Roger Ehrenberg | Investing in Sports, 10x Funds, Traits of Top Founders, Current Seed Stage Market, Investing in Detroit

27:02Turner Novak:It feels like generally speaking, there's like a little bit of kind of gambling and betting slowly weaving its way into kind of the business model. I think, I think, I think it was Mark Cuban says specifically part of why he sold part of the Mavericks was because he was trying to, he didn't like that he had to invest in real estate development and like kind of building this whole complex around the team. So he was kind of starting to remove himself out. Is that becoming a big part of a lot of this? Like real estate, the casino, like in-person entertainment, betting, gambling? Massive. Yeah. You know, if you look at the stadium projects that have been done really over, I would say the past decade, but it's certainly picking up steam.

27:47You know, every project has a significant second real estate component to it where, you know, one of the, like the ballpark at Arlington or the battery in Atlanta, you know, there were a couple of early examples of that where they're literally, they become entertainment districts. So the thing that Mark viewed as a bug is actually a feature. And while it has a much, you could argue a longer time horizon, because like literally if you're, you know, you're saying we're going to do this now to get the permitting and all of the requisite approvals and the financing, and then you're shovel ready, and then you build.

28:31I mean, it's... It's five stages of building. No, it is. I mean, like, literally, it's the stuff that's closest, and then it's concentric circles out. And again, in some cases, there's literally entire neighborhoods being built around these stadiums. But stadiums add value. They add real value to the real estate that's proximate. And then you think it's not just residential, it's all of this entertainment that goes along with it. So 100%, there's not one professional team owner that is not a group that's not thinking about how do we expand our footprint and if it's a team that has is playing in a stadium that's you know kind of kind of aged then the question is renovate versus build net new and if renovate well are there areas around the stadium that would help you improve the long-term economic picture because these ancillary revenues or you fairly trapped and if trapped you've either got to get a great deal on renovation and like a new lease from the municipality or you may look for another place to play so that dynamic is creating both tension and opportunity within the communities where these stadiums exist and you see this play out all the time.

30:00It just played out in Philadelphia with the Sixers Stadium. I mean, that took years to kind of figure out, was it going to be in a new location in Chinatown or the existing location? A lot of tension there, because also there's, with tight local budgets as well, do we give tax breaks in order for a stadium to either stay or expand our footprint? Or do we just say no well you know if you look at like what's happening with the tampa bay rays like that's been like literally a practically a decade-long struggle and then you know stu sternberg just sold the team but it's a it's a huge issue and it feels like that could be a

30:41Turner Novak:bigger problem if we as i kind of think about i don't know the 20 30 40 years ago way of doing this it's just there's a stadium there's just a massive parking lot around it like that's kind when I think of the classic football stadium that's in America. That's the picture I maybe think of. But to your point, it's like you have a stadium, but there's like restaurants, commercial development, offices, casino, movie theater, you know, people that live around the ring. Like you basically build a ton of taxable value there. Like the city can make a ton of money from just commercial activity happening versus just a massive parking lot.

31:21Turner Novak:that's like, you know, a square mile or five square miles just around the stadium. And I think this was, you know, Mary Madelson's vision of why she wanted to, you know, buy out Mark Cuban, you know, with the Mavericks. And then I think, look at what Steve Cohen's doing around Citi Field. And, you know, the talk of the new hotel and casino complex and a new soccer field, soccer stadium, you know, all basically in the parking lot of in and around Willis Point. So you're 100 percent right. I mean, this is happening everywhere. We have these couple of very proximate live examples of it happening in real time.

32:06So I think that is the harbinger of the future. And you've seen also new groups emerge that are designing these districts. Again, it's moved so far beyond stadium design. The whole analogy. That's exactly right. So you're even seeing more kind of interesting competition in and around that space because you look at every professional team and they need to have a strategy.

32:37Turner Novak:Interesting. And one thing I've heard you say before, which I'm not sure I understood your answer. So I want to ask you again, because I'm curious, you said that COVID really changed sports. I don't know if that was like an offhand thing or if that's like a big thing that you believe. How do you think sports changed from COVID? So I would say in two huge ways, you know, one, it hastened the rise of emerging sports as people had kind of more time to think about entertaining content that was broadly accessible. accessible. I mean, the explosion of emerging sports formats, either leveraging existing sports or designing that new sports, the rise of kind of Google and Twitch as free distribution channels, so not needing a network deal in order to get your show shown.

33:36You know, we had been talking about golf earlier, you know, good, good golf and all of the different, YouTube golfers, even with like Bryson DeChambeau now, one of the best golfers in the world, his participation. COVID was a massive catalyst for this phenomenon where people could sit at home, watch great content, and see these new innovative sports and sports formats emerge.

