This Venture Investor's Best Advice: "Sell the Wind, Not the Sailboat"

24:36Ryan Hanley:yeah Hermosi popularized this idea I don't think it's his um of it's kind of what you said it's like they clap at the beginning and they clap at the end and in the middle everyone's dead silent and that's when you need it the most you don't need it at the beginning or the end you need it in the middle um so so when it comes to I love this idea mat time by the way love the idea I I have toyed with jujitsu for a while and have not been able to mentally commit for a whole bunch of reasons. Less the actual work and more just lifetime. My kids are in the 10 and 12, and they're kind of in the golden years.

25:10Ryan Hanley:They're fun and cool and still want to hang out with me. So I'm trying to maximize that time because I know in the not-too-distant future, I will no longer be cool. They will no longer want to hang out with me, and they'll have their own lives. so I'm trying to be there for them right now but that all being said with this idea of mat time when you're when you're doing due diligence or you meet a founder for the first time and you're what are some maybe and you can go as tactical as you want with this but like what are some of the aspects of the business or them as individuals etc that you're looking for them to have put mat time into you're like oh I see they spent some time there that's a green flag like what are some of those areas for you?

25:50Yeah. I mean, it depends on the type of company, certainly technology, right? What are they coming with initially? Did they do the work to understand if the market wants what they have, right? It's when they'd have an idea. For us, I like investing on the A round plus, right? AB. It's not that we won't do seed as a firm, but I think there's certainly more risk as you go closer to origination. And I think the value differential between seed and A, there's still a lot of pickup from a absolute return perspective.

26:25Ryan Hanley:I don't mean to jump in, but this in the second, the last like five years or so, as I've gotten more into seed and A round stuff with some of the companies that I work with, et cetera, that has been a huge eye opener for me is I always thought, you know, Hey, you get an angel or you get in seed, you know, yes, you're taking more and more risk, but there's much more upside. And one of the things that's really opened my eyes recently is that especially seed and a dirt like, or maybe this is a recent trend. So if you, if you have insights on this, I'd love it. If it feels like the upside on those two rounds is condensing.

26:58Ryan Hanley:And even though you're taking more risk on and seed, you're not getting as much additional upside. If you wait for an a round? Is that what you're seeing? Yeah. So you're seeing bigger seeds and lower A's, right? So there's compression happening. I would absolutely agree. It also depends if you're in the echo chamber of the Valley or not, right? Silicon Valley. They have a more standardized, and you can look at Carta and a bunch of other places, standardized kind of what round values should be, very focused on certain revenue metrics and others. As you get out of that echo chamber, right? Because you really just need to conform to what the VCs there are going to give you, right?

27:40It's definitely run by them. But point being, if you get out of there, you'll see some wildly different types of values. We did a seed round a few years ago that led that deal at a much higher valuation than you'd think a seed would be. But when you looked at the founders, If you looked at what they had, you look at technology that built off the back of themselves, right? There was value to have the round being that high, but that would be very non-traditional. In the same vein, you'll see A's at 100 million, especially in AI and others, right? Or even seed rounds at that high, which is still could be a great value.

28:23But yeah, when you look at a return mix, depending on what you're underwriting them for, right? whether or not it's a fund or a standalone, you know, single entity deal, um, you can still capture great value, even if you're paying a little bit higher because of the execution risk, um, compressing, right? So if I can compress the execution risk and still get a good return, then adding possibly two years and a lot more execution risk for the absolute return is a little bit tougher.

28:56Ryan Hanley:Yeah. It's a little tougher. And so for us, when we do deals, we typically don't have a mandate. We don't have a mandate when we do deals. We're very open and opportunistic, looking for great companies that we believe in. So that's also, and I'll go through the original question on diligence, but we don't have the has to be an AI, and we have to take 5%, and we have to do this, and we retain money, or part of our fund for continuation or follow on. We find a great deal and we do the diligence, which is a long process for our firm. And then we're your capital partner. We're in, right? We're going to give you capital then.

