Rick Heitzmann – New York Venture Investing at FirstMark Capital (EP.350)

25:14And a lot of folks who are here and whether they work for CVS, Pfizer, a large health system are still getting to know people, but are interested in what does digital health mean for providers or for payers? Or what does it mean as more drug companies are thinking about the data that they can understand about their customers? And what does that mean from us from a data science perspective, a consumer perspective, or an ecosystem perspective? So having the ability to get all those people in a room in New York is probably unique to maybe any other city in the world. So you're bringing these people together.

25:47You're part of building this network. You've targeted these industries, enterprise software, consumer applications. How did you think about the investing part of it? What types of businesses you wanted to create inside those verticals? We're very thesis driven. We want to be able to understand what we call swim lanes better than anyone else. I have a partner, Matt Turk, who's very deep in data, machine learning, and artificial intelligence. He's had a thesis around it that he's published for 12 years. Besides being very good at Twitter, he's had a range of different things that he's done in and around that ecosystem.

26:21He has a very defined thesis of what's AI and what's not AI. Most of what people call AI, we consider not AI. And how is that AI doing jobs to work? We have a partner, Adam Nelson, who does a lot of things in financial technologies. And what does it mean to be a back -end financial technology player? Matt runs Data Driven, which is the biggest community around data science, AI, and machine learning in the world. Adam runs FinTech Driven, which is one of the biggest communities around fintech. And that brings together people from startups, people from industry. So you're hopefully getting the best of those folks together.

26:53And then you have a thesis and you could go deep on that thesis. And as a small firm, you can't chase every car. So you have to be very deep in the theses that you have a lot of conviction around. And I'll give you another example. So probably now, 13, 14 years ago, I was a judge at the NYU business plan contest. Now famous Scott Galloway was the professor there, but at the time, no one really knew him. And he had a TA who had his girlfriend's brother who was trying to have a startup. So he got connected in this odd way, and he had these two guys who lost the business plan contest, but came to our office and said, hey, here's what we believe.

27:32The iPhone was about four or five months old at the time. Your phone was going to be your main computer, and it was going to be the main way you consume content. And because of that, you're going to move from a text -based world to an image -based world. And in addition to that, there's going to be so many images. Those images are going to need to be curated by either people from your social network or experts. And we want to create a way to pull that content, store that content, and be able to inspire people with that content. That sounds really great. We believe in curation. We believe in mobility.

28:02We believe in all these things. Whereas it's like, no, no, we just believe in it. We don't have anything. But I thought that was a great, that lined up with all three things were non -consensus at the time. Still very much a desktop -driven world, still very much text -driven world, and still early days of curation. But because we aligned with the way the entrepreneur was thinking, we decided to do a seed investment in Pinterest. If you think about Riot Games, and they believe that gaming was going to be networked, and it was going to be community -driven, and you were going to be able to drive both customer acquisition through these communities and increased engagement through a network community.

28:40In an era where most people were buying CDs and putting them in game consoles and playing by themselves, the social elements of gaming was going to be important. And on top of that, they were going to steal or borrow the Asian model of item -based economies within the game. So instead of paying $70 for a CD that you're going to put in a console and figure out if you like the game, you're going to be able to pay as you go, not dissimilar from software as a service and create games as a service. If you talk to the biggest game publishers at the time, some of which are doing most of their revenue today in service -based gaming and virtual economies, they said, that's never going to work.

29:18The guys at Best Buy, who I sell my Xbox to, also I sell my discs to, they control gaming. This isn't China. No one's going to buy item -based economies. So all three of those things were non -consensus and why we decided to do the first around at Riot Games. How do you think of the balance in either of those examples, Pinterest or Riot Games, between the thesis making sense, non -consensus thesis, and the entrepreneur? So there's two things that have to happen, both of which we could get wrong at any given time. Well, three things. So we could have a thesis, our thesis could be wrong. They could have a thesis, which although aligning with us might not be perfectly aligned and therefore it might not work, and then they can mis -execute.

29:58So there's a lot of things that could go wrong. And then in addition to that, all those things we just discussed, there were two or three different things which were non -consensus. So certain things they could be right about, or we could be right about, certain things they could be wrong about, and you only need maybe a half to one of those things to be wrong for the company not to work. And then on top of it, you have to execute. But what we've seen is we're in a power law business. How do you get extreme outcomes? if you're doing multiple non -consensus things and you're able to execute, that's how you create the Grand Slam home runs, the Shopify's, the Pinterest, the Riot Games of the world.