34:04Turner Novak:I wonder if the kind of like the Darth of Hollywood content, because you definitely hit it. There's probably like almost two years it feels like where the studios weren't i think they were like weren't allowed to shoot or something like that so there's probably this massive hole of just fewer good movies good tv shows and sports content had the opportunity because it was kind of two point like a guy golfing on youtube like lower budget quote-unquote like it's just a guy with a team you can go out shoot make some good content and way cheaper also than like 200 million dollar crazy production maybe more interesting too, but they might not have that opportunity had the studios vacated the showtime or the airtime.

34:48So that was one piece, 100%. That was a piece of it. Another piece of it was, there was a period when there were very few professional sports that were being played. And so just the tonnage of pro sports content went way down. Well, how do you fill it? And there was this phenomenon like ping pong, right? Like Eastern European ping pong was a huge thing. And people were betting crazy amounts of money. Like memes about people on ping pong. That's just a single example. But there was so much of that happening. And again, I think the distortions of COVID unleashed creativity that you couldn't have imagined.

35:36I remember the story of Shane Copeland of Polymarket developing Polymarket during COVID in his bathroom. So there was definitely this limitations. I think this is a great metaphor for startup culture. All of these constraints unleashed all of this creativity because you got to. right we're all locked in our homes and like what are you going to do yeah so i think that that was one part of it okay the other part of it is the continued polarization of society and the fact that um i think sadly a lot of people are really stressed and unhappy about the direction of their societies. And I'm not saying the U.S.

36:36I'm saying generally, there's a lot of tension, uncertainty, concern, you know, felt by the kind of younger generation coming of age. There's something about sports that is a unifier. It brings people together. And this then gets back to the original thesis of when I transitioned out of IA, started spending time in and around sports, why did I decide to go all in on the space? I think it is among the most.

37:13Turner Novak:Which had wholesome. Yeah, well, but not like recession proof, like durable assets because of affinity and because of passion and for an investment perspective, the value of scarce IP and that if you control that, but it's something ultimately that a brings people together, but is also highly monetizable as you are, you're able to deepen fandom, then it really occupies this unusual place in the universe where, yeah, there could be, there could be wars. There could be bad things that happen. There could be strife. There's always sports and it's always has been that way. But now that sports is bigger than ever and more accessible than ever, I think it's more powerful than ever.

38:04Turner Novak:It's more global, if you like. More global, but also multi-platform where you don't need cable to see sports. Yeah. Right. And simply, if all you did was had, you know, YouTube and YouTube TV, you could cover a huge amount of the landscape. You're not going to see everything in these days because of fragmentation across streaming services. Yeah. Amazon's got their stuff. Peacock's got their, et cetera, et cetera. You'll see highlights in like the clips. You'll see all the best parts. Sure. So it's like, yes, the barrier towards accessing professional sports as a viewer has gone down. As an in-stadium has gone up because the price of attending a sporting event has gone up a lot, which is partly why you're also starting to see innovation around that with like what Steve Ballmer's doing with the Clippers.

39:04What's he doing? So he built, he just opened this brand new$2.2 billion stadium with the latest technology. And there are these, there's this dedicated fan section where ticket, the ticket prices are kept super low. so like you don't need to have a lot of money to be able to see a basketball game whereas right now to whatever take your family afford to a Knicks game is I can't even count the dollars which is why so much of in person is now like corporate and people related to business because they have the money but he's done oh and also things like there's several teams are now experimenting with ultra low cost concessions so like inexpensive hot dogs inexpensive sodas you can bring your family of four for not 500 bucks it can be 200 bucks or 250 bucks yeah

40:03Turner Novak:so why do we need this like dedicated fan or like the ultra low cost concessions like why don't they just make them cheaper or like and then and then how do you specifically segment that out like are there like 10 seats just like in a certain spot that that are cheaper or like how does that all work well again there's I think Steve Ballmer's example is an N of 1 right now. And lots of people are experimenting, but he literally built this into the stadium and the fandom concept. His thing called, I think it's called the fan wall. It's not 10 seats. It's thousands of seats. Are they like worse quality seats?

40:39They're at one end of the court. I don't think so. And they're just different. They're not like up in the upper ring or anything like that. It's like a wall. Think about it like this. If you go to a European football game.

40:50Turner Novak:Yep. you have these fan clubs that generally occupy a section of the stadium and they tend to be in one of the ends they're usually louder and they do the chants and stuff that's that's the fan wall got it okay because i've seen that kind of discourse online where people will say like you you watch a knicks game you're like you look at a knicks game you compare like you know the 80s the 90s with today and like back in the 90s it was like all just people in jerseys cheering super pomps you could stay it's just like some dudes in suits and some models and they're like on their phones or something and it's just completely different fan like experience or engagement that you get from the fans like the true fans are almost not at the games because it's like you know four or five figures to get that front row seat you basically need to be it's like corporate to your point you'll be it or spikely i guess yeah but at least he's a real fan Yeah.