29:39We're going to help you see around the corner or over the horizon, anticipate what needs are, help you structure the next round. Like we're in and committed. That's really where Seleco is different. But to the diligence part, from a green flag perspective, I kind of shared the second or third time founder being one. Have you done your homework around the market you're trying to attack? So let's say it's a SaaS-based play, right, in fintech. Horrible example, but just follow me down the rabbit hole here, right? In a lot of ways, that SaaS could be used in healthcare, could be used in all these other markets.

30:17So are you an inch wide and a mile deep, or are you a mile wide and an inch deep in what you're going to be utilizing the investment dollars for? Because I like making this joke, if you will. When I sit down with a founder, a big red flag is like, who specifically is this product solution whatever for? And they go, everyone. And I go, that no one will want it, right? So go solve it for something you may know. Most great entrepreneurs have some, carnal knowledge, an endemic audience that they are trying to solve for. It used to be, you know, solve your own problem. I bet you there are other people who have that problem as well, right?

31:01Well, that's almost an endemic audience of saying there's other people like me who need this solution. Great. Don't say, don't manufacture a problem for people that you're trying to solve, right? So really focus in on the problem that you are trying to solve or what you're trying to reinvent or rework or create a new category for. But even in creating a new category, it could work long-term for everyone, but there's a specific use of people that you need to go after. And if you've not done that work to truly understand, or you're too wide on your, I'll call it your TAM, right? Your total addressable market.

31:34That's a red flag for me. And then the last piece that I take no credit for this. It was another, another person in finance who mentioned this. I think they were at benchmark. I forget the partner's name. But it was the idea of don't sell me the sailboat, sell me the wind. And the idea being a lot of entrepreneurs, and we used to call it back in the day in sales, sell you the speeds and feeds. They don't sell you the dream. Look at the difference between old computer companies, speeds and feeds versus Apple, who made you feel what it's like to be part of this. I think it's a really important distinction because if you don't understand the wind, right?

32:17Doesn't matter what you build. You know, I've made the joke before, you can build a Ferrari, but the roads aren't paved, there's nowhere to go, right? So don't build me a Ferrari, right? Show me why what you're going to build is going to work really well out there, right? And I think that's a big thing that is missed, right? Because I do believe founders should have, and I mentioned earlier, a little bit of P.T. Barnum in them. They're in charge of vision, culture, and fundraising. So tell me a story on why I should believe that this is going to be big and generate the type of returns for our investors.

32:52Don't tell me you invented the next biggest thing here because you haven't told me anyone wants it yet.

32:58Ryan Hanley:I had a mentor one time when I was first getting into angel stuff, and he had been fairly successful. And like anything with Angel, right? You have a low hit rate, but you're hoping for big wins. And I asked him one time, kind of similar to what I was asking. I was like, what's like your big, what's a big red flag for you? And he goes, if they say the words, but they should, he goes, run, run away. He goes, stand up, run away, turn off the Zoom. He goes, because if they say, but they should, they're solving a problem that doesn't exist. To your point, that's why I'm sharing that. You're talking about solving problems that don't exist.

33:34Ryan Hanley:He's like, that means they have manufactured a problem for an audience that doesn't have the problem. And maybe it's real. He goes, but I don't like investing in maybe. So I think that's a really good point. And I, you know, one of the things I advocate a lot when I'm, especially when I'm talking to younger founders is to read copywriting books. You don't have to want to be a copywriter. That's not why. But copywriting books, one of the very first and core functional messages you're going to get out of them is sell the transformation, which is your sell the win, not the sailboat or whatever. And being able to articulate the transformation.

34:20Ryan Hanley:And that part of it, I feel like we don't talk about that side enough. I think people who have been in the game a lot, like yourself, who have had the wins, who've had the losses, who felt both the ups and downs, I think this becomes almost like intrinsic knowledge and intrinsic understanding. But for those who haven't, the first-time founder mentality, they want to drop into futures and benefits. Well, I can make it go faster or I can give it more tokenization or I can bring the API cost down or whatever. And you're like, that's great, but that is, that's not most people's problem. And then someone, and I think this is, and this is for the audience, obviously, because you know this, but it's like selling on price, right?