30:35So we have to understand we should be right on our thesis. And if we back solve, we're generally right on our thesis. Sometimes we're wrong on timing. And then we have to find people that we both like and are consistent with the thesis. And then we have to help them execute. And that's how you build huge companies. And you could be a grand slam home run hitter. So that's how you get to those power law outcomes. In the process of finding the person, like in the thesis, somewhere along the way, you have to get in the deal too. So how have you found coming to the table to win deals in a competitive environment?

31:11Back when we were starting, no one knew us. We subletted a French law firm's extra space in Midtown. So very different than maybe some of the cool offices some VCs have today. We were so non -consensuous. A lot of the people were happy to take our money because it was non -competitive. A lot of people didn't understand gaming as a service. A lot of people thought that social curation wasn't an interesting category or that these Canadian guys who were selling snowboards didn't seem to follow the IBM playbook. Where we were at the time, it was less competitive because we were looking for people who consided with our thesis.

31:44I think all of venture capital has become much more competitive now. And oftentimes, we were the first institutional investor, and that could have been at the pre -seed, seed, or series A level. Now, there's oftentimes a pre -seed investor, oftentimes a seed investor before we do series A, which is our natural entry point. And those seed investors and pre -seed investors also have friends who are in the market. So we're constantly bumping up against people. The interesting part of this phase of the market, whereas maybe in the 2020 to 2022 time, folks just wanted the money with the least amount of dilution.

32:20If you don't want to take a board seat, great. I don't really need it. I just want the money. I think the best entrepreneurs now are saying, hey, I not only want the money, but I want the time and I want extra help. You can't have too many friends. Our thesis is, hey, if we're deep in a sector, we know the buyers in that sector. We know the partners in that sector. We understand the products in that sector. So as we think about where you're going, we could be helpful as board members. Beyond us, we've established these communities and these networks so we could be even more helpful. And that could be around specific issues.

32:54That could be around other entrepreneurs dealing with the same issue. That could be around recruiting or hiring. And then in addition to that, we've built a platform which could really help accelerate your business as an entrepreneur. And that could be from a talent side, a corporate development side. or a community side. We like to say individually, hopefully, we're going to be your first choice as the person you want on your board, and we're going to be your lead director and your first call as you grow and mature that business. But in addition to that, the infrastructure of FirstMark will also help you be bionic by being able to accelerate your business through credibility you might not have as a young, small company.

33:30And those two things coming together gives us an incredible win rate. I'd love to dive into some of that work that goes into the networking aspect. So you mentioned these guilds. Can you describe what they are? It's groups of people around particular problems or function areas. It could be the stage that your company's at, your function, a product or technology or finance, and it could be the level that you're at. But we would have events in our guilds, which are communities, sometimes they're via Zoom, sometimes they're via text, whatever it may be. It could be chief accounting officers who are trying to figure out how to pay income tax most efficiently for international sales.

34:09It could be product and technology leaders who are trying to understand how AI is affecting workflow software for companies that are midstream. It could be CFOs who are within three years of a public financing. What are the things you should and should not be thinking about and what's distracting versus what are the things which could really slow you down? It's both expert driven. So you could have someone from EY talk about, here's some of your accounting challenges, or it could be peer driven of, here's Steve Miller from Warby Parker, who just took a company public via direct listing talking about, here are the things that I saw when I went through this and here's how it works.

34:48And oftentimes companies exist in a vacuum. Even I saw as an entrepreneur that sometimes board members show up and they say they know all these things and they disappear. Here's a way that you could create communities around that and communities that are hopefully strong enough that people are paying it forward. So people are part of that community. They learn something, they want to share it. They want to share best practices and they enjoy being part of that community because in a true community, you really hope for each other's success. How have people entered these communities? So far, it's been on an invite basis.

35:19We have people who are leaving chief product officers at large tech companies who are like, hey, I'm leaving fill in the blank company, but I don't want to leave the guild. Could you put me in as Ted underscore site, he's at Gmail and can I stay there because I'm going to be a chief product officer. Maybe I might start my own company, but I want to stay as part of the guilds. And now we have tons of inbound of being part of it. And we have a team who tags it and says, here's Ted, he's a chief product officer. He wants to do this. Here are ways that we could personalize it so it's best for you.

35:47And that's part of the machinery. Hopefully like a great social network, it's very much peer to peer, but it's curated. So you have the best personalized experience within that. So our team is able to do that and hopefully add value. And then not only add value to first -mark companies, but a lot of the companies are non -first -mark companies in the ecosystem. So I think two -thirds of all unicorns in the world have a member of the guild. And most companies in New York, but there's companies in China and there's companies in Europe and all over the world where people are accessing this knowledge.