41:47No, 100%. So this notion of democratization, I think, is super important. And again, a lot of the things that we're looking at, at Game Changers, are about the fan and are about delivering a better experience to the individual. because ultimately, like selling to teams direct and I think what a lot of people think, oh, the TAM's not big enough in sports venture because there are only a number of teams and they're hard to sell to. Totally. I would not have started a venture firm if all I was doing was enterprise sales to teams. Teams are notoriously difficult to sell to. They're cheap, like many enterprise buyers.

42:35I'm just saying they're not different than an enterprise, except they might most are more tech backwards than most corporations that we would be selling SaaS software to. That said, they are extremely focused on how to best expand and engage their fan base. So that whole sphere of issues, which is direct fan experience, it could be payment in the stadium, it could be media, it could be, I mean, how, you know, we're looking at a company now where there's a, like, AI-powered experience that gives you unbelievable nuance. with it's, you know, think of querying one of the big LLMs and it will, it gets to know you and we'll give you this incredible content back.

43:40Like all that stuff involves serious tech, but is really about tightening the relationship between a fan and a team, more fans with other fans or fans of the team. and that's incredibly valuable. Anytime you can drive engagement and stickiness in material ways, you can make a lot of money.

44:08Turner Novak:So it's really thinking about how to make the fans care more and spend more money, probably, or just increase the value, the lifetime value of a fan instead of LTV of a customer. They care more, it's they care, but they're poorly served. Like, I don't know about you, most of the stuff I get from the teams, I like Stanks. It's terrible. It's just like an email with like a MailChimp template. And it's like season tickets are now on sale or whatever. Great. Right. It doesn't know me from anything. Yeah. And then it's either that or I get spammed by premium ticket sellers because they know, oh, so you bought Legend Seeds to the Yankees.

44:45So we know you have money. Do you want to buy a package? And I get why these things exist. And sure, I've got some young nieces and nephews in my family that are doing that exact job. And it's a tough job. But there's so much more to, especially today, leveraging technology, leveraging data to provide what feels like a one-to-one experience with the fan. that it's like, and that's the beauty. It's not even like you need to change somebody's mind. They already are a fan. They already care. Give them more ways to express that fandom, more ways to feel connected, more contextually appropriate offers, more opportunities to engage with the team in ways that are meaningful to them, which is not a MailChimp email.

45:40Yeah.

45:41Turner Novak:We need MailChimp for sports, or maybe a lot more than that. Yeah, I feel like we're in the, to use a sports metaphor, the early innings of this notion of the centricity of fandom and having businesses spring from that. that of course ultimately are in service of sports teams, media companies, um, and entertainment. But man, it's just like, and this comes back to the very first question you posed about kind of people. Some people say this is the worst time in a generation for seed. And I'm like, no, no, know you've got it wrong. Just everybody wants to back the next AI dot dot dot. And I'm much more focused on you do that.

46:33Give me this pool of technology from which to draw. And my founders are going to help build incredible applications that make teams relationship with fans, fans relationship with the teams and fans relationships with other fans that much better.

46:51Turner Novak:So you think is that way you're kind of doing differently than everyone else in the market and then maybe you have more of like an institutionalized approach versus other I don't know early stage sports tech investors I don't know if that's like a fair way to frame it yeah I don't know if that's a fair way to frame it either let me think how I would put it yeah I guess it'd be like what do you think gave you like the right to win or like what made you different from just kind of like the landscape of early stage sports and investors like yeah aside from all the tech stuff. Or maybe that is. You just have that approach and like that's good enough.

47:29I think it's a combination, Turner, of usually there are not that many firms that are focused on pre-seed and seed in this space that have the expertise and the focus. the intersection of my being a professional sports team owner having been a very successful technology venture capitalist and having dog fooded this using my own capital and a lot of it for the last four years i think puts me in a an unusual category, which is probably why in this challenging environment to raise for seed that I was able to raise an institutional fund.

48:26Again, there are some firms that have invested in this space that are more commonly thought of as traditional VCs that I think have done fantastically well. And yeah, I guess one that call out is Forerunner. They've got a handful of investments in this space that I think are really, really smart.

48:47Turner Novak:Actually, I didn't even know that. I mean, I know Kirsten. I didn't know she was investing in sports. Yeah. So I wouldn't say she is. They are investing in businesses that with their consumer lens, they feel they have an edge. Some of them happen to be in and around sports and gaming really smart i mean i expect nothing to last out of kirsten yeah but which is just to say there clearly are some firms that are those who you would consider more traditional tech vcs that are playing in this area i would say at this point she's downstream of me right where she's managing way way bigger dollars yeah yeah i'm still being like this here, the 18 million series, they have Novig or whatever.

49:34And I'm one or two steps upstream of that. But the insights and the perspective is great. And to me, I'm excited to, to help those kinds of firms and others that start to realize that this is a really fertile area that can build multi-billion dollar companies that have been systematically under invested in, which I think will then create this flywheel of great founders saying, hey, I want to build in this area. And I think that's also part of my excitement for why sports media, entertainment tech, why now is that we're already seeing so many smart founders who love sports, but are first and foremost, great builders starting to apply their brains in the space.

