield, but that's my Alma mater has amongst the best engineering programs, but certainly the best in wireless Qualcomm was started by a professor at UCS D uh, Erwin Jacobs. So there's a lot in our community.

It's deeply technical. Obviously a lot of people think about us for entertainment, but I want to say one last thing, which is in a world in which. Influencers, let's say your sports or you're in media or you're in government, uh, or you're um, a famous actor or a musician. We know that what's changed in the last six to 10 years is the ability for creators to go direct to audience without being intermediate.

And in that world, people who have a voice and who also understand technology become incredibly important and powerful. And most of those people originate or a preponderance of those people originate and live in LA. And that's another thing that's made LA very attractive lately.

MPD: [00:24:42] Okay. Um, I wonder to switch gears for a second.

I feel like the market in venture has changed a tremendous amount in the last 30 years, and it's quite an obvious statement. Uh, one of the things that's been most obvious to me and I think most palpable to everybody. Is it's transitioned away from a world where the VCs really were held all the power we held, they held all the chips, right?

You had these ivory tower firms, you were lucky to get a meeting. And the capital was concentrated in a few firms and the boom came around. Popularized tech popularized, the industry capital flows in, and the game's a lot more competitive. Now you've got VCs focusing on ways they can differentiate by adding value to platforms.

You had VCs, Voke is focusing on how they can brand themselves and market themselves. How important is social media and branding to your business? Now?

Mark Suster: [00:25:36] I think, uh, building a brand is critical to being a venture capitalist because at the end of the day, money is fungible. You can get money from a lot of sources.

How you choose to build your brand is up to you. And there are different ways to build a brand they're incredibly successful investors who have fantastic brands who are not big social media people. Um, I give this talk Mark a lot to, um, young VCs, and I always said to them, first of all, you need to pick a platform where you can be successful, which isn't already crowded.

So, um, when I started blogging, I keep a blog. I think, you know, both sides of the table. There weren't a lot of bloggers who were prolific and I was putting out four or five, six posts a week at, at the time. Uh, so it was kind of easier. Um, I was early to Twitter and putting out a lot of content on Twitter.

I was early to YouTube. I had a YouTube channel before anyone had a YouTube channel and I put out, um, a show every single week for an hour. Um, I only discovered what podcasting was, is because when I would travel, people would say, Oh, I've been listening to you for years. I said, what do you mean listening to me?

I said, Oh yeah, I just downloaded on a podcast. And I listened on the subway. And I'm like, God, I had no idea. I thought everyone was watching video. Um, and so I've been experimenting with different media types for years. I then decided to do as a random experience, uh, experiment in the early days of Snapchat to start producing Snapchat content.

And I called them snap storms. And the reason was, is my target audience was young entrepreneurs. Most of them are 18 to 28 and they were all on Snapchat. And guess what? None of my competition was on Snapchat. So, you know, if you like, yeah, if you logged onto a BC on Slack, Snapchat, they were sharing with you their private jet flight to go to the Premera exclusive launch of a Hamilton in New York, or they were skiing in the Alps.

And I was like this boring gray hair, white guy. Kind of saying, well, let me tell you how to hire your co-founder. Let me tell you how to structure an offline business advice. Yes. And people laughed at it because like the rest of their Snapchat, uh, stream probably was people going to parties and doing fun things and then boring guy.

But what I did is I really was able to differentiate and it allowed me to work in a medium that is authentic to me. And that really worked well for me. So. You know, people who I think were early in good and podcasting. Obviously everyone talks about Harry Stebbings for 20 minute VC. Um, he did a very discrete format that wasn't that popular.

If you start a podcast today, as you know, cause you have a podcast it's pretty competitive. Like I get asked to speak, I don't know, five, six times a week now. And I say no to most of them. Uh, just cause there's so many podcasts, there's everyone wants you to speak. So I just think it's, it's a hard, medium to go after, but there's a lot of media types and do something that's authentic to you.

And frankly pick a subject that is authentic to you and that you can experiment with and you can become known for, and just go deep in one thing rather than being broad-based

MPD: [00:28:58] what's your go-to medium because I see you, uh, both blogging, tweeting. You're pretty active on a number of channels. What is your primary medium at this point?

Mark Suster: [00:29:08] I go in and out of different media types. So I, um, I was very early in Quora when Cora first launched and every day I would log in and respond to Cora. And I think it's really nice to be in a new platform because if you capture the growth of the platform, then you rise before your competition gets there.

So anyone who was in clubhouse early probably got disproportionate benefit from that. Anyone who was Inquirer early. Um, so right now I don't have one particular thing. I'm about to launch a whole new series, uh, and I'm going to launch it on Instagram. Okay. Interesting. And, uh, I'm doing it on Instagram because I want to play more with the medium, more than any other reason.

MPD: [00:29:53] Is there a, a headline or topic for the series? Is adventure advice you're going to hit? Well,

Mark Suster: [00:29:58] yes. So I am asking for a preview. I'm I'm ahead of myself. And if Carrie's listening, she's ready to kill me now, because I said that I wasn't going to tell anybody, but, um, I've outlined I've created an outline of what I think it takes to be successful as a private market investor.

And I'm going to put out snippets of content on what I think it takes to be successful as a private market investor. And I'm just going to put them out on a regular basis. It's going to be like sub three minutes per episode, and I'm going to break down the entire game of how I see it. It doesn't mean I'm right, but at least you have one person,

MPD: [00:30:38] but you, you, you're not just doing this.

You also blog, right? Yes. And your, your blog blogging style, uh, is very notable and its length. Yeah. Right. Uh, when I, when I first met you, I think we met 2009, 2010. Uh, I was blogging very actively at the time and I would do three, four paragraphs three times a week. And then you came onto the scene. A lot of VCs were blogging and you're doing five, six pages.

Why did you decide to do, uh, such long form content and how successful has that been for you

Mark Suster: [00:31:11] first? I should tell Carrie just texted me, said she's lessening and I'm in trouble. Um, so sounds good. You know, the, you know, saying if I had more time, I would've written a shorter letter, you know, whatever, I think it was Mark Twain or somebody who's smarter.

Yeah. Uh, so, um, part of it's that, which is, and I've been very public about this as I have add. So as a result, I have really bad editing skills. And I realize it's not coherent. It's extremely

MPD: [00:31:42] coherent.

Mark Suster: [00:31:43] It's just long. I appreciate it. But, um, what I would say is I bet editing skills. And if I, in a way I would be better to write shorter because I think more people would read it and it would be better, more digestible.

So if I had, I lacked two things, one is the skill to go back and edit. I never reread