35:07Ryan Hanley:Like if you, if you're selling on the connectivity of your API or the, the, a reduction in token cost or something, someone can then just come in and go, yeah, well, we're 10 % less. Why would you stay with them? And you're just like, okay, well, why would I stay with these guys? These guys over here are 10 % less. And now that entire problem that you thought you're solved has just been wiped away and someone else has taken it because I had no emotional connection. When you're talking to founders and advising them and you've, how do you, if they're not there at the beginning or aren't all the way sold, or maybe this just isn't intrinsic to knowledge to them, how do you coach them up on this idea?

35:47Ryan Hanley:How do you get them to start thinking in the wind, not the sailboat? I love that analogy, by the way. I'm absolutely going to steal that and use that again. I will credit you, though. So in infinity, you'll have that. Well, we need to back credit the original partner who I heard it from. We'll have to do some wide research on Manus or something. So how do you coach them up on this idea? How do you get them thinking about the business or the problem they're solving in that way? Yeah, it's a good question. So, I mean, traditionally, if they ask, if I start asking these questions and we're part of the diligence process or in a first meet, that's my red flag.

36:26And in a lot of ways, then it's not that I won't see them again, but we're probably not going to move forward past that. Right. So I would say they're not going to listen to my coaching at that moment. But let's say post-investment, it starts working itself towards losing vision and getting really focused on something narrow, pet projects, we can call them, or things like that. I think it's reminding them what the original vision was for the company and to go execute on that. you know, um, specifically when it comes to co-founders, right. I like having meetings together and then I like having meetings separate and I like doing things that aren't the dog and pony show, right.

37:09Let's meet for a drink. Let's, you know, go play nine holes of golf. Let's go do something, uh, where the, the mask comes off and you can learn a little bit more, especially during the diligence process, right. When you get them out of their, out of the boardroom, the pitch room, if you will. And you can learn a lot about do they share the vision with each other? Because one of the biggest ways that companies fail is not alignment in true vision for where things are going. And so I think it's a lot of checking in. I'm on a few of our boards here at the company, and it's a lot of active discussions and active management on our part, aside from just being a board member, but truly being there to your point as a mentor in your own way to say, Hey, that sounds good, but are we getting too far off track from where we were?

37:59Or, you know, in lieu of putting the hard work and time into executing that strategy, pivot somewhere else. Cause it seems easier. Is it really easier? Is it a distraction? Right. And that's really a lot of those discussions are, um, trying to stay focused on, on what you're achieving. And if there needs to be a big pivot, then let's make a big pivot, but don't be scattered. And I think that's typically when you're trying to solve problems, you can sometimes to your point, manufacture your own problems in your own company to go solve instead of doing the work that sometimes is the most painful, but the most effective for the business.

38:34Ryan Hanley:Another thing I've seen you talk about a lot is when you see the market moving left, you want to go right, right? You want to take that contrarian viewpoint and not everyone is comfortable with that. Some people like being fast followers, which is fine. But I would probably say my own focus in life in general and also investing would probably be about the same. One, where did that come from? Is that just native to you or is that a learned skill to kind of look at the world, you know, kind of watch where people are going and move the other way? Why is that valuable? And what are you seeing in the market today that, that has your eye that, that, uh, you don't want, you know, I don't want you to give away the secret sauce or whatever, but you know, what are some of those places today that you see, Hey, everyone is looking over here, but there's some opportunity in these areas.

39:24Ryan Hanley:Um, uh, as, as a contrarian take. Yeah. And I think, uh, the contrarian thing, I mean, you could probably quote it down to, to Warren Buffett's Warren Buffett in the capital markets, Right. I used to make the joke when your Uber driver is giving you stock tips, it's time to really question where your positions are. Right. When you see everyone pouring in capital to a certain industry, it's going to be hot. But it's also going to have a lot of loss. There's going to be a bloodbath at some point traditionally and being able to figure out which which one's the good one or not. You know, I've talked about before, if you look at the tech bubble, right, back in the late 2000s, you look at crypto and the IPO market or ICO market, right?