50:21But I think we're at the very, very beginning of this phenomenon.

50:24Turner Novak:them it seems like there's like a there's just a real lack of capital and like that's it favors the capital like you can get a little boost to your returns versus if you go the other end is like i stuff like it's definitely in the favor of the the equity or the stock like the the founders like the the company where the the investors are you're paying higher prices so it's like they might be great businesses but you're kind of like chopping like if you just think of an extreme end like you invest in company of 5 million post money versus 50 million post money just assume the outcome is the same maybe that's not the right way to do it but it's like a 10x difference that you kind of miss out on by coming in a 50 instead of five so to your point is if you think the outcomes are still going to be massive you just get this extra tailwind from just a place that just doesn't have the same kind of like i don't know competition in a sense and maybe we're ruining your edge right now talking about this but but also it's a lot of things attracting downstream capital right because like a lot of people still might say sports like nothing there like i'm gonna stick with ai so it's like i feel like that's part of the battle too is like can you get people to just care about this for sure and and that's that's our challenge our responsibility is to work with founders to get them to the point where they are venture-backable downstream of us.

51:46And then because so much of what we're doing has that deep technology component to it, the AI inside where it's really the models themselves aren't novel, the applications are novel, or using cross-models depending on the context within a single application. These are not things that are easily replicable. There is genuine IP in these businesses. So at the end of the day, you know, Turner, I think what I'm doing isn't sports media, entertainment, tech VC. It's just tech VC. It's just this particular vector has some really compelling founders building really interesting products in areas that we believe have applications often well outside of sports.

52:48But sports is the best place to go to market and to hone the direct-to-consumer relationship, which I love. Like to me, having that very narrow go to market and being able to just create these unbelievably passionate users that word of mouth tell others about it. Yeah. because I think one of the big issues, and I will say my, something I fight with all the time in myself, even having been a reasonably successful VC for more than two decades is that notion of, man, if I can't see a huge TAM, why am I spending my time on this? And then I need to constantly remind myself, great founders find the big TAM.

53:46And the most important thing is building and shipping great product that users are excited about first and foremost especially at the pre-seed and seed

53:59Turner Novak:stage yeah because you can say huge tan but you just never get there because you didn't build a product and no one used it so a hundred percent so i i really do and this is something that my my friend harry stubbings has said for a long time that it's and it's always a great reminder just it really is that the pre-seed and seed stage it's about the founder and it's about their ability to ship a great product and create a super happy customer. And then everything springs from that. And so what do you think have been the characteristics of founders throughout your career that have been able to do that?

54:33Turner Novak:Is there anything that you typically are able to pull out or that you're looking for? I mean, most, not most, every successful founder I've backed had deep empathy for the problem, deep understanding of that thing they're building towards. It wasn't an intellectual exercise, but they're like, I'm really smart. I think that there's a need over here and then I'm going to go build over here. And I'm not going to say that it's, you can't build a great company that way. I'm saying in my experience, the best companies that I've been involved with. The founders were angry. They had a chip on their shoulder.

55:20There was something about either their own experience in using a product or trying to do something that was just such a crappy experience or they had been building something. They were part of a company that that first venture underperformed. they're enraged about it and now they're going to go and do it right those two personas to me have been the most successful personas of anybody that i've backed in the past

55:51Turner Novak:when you say hanky that's like a surprising but you feel like that's important does it motivate you if you're massively frustrated you know if it was i was involved in building something that maybe it was we had a hard time going to market. Maybe I disagreed with my co-founder. Maybe we were too early. Maybe we sold out too early to a terrible buyer that wanted us to do things that we knew were bad. And so the dream was never realized. The underlying thesis for the dream hadn't changed. The realization had been truncated. So then they're able to start something that new with both the market knowledge, the passion and a level of drive that is powered by the desire to win and to prove.

56:45I can say like that drives me like I say, did you have that at all?

56:50Turner Novak:Like whether is that did you have moments like that growing up or. I would say I had moments like that starting in college. Just like elements of disbelief. For sure. You know, if I'm truly honest, I started before that. Yeah, my. Definitely a rocky relationship with my parents growing up and. They were trying their best, but they themselves were pretty messed up. And so, like, they didn't believe that, like, I wouldn't say this, they would not stipulate that I could do great things. My mom and I ended up having a great relationship with my parents for 15 years before they died. But in that era, they didn't express belief in me.