36:18And like any good knowledge base, it grows over time and each member of the community adds to that knowledge base. So now there's a network effect where it's building on itself. We're going to take a quick break in the action to tell you about SRS Aquium. Want to make sure your M &A processes aren't stuck in the past? Partner with a company that's been defining the future of dealmaking for nearly two decades instead. When it comes to M &A innovation, SRS Aquium has reshaped the way that deals get done, streamlining processes for maximum efficiency and minimum headaches. Professional shareholder representation, online M &A payments, digital stockholder solicitation, SRS Aquium pioneered each and continues to set the bar for game -changing innovation.

37:10So leave the days of disjointed deal management behind and define your future with SRS Aquium, the smartest way to run a deal. Learn more at srsaquium .com. That's S -R -S -A -C -Q -U -I -O -M .com. And now, back to the show. How many people are involved in these communities at this point? Oh, tens of thousands that are accessing either our events, our guilds, or digital or in -person stuff. How do you go about taking something of that scale and curating it in a personalized way so people get something out of it? It's not necessarily concierge, but it's, hey, I'm Ted, I'm interested in these things.

37:54Or I want to go to data -driven, especially in real life. Matt, who's run that for a dozen years, generally has three or four X the number of people on the wait list to actually go in the room. So how do you qualify yourself in terms of, I'm a chief data officer at this company, or I have my master's in data science from MIT, and I'm looking for a job in a startup. So as people, quote unquote, apply, there's some gates to have times in -person access. We try to be inclusive as possible. You still put it on Zoom, you still put it on YouTube. You're not trying to keep people out of the community, but hopefully there's gates so you have the best people in the room when you're limited by that.

38:31When you have, particularly across those, say, horizontal or vertical functional roles in these guilds. How do you tap into that to help the companies you invest in with their talent? People always want to get involved. So we have Angel Network, which is a subnetwork for the guilds of people who want to get involved in angel investing. They might be a C -level officer. They might be a startup founder who's gone on to sell their company. How do I get involved in angel networks? And I want to be involved in e -commerce seed deals. And you could raise your hand saying, I want to invest. I want to be an advisor.

39:05I want to be a board member. So again, massive data tagging, data structuring exercise that we run here. How do you get people involved even at the seed level? And most of our seed deals, we bring along a series of advisors, angels who we believe could help accelerate the company under the continuing guise of, you can't surround these companies with enough love and you can't have too many friends. So that's an example of how to get people back involved, re -engaged, and hopefully a way that creates value for both sides. And how about people recruiting? Talent Angle, we get reach out multiple times a week.

39:42We go through it as part of our team meeting of, I was the CTO of this company. It's a public company now. I'm looking to leave, and I'm looking to be the CTO of a public company, or I'm looking to go back to the Series A level. and I want to do Series A in New York for a highly focused technology challenge type deal. We give people some guidance. They're looking for a sector stage and role in oftentimes geography now as people are moving back to in -person. So people will raise their hand as part of the guilds and say, I'm a CEO of this public company. I miss being back involved in the details.

40:16Are there advisor roles, angel roles, are there board member roles that I could take. So it could be people looking for full -time jobs, part -time jobs, looking to provide advice, looking to be advisors. And we were constantly tagging them. But then we go through it as here's someone who might've scaled to a point where maybe they're uninterested in being a public company CRO, but they might want to go back to the series A where they've had success in the past. I'm going to raise my hand and we hopefully were good members of the community or good stewards of the community. And we don't overly buy us to first mark companies.

40:49So we're trying to find the right fit. And our talent team's able to say, do we have the right fit within the Firstmark family? And if we don't have the right fit in the Firstmark family, do we have friends who might also be interested? And we actually send out a talent newsletter monthly of a lot of our candidates who've said, hey, publicly, I want to raise my hand to be out in the market. I'm curious what some of either your favorite stories or most unexpected benefits of having built all of these communities have been. The weird people that pop up. So you get very, very senior people, CEOs of Fortune 500 companies saying, hey, do you mind if I come to this marketing -driven event?

41:27Or we ran design -driven. He later spoke, so I could say, I run design at Pepsi. I heard this was cool. I don't know anything about it. Do you mind if I show up and stand in the back to see what's going on? And you realize the reach is much more broad than you'd ever expect. And I'm sure you see it in your own business. You look at who reaches out to you with what questions. And he writes, if you build something good with a very high quality, that it'll reach a much broader audience than you'd guess. And they could be anything from NFL athletes who are trying to understand startups to CEOs of Fortune 500 companies that are trying to get access to just a random smattering of folks that have come into the networks over time.