40:11Everyone was chasing, right? And the minute you start chasing is the minute. NFTs. NFTs. I'm happy to say I never bought one NFT. uh so you know specifically and i won't go deep on crypto but i've been a just a retail buyer of crypto since 2017 um and have a long hold strategy so when everyone's selling and saying how great they were to get out i just look at the account and go but it's down it'll be back i've gone through enough of these over the past you know what eight years seven years that it'll come. And if you look at it as a linear investment over the last seven years, even where it's called bottom today, it's doing quite fine.

40:58Right. I'm not a swing trader. I'm not trying to scalp yield. So while everyone else is, you know, fear, uncertainty and doom, I'm just going, this is fine. Right. When we look at our companies, I just want to ask you a fob

41:14Ryan Hanley:question there because yeah of course what i what i hear in your voice and what you're saying i i so relate to you uh i used to get made fun of because i tell my friends i have gold and silver buried all over albany county which i live in albany new york yeah and um and they well i'm doing all right today you know what i mean i just watched it creep along and i and i you know it's not like it's my entire portfolio but isn't it same thing with big okay what i've heard throughout so much of our conversation is like a very pragmatic, not anti-emotional, but a controlled emotional response to investing.

41:52Ryan Hanley:Most retail investors in particular are all emotion. How did you, how do you craft that? And if someone is finding themselves looking at their, we'll just use crypto as an example, right? They're watching Bitcoin have in the last four months and going, you know, I'm an idiot. All my friends were right. I should have never bought this crap. Like how do you remove that emotion and reevaluate where you are, particularly when you're going down and not move out of positions that you that will be valuable in the future, I guess is where I'm trying to go. Yeah. So so I look at it a couple ways. One, never invest in anything you can't afford to lose.

42:32So let's start there. Right. I am not a financial planner. Don't have my series seven and sixty three. I manage no one's money. So this is not financial advice. This is the Chris Van Dusen strategy, right? I just want to make sure I say that out loud. I don't want someone going to do something. But if you look at a portfolio mix, right? You're going to have your capital markets. You're going to have your fixed income, which is actually receiving cash. You're going to have your alternatives. And in your alternatives, you're going to have maybe venture, private equity, right? Some real estate, oil, national gas, who knows, right?

43:05Royalties. And then you might have a small little bucket called opportunistic. And within that, that is, at least for me, a place where I put money into something that is a loon shot. Right. And again, this isn't I'm not speaking for Seleco Capital or anything. This is Chris Van Dusen. Right. And so back in 2017, I took a little bit of money and put it into crypto and said, this could be zero or this could be something. now over the past seven years it's turned into something and that's awesome right also could have been zero but the point was i was in the idea of holding and so if i were checking it every day worried about the plus minus five percent that it's goes all the time right a i'd give myself an ulcer right because this is the most volatile market i think we've seen in quite a while but also it was never to make money today off of, right?

44:05And so that was the thesis when we went in. That's not to say people watching the market go down and up in the regular capital markets and it's tied to your retirement. Your retirement's coming up. This could be meaningful, of course, right? But in the same way, it's really hard to beat, right, the S &P over a 15-year run, at least over the past historicals, right? You know, on average, what, 13%, 14 %? So you want to try and time it better than 13%, 14 % on trying to buy and sell in and out? Maybe. Good. Awesome. I don't have that kind of time. It sounds exhausting, right? So you just know what it's going to do.

44:47And if you check every day or every hour or every week, I think you're going to work yourself up more. And then what happens is you start selling. And you start listening to the news. and then you start getting out of position. And then the minute it starts going back up, you buy back into the position. I mean, that is literally, you watch everyone. The minute things go down, everyone sells out, right? And you're going, well, wait a second. You should have bought a little bit more at that point. It was free yield because the fundamentals of XYZ company are so great. It's going to be right back up to where it was, right?

45:22So on the capital market side, yes. on the pragmatism around investing in companies.

45:31If you get emotional is when things go wrong. So I used to make a joke. Never bet on the team you're a fan of. So if you're a Red Sox fan, a Patriots fan, right? And you do, you know, FanDuel or whatever those betting sites are, never bet on them because you can't objectively look at it. In the same way, it's really tough to invest in a friend because you're not objectively looking at the opportunity. So if you're making a investment decision clouded by things that aren't how you evaluate the founders and how you evaluate the opportunity, you're going to end up making potentially a mistake. when you have a passion for the Patriots, you're not going to truly feel that that line is appropriate because you're biased.