57:49And my mom was always, prove it, prove it, prove it. Which didn't feel great as a kid. And that definitely was this seeded this white hot fire inside me. And then when I was in college, you know, I wanted to go to Wall Street and coming out of University of Michigan in the mid 1980s, it was not a hotbed of Wall Street recruiting. And how did you do it? How did you make it like you obviously it worked? Well, it worked. I had a stack of rejection letters this thick. I literally. You were literally writing people letters from Ann Arbor. Of course. Oh, no. I. Well, I did both. I sent

58:45How many? I'm going to say 100, 125 letters. What I did is I would cut out the tombstones of equity and debt offerings out of the Wall Street Journal. And I would call and then send letters to every single one of those firms. So their numbers were on the... No, of course not. Would you look them up? Yeah. Okay. No, I mean, this is an arduous, right?

59:12Turner Novak:Arduous, right? There was no internet. You couldn't just go to LinkedIn or just connect with them and be like, I'd like to pick your brain. There was no internet. It was, or public internet. It was crazy. So I just tried and tried and tried and tried and tried. And then finally, through somebody who lived on my same hall in my dorm freshman year. He was at City M &A. He said, oh, this, and we had a good relationship and he knew of my job hunt. And I think he was valedictorian of the class before. So he got on Wall Street. And he said, oh, the head of Asian M &A in New York is looking to hire an analyst.

1:00:03Can I put you up for it? I said, that would be fantastic. I went, I interviewed, and I got the job. That was the foot in the door. But it was brutal. Like... All the steps leading up to that was like...

1:00:16Turner Novak:But it probably prepared you, right? You were probably ready to nail the interview. A hundred percent. And so, but it was like, that was the white hot fire. And then it was leaving Wall Street and people saying, you're insane. Like, you're... Because did you kind of like made it, quote unquote, You're running a whole division, like a group, right? And I was making nice seven-figure dollars. And yeah, things were pretty iry. So why'd you do it? Because most people would say, you're crazy for giving that up. That's the point. Most people said, I'm crazy. Because that feeling I described about leaving IA is how I felt then.

1:00:54Things had gotten very political. And I had a very senior job. And it ceased to be fun. Like, I learned so much. I was in derivatives for a long time, and I was at Citi and then went to Deutsche. I co-headed equity derivatives structuring and marketing globally, and then became CEO of this large trading business. And it just became a drag. And I felt like I had done my learning, and I needed to change. And it didn't matter if I was making great money. it felt at that point inauthentic and not fun but again like disbelief crazy and then spent you know four plus years wandering the desert doing my thing went through the gfc didn't make a hadn't drawn a paycheck for four years two kids in school those those were tough times man i mean stress a lot of spite, but some of that founder existential, oh my God, like, should I go back to Wall Street type thing and go back to just making money, doing what I did for 17 years?

1:02:09And my wife, God bless her, is like, no, like you made a plan. It's a great plan. You always told me stick to the plan. And she's like, look, if at the end of the day, we need to sell this stuff and send our kids to public school and move to a suburb, that's fine. We're fine. So a year later, things were covered. My investments did great. And I had this vision for IA, and that's how I started IA.

1:02:38Turner Novak:So then how did you convince people when you made the transition you started raising money for? Because they might say, Wall Street guy, what do you know about backing founders? Get out of here. Like we want, we want someone who was like a, I guess at the time, maybe like a, like early Yahoo or something or like, you know, like a Google employee or something. Yeah, I mean, so this was 2009 is when I started talking, the middle of 2009, when I started talking to people about IA. And for sure, like, because of the angel investing I had done and relationships I had with some fantastic GPs, I was able to get amazing LP meetings, top fund to funds, endowments, whatever.

1:03:24How'd those go? So great to meet me, but disbelief for sure.

1:03:32Turner Novak:What was the pushback? It was just that we like probably don't think you're the right fit. But also remember, we're coming out of the global financial crisis. Most LPs are puking out with not putting on that new risk. Emerging managers were not a thing yet. And I did not look like your normal central casting VC. Yeah. So it was more, I mean, very polite, but just like, let's stay in touch. So I ended up kind of brute forcing a first close with non-traditional investors. I had multiple proprietary trading firms. So a few ultra high net worth individuals, my own money. So a small but very non-traditional LP base and brute force to first close of 17 million.

1:04:24But I planted all these seeds with these traditional LPs.

1:04:32And I told them exactly what I was going to do, which was we are going to build a concentrated seed state strategy. We are going to lead rounds and be ownership sensitive out of New York City in technology.

1:04:43Turner Novak:Which I was like all pretty much not, that was very contrarian at the time, not consensus. Very contrarian. You know, New York, New York area, you know, you would USB and you had RE and you had first rounds. And, but there were, there was very little true seed and pre-seed money in a city. Was it mostly angels? Like if you wanted to raise a million or two? It was like New York, New York angels. a hundred percent it was a very it's hard to believe because the new york ecosystem now is so strong but now like everyone has a fund and like now 16 years ago i mean and again this is like like need up hadn't really gone full bore yet it started but it's just like the ecosystem hadn't really developed.