42:07When you're in the middle of all this, I'm curious how it influences your funding of companies in later stages. You're getting involved early on, there's follow -on rounds. How have you thought about that element to your portfolio construction? So we have both an early stage product and a growth stage product. So we have an opportunity fund, which funds companies both inside and outside their portfolio at the growth stages. And as we think about that, there's a couple of different things. A, we look at our pro rata as our option to fund. So we don't view it as an obligation and therefore there's a negative signaling around that or some obligation that we have that unfairly biases our opportunity fund, we look at it as a positive optionality for our companies as they grow and the opportunity to support them and maintain our ownership within them.

42:55So that's an awful hard dance to do because you oftentimes are not leading the round. You're often helping as a lead director construct the round with the right people at the right time and do that. And then you have to think about as a lead director, how much are you going to invest out of your own growth fund? And we try to be as democratic as possible because oftentimes a company that you've been involved with for years, that you're very close to the CEO, you're very close to the team, you're very proud of how far they've come, might not make you the best individual arbiter of how much do you invest in this growth round and what the real value is.

43:31So it's the benefit of having a partnership, of being able to say, all right, let's do the work and let's re -underwrite this in the growth fund as if it was a new deal? And what would have to happen to achieve our hurdle rates? And therefore, do we believe that we should invest or not invest? And to what level do we invest? And being very straightforward with the CEO saying, although especially in this environment, we do have capital, sometimes we can't underwrite deals that we don't think make sense for our companies. And in the growth stages, despite being maybe in a Series C, Series D, Series E level, Can we still see that venture -like return?

44:09And do we believe this is going to be an iconic company in that industry? Companies like Pinterest who have matriculated onto the growth fund, or DraftKings, or Airbnb, where we thought these can be very, very large companies, and you could still get a venture return even in the growth stages of the market, because we think they're going to be that important. How have you structured that decision -making process internally so that you as the long -standing board member super close to the team aren't already impacted in the decision? I think we take the perspective that you're going to be biased.

44:41You can't help but be biased. And not only can you not be biased, maybe the room can't be biased because almost definitionally, if you're proposing an investment in what we call our opportunity fund was originally called a winner's fund. So almost you're one of the winners from the early stage fund, you obviously have a bias to supporting that company, but we have the same gates that anyone who would newly underwrite a company would have. So let's go through a full investment memo process. Let's have the company come in and present. Let's go back through the public comps because these companies are closer to the public markets.

45:13What are their operating metrics? What are their financial metrics? What are the market multiples? What interests do we see this being? Are there third -party areas that we could access to give us better insights? Are there investment banks who could talk about competitive positioning if we think they're two to three years away from a public financing? How do we re -underwrite it so we get as far away from that bias as possible? And part of knowing that you have that bias helps you overcome it. So a bunch of the companies you talked about were, as you said, non -consensus a long time ago, and you really rode their success all the way.

45:45I'd love to hear a little bit of some of your thoughts now within the areas you're focused in, where you're super excited, where maybe you have some non -consensus views? One of the areas that we really like now is digital health. And we think that there's going to be a couple of different changes that are materially going to impact digital health. First of all, there's a lack of providers, most different elements of the healthcare system. And as our population ages, they're going to have to use technology to provide better access and better triaging so you get the right provider at the right time.

46:17And we're looking at a lot of companies around that who are trying to make medicine more efficient on the consumer side. And consumers are becoming more intelligent. And the amount of information they have is much different than when your GP was your sole source of truth 25 years ago. So those two pieces are very important. You're also seeing a shift to value -based care. So instead of just paying for care, people are making sure you get a return on investment. And this all leads to the big macro trend is healthcare is the biggest part of our GDP. It's the fast -growing part of our GDP. and probably as a country, it's the lowest ROI of our GDP.

46:51If you look at the amount the US spends on healthcare and the impacts and outcomes, it's not that great compared to almost any other system and almost any other model. I think it's not a secret. Everyone's very aware of it. And I think there's going to be a huge shift either on the part of the government or independent payers to a value -based outcome. And there's going to be small things that happen in between. I think things like GLP -1s with companies like Roman Health are going to be able to provide a way to battle obesity, which is one of the key costs on a human level as well as economic level in the healthcare system.

47:25So we believe in digital health. We believe that data machine learning and artificial intelligence are still at the earliest levels. We tend to be more discriminant than most. When we first started doing software investment, when we founded FirstMarket, we said, what kind of software companies do we like? Even for businesses or consumers, we like software companies that do jobs. You're going to pay a dollar because you know you can get three to $5 in value. So not that it's a cool widget or not that it's something different, but this is for a real consumer value prop or enterprise value prop, we're going to see a real return on investment.