46:23So never bet on the teams you're a fan of, in my opinion. Doesn't mean you can't grow to be a fan of the company, right? But the idea is you should be looking at it on the merits of the company and the merits of the founder and whether or not they can do what they need to do. So yeah, I think it's a highly pragmatic view on investing. And I think in a lot of ways you have to be.

46:44Ryan Hanley:Yeah, I love that because, you know, I have buddies who want to fancy themselves as, you know, quasi traders and, you know, they love to regale you on the golf course or over beers of the stories of their wins. And what they don't tell you is, you know, they had to take five moonshot, you know, go broke chances because they had traded their way to almost zero, you know, and, you know, you don't you don't hear those sides of the stories when you're trying to time the market and all this crap. And I just, you know, the number of people, I mean, if you look at even trading firms, the number of algorithms on algorithms and the pace that they have to trade at and, you know, all the big losses and the movies that have been made about the big losses.

47:28Ryan Hanley:And you're like, but you sitting with your Ameritrade account while you're stamping TPS reports and signing across your desk, you're going to time the market perfectly. Like, you know, that's the kind of stuff where I'm like, we need to back up and live in reality. Now, if that's your gambling account, like if that's how you like to gamble, right, or whatever, and it's not – like you said, it's not going to hurt you if you lose it and it's fun for you. More power to you. It's America. God bless you. Like go get it. But like it's worrisome I think when – I want to hit you with this question and I want to be respectful of your time but I think if I don't – I heard this the other day and I want to get your take on it from your seat.

48:05Ryan Hanley:I was listening to, I don't know if you're familiar with the podcast, Anthony Pompliano. He's got a podcast on Bitcoin and he has this gentleman, Jordi Visseron, who I find to be fairly smart in the things that he does and I like listening to him. And he said there is a cultural movement happening, particularly with people under the age of 40, where everything they're doing is like high stakes gambling moonshots. It's polymarket. It's meme coins for crypto. It's these big bets because they feel like they can't grind their way out, right? Like this idea of like, hey, I'm going to put$10 ,000 in Bitcoin.

48:53Ryan Hanley:I'm going to let it sit there for a decade, and we'll see what it is when we get there, right? And I'm just going to emotionally detach from it, and it's going to go up and down. You know, do you see that as a real cultural movement? Do you agree with that? Have you seen that in some of the investing things? Do you actually, this is the part that he did not touch on. And as I've thought about it, I've struggled. I just don't have a good feeling for it yet. Is that because of social media and how hard these things are marketed to them? And the, you know, you're only hearing the big, huge stories.

49:28Ryan Hanley:You're never hearing about all the losses. so they believe it's possible for them? Or is it a reality of where our economy is and where our society is today that they simply can't grind their way out? And if they don't hit some sort of moonshot, they're gonna be eating ramen, driving a 95 Acura and not getting laid. You get what I'm asking you there? I do.

49:55So there's a few things at play in my mind, right? I have an 11-year-old daughter. We work really hard to make sure she's not on devices to the level that, you know, many others are. And no judgment, just that's our values. And even still, culturally, she's in fifth grade. The dopamine fixes that all these kids have of constant, right, need this, the next active, the next, the next, the next, the next, the next, the next. is an interesting way of looking how these generations that grew up with screens, you know, I grew up year 45 and 45. I grew up with one television, right? In the family room that was used at night and maybe Saturday morning cartoons.

50:42And other than that screen free, right?

50:44Ryan Hanley:It looked like an air conditioner outside of your house. Yes, it was huge. And so if it wasn't, if you weren't on that one screen, you were out, right? And now everything is a screen. I mean, down to all kids, right? Wearing Apple watches. Sorry, but that's a screen, right? It is giving you feedback and you are doing something with it. And so if you've spent all your life getting dings and bings, the idea of being patient just isn't a skill that you've learned. And whether or not it's what you did for your career, what I did my career, there's a patience in spending the time on the mat to get where you need to go.

