On this episode Erik talks to Andrew D’Souza (@andrewdsouza), founder and CEO of Clearbanc, and Ali Hamed (@AliBHamed), investor at CoVenture, recurring guest and fan favorite.
Andrew breaks down how Clearbanc works, why now is a unique time to build a new model of funding, and how they are using quantitative metrics in a business that has typically relied heavily on qualitative factors. He says that he would like to see venture capital go back to funding technical risk, and that for a lot of companies raising equity, 50-80% of their equity is going to Facebook and Google (via ad buys).
He explains how Clearbanc is able to plug in to a startup’s finances to model and keep track of their progress in real time. Ali says that he would like to see founders taking the right kind of capital for their company's needs and talks about some of the perverse incentives in venture. Andrew points out that Clearbanc wants and needs all of their companies to succeed, which isn’t always the case in venture.
They talk about the moment that consumer goods are having and some of the insights Clearbanc has gleaned from amassing a ton of data via their investments in a ton of CPG companies. He says that because Clearbanc invests based on a company's metrics and not factors such as where the founder went to school or via introductions, they (without a mandate) have invested in 8X as many female founders as traditional VC.
Finally, Andrew and Ali talk about how the funding landscape will evolve in the coming years, including what the big VC firms will do, what the aspirations for Clearbanc are, and whether tokens can be an effective form of financing.
Quotable Lines From This Episode:
"My perfect utopian future is: all of the money that’s in venture capital goes to solving truly hard problems. Instead of MBAs running spreadsheets trying to figure out CAC to LTV, they’re funding companies that are trying to cure cancer, develop flying cars, extend life, get us to the moon… Those are the outsized bets that equity is uniquely designed to fund." — Andrew
"We have to get out of our heads the idea that the only types of capital in the world are seed, series A and series B rounds and start thinking about: what’s the type of capital that’s right for this situation?" — Ali
"I would love to see venture capital go back to funding technical risk. I would hope that people go back and look at 2018 and 2019 and say I can’t believe that founders sold 50-80% of their companies before IPOs to pay for Facebook and Google ads. You’re basically selling 50-80% of your company to Facebook and Google." — Andrew
"Venture capital branded itself really well, right? You have these really smart people who put together these fancy websites and basically said that if you raise from XYZ firm, you’re going to be successful. We just sort of glamorize the whole asset. It’s so fascinating that venture capital figured out a way to turn their capital into not a commodity. But it was this false promise. It’s caused a lot of people to take on a lot of capital that they otherwise wouldn’t have because of the social validation." — Ali
"Imagine if in the public markets investors said, ‘you should give me shares in GM at a lower rate because I’m such a good investor.’ VCs are intuiting a sort of causation and saying ‘hey, because I invested in Uber, it turned out to be great, rather than saying, hey, I was able to get into Uber and it was great.’ The promise of value-add from VCs often doesn’t materialize and when it does, its something that you could probably get from independent advisors, and other people. It probably doesn’t warrant the cost of that equity." — Andrew
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Venture Stories is brought to you by Village Global, is hosted by co-founder and partner, Erik Torenberg and is produced by Brett Bolkowy.