47:56Even if you're playing League of Legends or Riot Games, instead of paying 75 bucks, you're going to pay zero to start and you're going to pay as you go. And therefore you're going to pay less per hour of entertainment consumption. So there's an economic model or a value -based model that plays through that. Seeing the same thing in AI. A lot of people have cool AI companies who are using AI to do things that were never done before, but that's not the best way to use AI. AI is a tool that does jobs. And so by just adding a .ai to your name does not make you an AI company. We have a company called HyperScience that processes billions of forms for the government to help basically process everything from DMV to Social security payouts.

48:35We have a company called Evolution IQ, which looks for fraud claims within insurance claims. And it's able to process a lot more than humans could ever do. So we believe that being really hard ROI driven is much different than just trying to have artificial intelligence do non -ROI based jobs. How about some of the consumer tech? You're always looking for that platform shift to create a whole bunch of different consumer behaviors. We're looking at some things in AI. We've been generally under -impressed by some of those things recently. We still think marketplaces is early stages. So the last announced investment I did was a company called Pickle, shoponpickle .com.

49:14It's peer -to -peer apparel and sharing of clothing. We had a lot of success in going back decades with companies like StubHub. And actually, we co -invested with Kraft Ventures and the CEO we backed at StubHub 15 years ago, Jeff Floor, in the pickle deal. And that was one of the first marketplaces to take off in the ticketing world. But we also invested in things like Airbnb of the latent inventory of a house and being able to make that peer -to -peer. You have latent inventory of your closet and you think about your closet as an asset and how to be able to expose that and do a peer -to -peer sharing of apparel.

49:49And the company is growing very quickly. That makes sense. You have stuff in your closet that you can monetize or someone else's closet so you don't have to wear the same dress on Instagram again this weekend. And you can see why that makes sense. So marketplaces, which people have been talking about since even before StubHub and one of the purest uses of the internet, we believe still has a lot of legs to go. And there's still models, which make a lot of sense that we see growing tremendously every day. I'd love to hear your thoughts on gaming. We were big investors in gaming going back probably 15 years ago when people didn't realize that gaming was twice the size of motion pictures, even in 2005, which led us to investments like Playnomics, which was sold to Unity, obviously Riot Games, which produces League of Legends, which is a multi -billion dollar company and has become a range of not only games, but also music and TV, and they won an Emmy Award this year.

50:42So we believe that gaming is by far the fastest growing part of media and the fastest changing part of media. We like a lot of the infrastructure. So not only things like Playnomics, which was CRM and targeting for gaming, it's part of that Unity platform today, but Discord, which we think is going to continue to be a very large company in chat and community formation, originally around games, but now much broader. And then from a gaming side, we're in Playbite, which does very simple game construction. So having the tools to build games. What we don't like, and we've seen a lot of, so I've been a little bit stuck recently is Mark Merrill, who is one of the founders of Riot Games.

51:21We were having one of our first meetings. We said, there's a problem in gaming that people think that gaming is like motion pictures and you need just more whiz bang stuff and you need to build bigger explosions, bigger, better, faster. And so you're always chasing your tail. This is maybe even before Marvel, but you could say it's like a Marvel movie where the next one has to have a step function in all this stuff. And he said something which still apply to our gaming thesis today. He said, well, no, our gaming is about social. Don't think of us as building Disney World, which has to build a next great roller coaster the next year.

51:55Think of us as being a soccer pitch or a pickup basketball court, that our job is to roll out the basketball, help those teams form, and people get their joy and pleasure out of the social and competitive elements of that. And as we think about making maps for League of Legends and different tools to play, we're slightly tweaking the rules and we're being the referee in creating that social construct, which is why Riot brought League of Legends, which again, is a multi -billion dollar per year franchise today, to market with $6 .7 million of capital. So incredibly capital efficient because they focused not on building the greatest infrastructure, but by building those social connections, which we thought was a great insight.

52:37Sadly, today, a lot of the games we're seeing might be getting caught into the Marvel ecosystem of people asking for $30, $40, $50 million to be able to produce a game before there's any market feedback, which is no pun intended, not the game we play. So we're looking for people who are thinking about gaming differently or thinking more on the social side or thinking more capital efficiently or thinking about where the puck is going to be able to say, this next generation of games might be multi -device, or there's a new platform, which means that games are going to be different in the future, and here's why.

53:14And frankly, at least to what we've seen, we're a little stuck in a rut of, this is like Fortnite, but as opposed to the detached thinking of, hey, here's a contrarian view of the world. What's your take on some of those next generation experiences? So whether it's metaverse as a concept or augmented reality, virtual reality? I think it's going to happen. And the question is if it's going to happen slowly with the incumbents or it's going to happen quickly with something new. Some companies like Rec Room have a broad base of activity. And obviously, Fortnite had concerts in it and all these things which were going to usher in the metaverse.