51:30Right. I remember even sitting there and I'm, you know, 45, we're both on the cusp of being what would be called millennial versus a Gen X, right? I spend a lot more of my, I guess, personality would be more akin to a Gen X than millennials. And I remember so much complaining about millennials being, they think they know it all. I've got a 22 year old yelling at me that he doesn't, that I don't know what I'm doing. Right. I'd hear this from managers. And you go, okay, maybe they're right, maybe they're not. No judgment. However, that generation was the know-it-all generation. And I think this generation that we're referencing here, right, that's really spending the money, these younger, I don't want to call them kids, but right, in their early 20s and teens, are the dopamine-fixed generation.

52:19so the idea of taking ten thousand dollars and putting it in a in an account to buy bitcoin and checking in a decade what right like they're not gonna do that the idea of going and doing a career to a point where you know enough to go start a new company i'll say i'll start it now i know everything i need to know i chat gpt all my info right like there's a abundance of information for them to have. And that's wonderful, right? I wish I had all this opportunity when I was back in high school and college, right? But you still need to spend the time learning the nuances and complexity of what life is.

53:02And so I look at it from not only a career perspective, right? The idea I can dig myself out, right? I can go get a job to do things. And with AI, it's, I'm sure going to get even harder to find certain jobs. So I want to be sensitive to that. But the idea of being patient, I think, is tough for this generation. And so I think it goes to Robinhood accounts and GME and, you know, being marketed to on social 100%, right? When we were growing up on the USA Network at midnight, you could see a get rich quick in real estate infomercial. But you weren't hit with these type of things, right? The idea of coaching, not good or bad, just wasn't as much of a thing you saw every single day.

53:52And so there wasn't people telling you that you can do it. All you have to do is take my class and you can do it. And so I guess the idea that I don't want to call it get rich quick, but the idea of get rich quicker than normal was never as pervasive when we were growing up. And I think now it's extremely, and there's always another coin. There's always another strategy. There's always another person to follow as long as you pay them for it to get there.

54:25Ryan Hanley:Yeah, no, I agree. The concept of paying your dues simply, it doesn't exist. I mean, it's not even something that's discussed. And, you know, I coach different seasons, both of my kids in different sports, you know, once on basketball, once on baseball. And like some of the things, again, it's just some of the things that intrinsically, you know, I would believe, and I'm assuming you would, or you wouldn't have played baseball in college, et cetera. Like this idea of like, I'm a freshman, so I'm going to keep working on my game because I don't necessarily deserve to be on varsity yet. I need to pay my dues to get there.

55:07Ryan Hanley:And kids today are like, well, you know, I hit 300 in eighth grade, So if I'm not on varsity, I'm just going to trade schools. And then I'm going to – we have this – I don't know if you guys have this where you are, but New York State has a rule where kids can refactor themselves, regrade themselves. So if they're in this window, they can actually hold themselves back a year to then – now like you have adults playing varsity basketball against children because they refactored their grade, what grade they're in. And, you know, to be the star instead of, I don't know, just putting in the work and the time to actually become a true master.

55:47Ryan Hanley:It's all about gaming the system to put yourself in a situation where you feel like you're the star. You know, you see this in travel sports. I don't know if your daughter plays travel sports, but holy shit. Like the number of games that are played, shell games that are played so that dad's son can be on the fourth travel team, but he gets the start as shortstop and hit number three. You know what I mean? It's like, it is bananas to me. And I don't think any of it leads to success down the road. Chris, dude, I could talk to you all day, man. I love it. This has been fantastic. I want to be respectful of your time and that of the audience.

56:23Ryan Hanley:I know there are people that are going to want to follow along with you and what you do. Where are the best places to go deeper into your world? Yeah, LinkedIn, it's Chris M as a Michael Van Dusen. Same exact thing on Instagram as well. Pretty active on both. Anyone wants to reach out, it's cvandusen at slycocapital.com. Would love to chat. Appreciate you, man. Guys, I'll have those links in the show notes, whether you're watching on YouTube or listening, wherever you do. Just scroll down. I appreciate you guys for being here. I love you for being here. We're out of here. Peace.