1:05:38And so, but I put this stake in the ground. And also remember, big data is an investable theme, emerging manager, New York. Well, fast forward from Q3 of 2009 to Q3 of 2010. The market had recovered. Emerging managers were a thing. Big data was hot and people started to believe in New York. And all of a sudden, my$17 million fund with 25 on the cover, we had$85 million of institutional demand and ended up getting an LP waiver. We had a hard gap of 40. We ended up taking 50. And at that point, we had convinced, so we were Michael Kim's

1:06:25Turner Novak:first LP commitment at Sendana before Sendana was Sendana. And we got Horsley Bridge. and we were one of Phil Horsley's, I think we were Phil Horsley's last fund that he was involved in the decision with and then Fred Gioffretta, Elizabeth Overshaw and the team took it over from there. And then we just started to go. But again, massive disbelief. Just unbelievable fire on my part to make this thing work and to prove it. And, you know, I'm super, super proud of what IA accomplished and continues to accomplish and what the brand means in the market. Now I feel that same disbelief about this theme and thesis at this point in this space at a time that's very, very hard for pre-seed and seed.

1:07:25And I have that same fire to prove it.

1:07:30Turner Novak:so this might be i'm asking this because there's a lot of probably emerging managers out there that are listening to this how how did you get through that 18 month 12 month kind of moment of like everything coming together from we probably like all knows to then suddenly like the yeses like were there certain moments or certain things that you did that kind of helped things come together um and i ask because i just know a lot of people are they probably are like asking about How did you actually raise the first one? I think it's just a common question that a lot of people have. Yeah, for sure.

1:08:04I mean, so just for as a reminder, right? So I had a very clear thesis. I think. Clear differentiation is critical. Like, does the world need another smart young kid with a generalist tech fund? oh, I have access to end network. Like that's all over. It's like, you need a take that is novel and not for novelty sake, because you actually believe you have an edge. And if you don't, then you shouldn't be doing it in the first place. It's just, come on, Turner, you know this. I mean, you're a hell of a lot younger than me, but you know, and even I know having, even having accomplished what I've accomplished.

1:08:48This is a hard business, a soul crushing business. Unless you really want to do it and you really think you can be great at it, do not do it. Don't do it. The same advice that I give founders, like I want to start a company. No, you don't.

1:09:12You have to be crazy. You need to be crazy to be a founder. You need to be crazy to be a VC. And I know that the narrative, you know,

1:09:24Turner Novak:being a VC, man, being a startup VC, we're not talking about the venerable firms of the billions under management that are clipping coupons in Silicon Valley. We're talking about starting a business. Starting a business in the world of venture capital is insanely difficult for all but to select few that are spinning out of a venerable firm and where they themselves have a huge brand. I did not, right? I did not have a big brand. I had a very clear thesis. I had done angel investing. And so I was founder referenceable. And again, even if you're a young kid, you can put small amounts of money to work or advise companies such that when an LP calls a founder, They're like, yeah, tell me about Charter.

1:10:10I'm like, he was super helpful. You know, gave me a great perspective on my product, introduced me to these two potential hires, whatever it is. You need to be referenceable. It can't just be story. So clear thesis, a trap record of your own making, right? So this advising, angel investing, something where you've actually got something you can point to. and then it is putting a stake in the ground. Here's what I'm going to do. You may not back me today. I'm going to stay in touch and I'm going to tell you that I'm going to do what I said I'm going to do and you will be surprised. You will be shocked.

1:10:55And that's essentially what I did is again, that brute force that first close with people who knew me. And I did have the advantage of having enough people with enough money who had enough belief in me to at least get me to 17 million. And that was important. Going from 17 to 85, so literally five times the interest, was a function of investing a lot of time in seed planting. And by the way, the warm introductions to LPs is critical. So you can point to my LP relationships as having been seeded by Fred Wilson, Josh Koppelman, Matt Harris-Abane, I think Jeff Busgang. There's very few people, but friends, mentors, people that I had worked with in my angel investing.

1:11:56And they were incredibly kind and generous to make introductions to some of the endowments and fund-to-funds that they had close relationships with where they're like, you should really look at Roger. Like, want to make the connection? Like, that means a lot. And by the way, now, so, you know, shoe on the other foot, I get asked all of them, can you introduce me to these people? The answer is yes, if. If I believe that I would put my imprimatur behind you, right? Because like, I'm not just going to connect somebody because I have a relationship. Yeah, you're going to bat.

1:12:37Turner Novak:You're saying you should spend a lot of time and probably put some money into this person. So, and I, you know, I have, you know, invested in a wide array of funds as an LP, that's obviously the surest way to get a referral. But I've made others as long as I feel like the people are, basically have what I said, you know. Compelling, compelling thesis, compelling background, differentiation, and referenceable. Yeah. Makes sense. Okay. And one thing I wanted to ask you, I know we've got probably like 11 minutes left, 10.34. I wanted to make sure we had enough stuff. So how did fund one end up going?