53:49So some of those economies worked. Some of them have not worked. Axie famously worked until it stopped working. Some of that was tied to people's inherent tie -in with crypto. So they were compounding their bets by saying, hey, I'm going to have crypto and therefore you have to get in with ETH and then we're going to have our own coin and then we're going to create an experience. So you're compounding your risk there in a way that a couple of those things didn't work and therefore it became less interesting for the people inside the game. I think augmented reality is going to happen. It's happening now, even if you look at your Google map of what do you see on the street and how that works, you're going to have more and more computers on you.

54:27I have an Apple Watch, which will tell me everything for how cold the water is if I go into the ocean, all the way through my turn -by -turn signals through AI. So you're going to have more computers telling you more stuff about people and places and things you go to. I don't see a world where everyone's going to walk around with a helmet that's telling you everything you need to know in a hyperextended hyperreality anytime soon. But I know enough to say, I don't think something's going to happen. It might be the next deal I do of someone who's willing to break that rule. I'd love to turn to effectively the other side of your balance sheet, the environment for funding.

55:03What are you seeing through your companies in flow of funds and what's happening in the capital environment? It's slow. It's taken over two years for people to adjust to the new cost of capital, which is manifest in the rising interest rate environment of what does the new cost of capital mean? And therefore, two things are happening, which are really important. People are now flowing out of speculative assets into things like government bonds where you could get 5%. And that's creating a general lack of capital in the ecosystem. There's a lot of people who've been hurt. So whether they be public market managers, heads of family offices who thought that venture capital was easy, or even large growth funds who had a hard time raising capital, we've said around here, the bigger the party, the bigger the hangover.

55:47And some people still have a big hangover from the 2020 to 2022 timeframe. How is that healing coming? I think the key thing where we haven't seen the healing we'd hope is going to come in 2024 is in the IPO markets. So we obviously saw Clavio, Arm, and Instacart go public in September of 23. And we thought that might be a cracking open to the IPO door. Those companies haven't traded that great despite being some of the more premium companies. So people are waiting a little bit longer. And a lot of folks who bought the 21 IPOs are still underwater. Until you can stoke some FOMO, people aren't going to be into the market.

56:26And until there's buyers of the IPO market, you're not going to see a healthy path to liquidity. The large acquirers aren't going to feel like they have to act because some of them are still getting their own balance sheets in order. There's not the public market alternative. Even if the company goes up for sale, you know you're going to get a call. So we're seeing a general point of people leaning back versus leaning in. There's thousands of companies that are going to need capital between now and the end of 24. The investors at almost every stage have generally been hurt by the macroeconomic environment.

57:00The purse strings are pretty tight, but the amount of companies that may be held on, cut costs, we're trying to survive through a down market, won't be able to survive throw down market anymore. You're going to have to access the market between now and the end of 24. And you're going to see things start to fall apart. I mean, we saw even multi -companies have raised over a billion dollars. Convoy abruptly shut down. You've seen a number of companies somewhat abruptly shut down, some quietly. I think there's going to be some which are going to be very, very visible. And I think that's going to be part of the process.

57:30It might even be the last phase of the renormalization of the market in that the companies which haven't adjusted to a new market environment of a new cost of capital and being able to drive not only growth but profitability as a core tenant are going to be the survivors. Hopefully, better, stronger, more fit companies that have a focus on capital efficiency, profitability, and a path to being a big company. And the rest of the companies will either have to be acquired or shut down. That's probably the last phase of the clearing out before we really know who the best companies are. and there's a Darwinism of capital across the market.

58:08How are you and your partners advising your companies to navigate that? That's the big question. It's been the question for two years. Around October of 21, we felt the market was way over -hidden in terms of valuations and a lot of things. And we said, this isn't going to last forever. And usually it's the worst before everything cracks. And it cracked then. In the fourth quarter of 21, we were budgeting for 22 with still a consensus in the broader market that the top three things that matter for your company in 2022 were going to be growth, growth, and growth. And we went back in January of 22 across all of our companies and saying, the budget we did 60 days ago, we got to throw out.

58:49That's no longer relevant in this environment. We're going to have to change our priorities. We're going to have to focus on path to profitability, unit economics, and capital efficiency. And despite many of our entrepreneurs never seeing a bear market. We have the benefit of having seen and operated in these bear markets before and saying, this is not going to be a blip of a couple months or a couple quarters. This is going to be a couple years. And you need to change your business to re -manage it to these new milestones and these new growth hurdles. And that was a lot of pain. People have read about the layoffs, closing whole parts of businesses, but it was a necessary part of the process.

59:27and our best companies reacted very quickly. They did layoffs, they cut burn, they focused on capital efficiency, and they're stronger now. So I think we were fortunate that our companies, because they were able to act quicker, were able to extend their runway, hit more milestones, and either able to attract external capital or in a lot of cases, go from saying, hey, we're 12 months away from hitting our old growth targets to do a new financing to with a new set of milestones, we're completely financing independent, which is one of the magic words you could tell your board members in this type of environment.

1:00:02As you're rolling forward in this environment, you've had back from the beginning, the old skill set of restructuring, and then the potential for opportunities coming out of it. What do you have your eye on over the next couple of years? You don't want to get too caught in the past. So hopefully some of the scar tissue, which we've accumulated in the last two years, not only individually, but as a firm is not going to hinder us too much going forward because we still want to be optimistic. We still believe that innovation is a core growth driver, and we still believe great companies are getting started every day.

1:00:33So we had a path of kissing a thousand frogs was our mantra for 2022. And we know there was great companies out there. We just had to go see them and meet them and figure out who's great, who's not great, and who, even if we're not going to do a deal with them then, because we might not be able to agree on valuation, we want to be part of that. We're core believers in the long -term thesis of, hey, there's spikes in the markets and the financial markets, and there's waves of technology, but innovation persists. And we're believers in that. So let's not be too scarred by what happened in the past, but let's learn our lessons from that and think about what's a big market.

1:01:11How is that being fundamentally disrupted? How is it being disrupted so clearly that you could explain it to your grandmother or your five -year -old and that this is important in a broad sense? And then how do we attack that market capital efficiently with a focus on unit economics and profitability? And then obviously, hopefully growth comes with that. We just had a board meeting the other day that we talked about the old Bill Walsh book, The Score Takes Care of Itself. I think it was written before any of the founders were born. So I had to explain it more broadly of if you focus on these core metrics, the school will take care of itself.

1:01:46If you take care of your customers and you have great net dollar retention on a customer basis, you obviously have growth. And how do you go back to some of those basics? And the good thing is entrepreneurs are listening more. This next generation, including at the seed level, are going to be born out of a time of higher capital efficiency, higher cost of capital, and they'll count their pennies more and they'll stretch those dollars more. And therefore, you're going to see people who are anxious to hear some of those stories and get from here to there on a lower cost of capital. And that's going to be an important part of the next version of the story.

1:02:21I'm really curious to ask you about brand, the importance of Firstmark and your personal brand as it relates to investment strategy and how you've thought about that across different media. So I haven't thought about it probably as deliberately as I should have. I generally know that being on CNBC or being on podcasts or doing any kind of media and even publishing out via Twitter or X today is a sense of brand. The key things that we like to think about is, are you a thought leader in your sector? Are you a thought leader overall? And can someone figure out who you are before they come down and sit with you?

1:02:58Because we believe it's a matching game. So whether that's LPs and GPs or GPs and entrepreneurs, you want to work with someone who's a good fit. Part of the reason we're scared in 2020 and 2021 is we're entering into these decade -long relationships with someone who might not know us or might not know where we come from. But if someone's listening here and they're like, oh, these guys believe in capital efficiency, they believe in stretching the dollar. If someone believes, hey, we're going to grow at all costs, how do the torpedoes, we're going to build a big company, they might not be the right fit for me in first mark.

1:03:27So we want to be able to say, hey, hey, here's what we're interested in. Here's what we're doing. And if you share those thoughts and beliefs about different ways that the world's changing, we'd love to talk to you. That's core to our thesis. And that could be a broad -based thing like CNBC or a pod, or it could be more narrowly if we do something like data -driven or fintech -driven, where we talk about here are our and here are the type of entrepreneurs we want to work with. And it's really just a way not to increase a personal brand or a firm brand, but to accelerate the matching process in this grand scheme of things.

1:03:59So I'd love to ask this question of lessons learned, and maybe you can pick one or two people that you've come across on the investing side that have instilled some really important investment lesson. I sat on a board at a company called Elance, which became Upwork with John Doerr years ago. He was always the first person in his seat at board meetings. He was always on time, always read the materials. I also spent some time with Mike Moritz, who was also, So no matter how the company was doing, was on time, had read the materials, was prepared. Those guys are giants over the last 20, 30 years in this business.