1:13:19Turner Novak:Like, did it go well? Did you lose all the money? Did you make money? What was the... You're saying IA fund one? IA fund one, yeah. So IA fund one, 50 million is right about 10 DPI and 13 TVPI. Nice. That's pretty good. that's one of those legendary 10x funds yeah and then so I think maybe I think I'm understanding this right was the trade desk one of the big ones yes in that one so fund one the big ones were trade desk datadog those were those were the two biggest and we still have some pretty good stuff in there even after all these years but then fund two was better and so fund two was 105 million and that was Wise and DigitalOcean and some other interesting stuff.

1:14:14But those are the two that have driven returns the most right now. And that's like 14.5, 15 dpi. Wow.

1:14:23Turner Novak:20 dpi. Nice. Well, that's also pretty decent. And then I think one thing I thought was super interesting hearing you a year ago, not this last VC summit at Michigan, but the one I think last year, You talked a lot about with the trade desk. I think the company raised and you put in, there was like two or three bridge rounds. I think you probably invested a bunch of times in that one. What's just generally kind of like the story arc behind the trade desk? Yeah, so Jeff Green is one of those people. Nobody knew the space of programmatic better than Jeff. He had co-founded a company called BCN that ultimately was sold to Microsoft in a really frustrating, annoying deal.

1:15:10He was not happy about it. And both free and post didn't really want to sell. And then when they sold, didn't like the experience of being part of the organization, had hyper clarity on what he wanted to build, but it was in a space that felt very over-invested in. Because at that point, you had all of these like new age ad tech companies that position themselves as tech companies but, you know, I would argue were more tech-powered agencies like Churn and MediaMath, DataZoo, that had raised hundreds of millions of venture dollars, MapNexus.

1:15:48Turner Novak:So this was like as the market was starting to pull back for like ad tech, quote unquote, or was it still kind of a hot category? It was hot, but not for net new investment. It had received a lot of investment, but Jeff and we believe that it was investment in the wrong areas. And so he, again, is probably among the greatest examples of the chip on your shoulder founder who had deep, deep, deep understanding of and empathy for the problem. And talk about a tough environment, you know, racing for the trade desk of late 09. You know, he spoke to everybody. Such a hard time. I mean, it was brutal.

1:16:34And he didn't have a product. He had a PowerPoint. He hadn't brought on his co-founder yet, but he could articulate very clearly what the plan was and what go-to-market was. And, you know, we ended up partnering with Founder Collective. Eric Paley and I worked very closely with Jeff, and they were amazing. Founder Collective's awesome. They were the best partners. And so we stuck by them through that initial seed and then three small bridges and then to a small Series A. And it was really, and then there was this big, like I said, air gap, because then once they put product in market and Jeff had built a great product and had already laid the railroad track for distribution once they had built the technology to the point where it could perform relative to the other RTBs that were out there and even better.

1:17:31that's what happened. It was rocket ship. And then we had a chance to write one more check in the series B and we actually recycled capital from our sale of simple to BBVA and put that in their series B and that even at a, you know, almost a 20X higher valuation than the series A still ended up paying more than 30X.

1:18:00Turner Novak:yeah and then i i think you you mentioned that as like a kind of a part of the strategy was recycling how do you recommend approaching that as an early stage manager because you just don't know what the recycling is going to look like right like you don't know if you're going to get anything you don't and that is a real challenge of being a very early stage investor is are you going to have recycling in time to be able to invest in those rounds in your existing portfolio companies. Look, you're going to get recycling at some point. It just might not be at the point that you want it. And that's frustrating.

1:18:37But it kind of is what it is. I said this recently to somebody that the ultimate way to combat that, if you can do it, which is hard, is to have similar LPs across funds. So you then can do seamless cross fund investing without concern about conflicts. Because then you literally can take fund A plus fund B, add them together, and that's effectively how you can manage that fund. Because if you have a fund one portfolio company, there's an exciting opportunity. You don't have sufficient capital to make that investment. Fund two can invest in that fund one company if you have similar LPs. But cross fund is a way to address that issue.

1:19:17But if you don't have perfect symmetry in your LPs, then you're taking a significant reputational risk if that turns out to be a bad check. So, you know, we had looked at some opportunities at IA Fund 1 before Ultimate. Fund 2 and Fund 3 were able to achieve symmetry, but Fund 1 and Fund 2 were not. So there was a time in a Fund 1 company when we were seriously considering doing cross-fund and we spoke to the LPAC, and they ultimately said, you can do it. Just understand. It better work. yeah right just because like it's it's a reputational risk so we elected ultimately not to do it so look at some point you're going to get recycling that you will be able to deploy it just might not be exactly when you feel you want it so i have two questions i really wanted

1:20:07Turner Novak:to ask you that most people who i talked to before this like you got asked about this so i got to make sure we fit them in one was i think you kind of alluded to it after you stepped back from iaa started to work with your kids a little bit? Just generally speaking, what's that been like? What's it like working with your kids? I mean, it's been great. It was never the plan, which I think is part of the reason why it's great. We didn't have a family business ever. It's only after I left IA and started kind of investing out of our family office that this enterprise started to look like a family thing.