1:04:36And even when they were giants at the time I knew them and saw them, were always prepared, showed up on time, were thoughtful in what they said, and were able to add value. I think that's really, really important. There was a guy named Mark Brochoy who worked with the Pequod who used to say, what's the most important thing? the longer you talk about something, the more you dilute the most important thing. So even as we sit in our boardroom as a partners or as our first mark team, we've met this company, we think it's interesting. Let me share more with you. Does anyone know? Let's have the team in.

1:05:07You could get distracted by things that aren't very important. And usually there's a most important thing that's going to make the company successful or not successful. And you have to focus on that as your decision -making in the room if you invest. And then as a board member, you have to focus on that and convey that to the CEO because it's awful easy to get distracted because people are whispering a lot of things in your ear and it's make the most important thing the most important thing. Great. Rick, I want to ask you a couple closing questions. What is your favorite hobby or activity outside of work and family?

1:05:41There's so many. It's really great. I spend a massive amount of time at work and then also with my family, but probably the best thing is body surfing, being out in the ocean, either with or without like kids and just being outside of my phone in the ocean where you feel so small gives you a real sense of perspective and an ability to reset. What's one fact that most people don't know about you? So when I was in high school, I was playing football and I had a massive injury where I broke and dislocated my shoulder and split the shoulder bone right down to the elbow. It put me in the hospital for a week and then I was in an immobilizer for six months, I had to reinvent myself from someone who spent a lot of their time and effort and mindshare playing sports and being very involved physically to finding other hobbies, finding other extracurricular activities, whether that was debate or getting more involved in the United Nations, and really, to my benefit, provided a much more well -rounded view of the world.

1:06:40What's your biggest pet peeve? Sadly, I have a bunch of pet peeves. So besides the normal traffic in New York City, and those types of things that people just can't say, I don't know. I find saying, I don't know, an incredibly empowering thing to say, very disarming, where people want your opinion or trying to push you for something. Just saying, I don't know, gives them no way to really push anymore and also invites them into a conversation where they can help you and you can get to a good decision. Which two people have had the biggest impact on your professional life? One would be Ben Silverman, besides being the founder and CEO of Pinterest and really giving me a great seat on his rocket ship, going from starting the company all the way through being a multi -billion dollar public company and being able to experience that with him was a tremendous experience, but also him being so different, being much more product focused, being much more thoughtful about business, work, family, thinking about things from a first principles perspective, and always being thoughtful and kind, but also questioning, definitely gave me appreciation of that perspective.

1:07:49And therefore, what can I do to integrate some of that in my own personal style? I'd probably say maybe the person that had the most impact on me is my partner, Avish, and we're co -founders. We worked together for over 24 years. Ups and downs, marriages, kids, all kinds of stuff, everything you can imagine from the roaring late 90s all the way through where we are today in building a business, having success, having failure, having someone like that in your life who you've been through so much with that you could be completely honest with, completely transparent with, and you could have such a great time both sharing successes and then commiserating on failures.

1:08:31It's incredibly special to have a partner like that to go through your professional life with. What's the best advice you've ever received? Probably from my dad, football games or baseball games or basketball games or even tough days at school, his advice was always, you're fine, let's go. So basically, nothing is ever permanent, whether physical or mental pain you feel is just temporary. Then realizing, hey, you are, although you might be frustrated at the moment or you might be a little hurt in the moment, you're actually fine. You're actually pretty lucky. You're going to get through this and let's go and move on.

1:09:06And I think that as we all experience bumps and bruises on the roller coaster of both our personal and professional lives, understanding you're fine and let's move on and let's go is a great way to think about it. Rick, last one. What life lesson have you learned that you wish you knew a lot earlier in life? I think that I've learned a lot of lessons. I've learned a lot of them the hard way, But I think the one that probably really stick with me now is failure is temporary and risk is good. And I would have probably been an entrepreneur much earlier in my life had I understood that there's not much downside, especially earlier in life without much obligations.

1:09:43If we had to take a risk and work hard, the world's your oyster. I'm a huge believer that you have incredible agency over yourself. And I think about this as a board member or investor, or even as a parent, that I don't think people realize how much agency they have over themselves, agency over their happiness, agency over what they do when they wake up every day, and determining their own success. So the more you're able to say, hey, I have tremendous agency over myself, I can determine my own happiness, I can determine what side of the bed I get up on in the morning, and then I can take risks, and whatever happens, happens.

1:10:18But as long as I keep my feet moving and continue to do things every day, I'm going to increase my chance of success and definitely understand how that all happens together. And I wish I would have understood that as a younger person. Rick, thanks so much for sharing your incredible insights and journey you've been on. Thank you very much. It was great to talk. Thanks for listening to the show. To learn more, hop on our website at capitalallocators .com, where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more.

1:10:56Have a good one, and see you next time.