1:20:44But at that point, older son, Andrew, was working at Data Robot as a product manager, and younger son, Ethan, was still at Michigan Ross. As I started to get deal flow in this area, though, I started just to send the deals to the boys just to get their perspective. And so they're doing their lives, and we're starting to collaborate, and I'm putting some family money to work in some of these companies. And then a few years in, they, they approached my wife and me and say, we'd really like to work with dad. And it was, it was not just sure sounds great. Like we had a lot of conversations about it.

1:21:32And, you know, one of the, the hallmarks of my relationship with my wife, Karen, you know, she's a clinical psychologist. We're very tuned into communication and transparency and everything being out there, you know, working with your kids can be fraught, right? You know, kind of, especially like a family as close as ours where, you know, we so value the personal relationship, the friend and parental, adding work to that, you know, we needed to put some guardrails in place that if for whatever reason, we couldn't keep these three roles in our heads at the same time and acknowledging that if they're working with me, they're working for me and I'm their boss and there's going to be feedback, but it all needed to be okay.

1:22:23So a lot of work upfront went into the notion of, okay, let's try this and fast forward. It has worked really well. You know, each boy is now doing what seems to be their calling. You know, in Andrew's case, you know, he was working on kind of the sports and media stuff with Ethan until I started really going very deep in business building in Detroit. And then Andrew came out to be a partner in that with a partner of ours. and is just crushing it. Super happy. Ashley just bought a house in Detroit and is putting down roots. So that has been, it's incredibly gratifying for me to see him so happy and so effective, yet doing something that touches the family.

1:23:22And then Ethan recently graduated from Columbia with a master's in sports management and had been kind of working with me while he was in school since graduating from Michigan. And now he's kind of come to be like an associate in Game Changers. And no, it's an institutional venture fund. It's not nepotistic. I mean, this either will or will not be a great fit for him. And, you know, we brought in a partner, Simon Sokol, to join us, who's fantastic. So we're really building an independent firm. But this is something that Ethan was really excited to dig into and it's nice to work with him every day yeah it's it's probably like one of those

1:24:09Turner Novak:things your point's nice work like it's you get to spend more time and like develop an even stronger relationship and like maybe you work better together than if you weren't father and son i mean there's obviously there's probably downside of like you know i will maybe maybe Maybe there's like more or less honesty in some cases. Like I'm willing to bring something up sooner rather than later. Or there's like, is there any of like, you brought it up. So maybe there's not this, but like the sensitivity around feedback or you're just like, you got to fix this. That. Yeah. Okay. No, that's the whole thing is it's normal.

1:24:42Yeah. It's, I treat him as I would another 25 year old, smart young person working for me.

1:24:52Turner Novak:Yeah. You mentioned Andrew's helping with this thing called brand Detroit. what's sort of the story behind that? Like what is it? And then how did that kind of come to be? Sure. So precursor to brand Detroit is I co-founded a real estate business in Detroit called Great Water Opportunity Capital and Great Water Homes. And so four of us have been working on this since 2018. And we're now the largest naturally occurring affordable homeowner in Detroit. Oh, I didn't know that. Yeah, we have about 2 ,100 affordable units across the city. What does that mean, naturally affordable? Meaning we don't get government subsidies.

1:25:34It's not, it is, there is not a government program that is giving us money. It's not subsidized housing.

1:25:41Turner Novak:That's bold because you could have done that. It's, it's, for me and our partners, it, that distorts outcomes. like we want to rebuild neighborhoods using capital that can earn a market return. So the bar is necessarily high, but we've been, but because of the makeup of Detroit, it's not as hard as you would think. You know, most of our stuff is between 60 and 80 % of AMI, which is affordable. And by definition, we also have started building single family homes in East Village. In New York? East Village, Detroit. East Village, Detroit. Okay. I didn't know that was a thing. It's a huge thing. And you should look at Great Water Homes.

1:26:27Look it up. It's right next to Indian Village with all the mansions. And it's incredible. We've developed a home product that nobody else in the country has. A true, energy-efficient, affordable, ultra-high-quality starter home. 1 ,000 to 1 ,800 square feet, not including a 600-square-foot finished basement. And we are reprogramming this entire once-great neighborhood, doing so with input of the local community. And these houses are being sold as fast as we can make them. And that's Andrew bought one of those houses in East Village.

1:27:06Turner Novak:He's like really dogfooding it. He is dogfooding it. Nice. Then, so then where did Brian Detroit come from? One of the other partners of Greatwater and I, a guy named John Updike, very successful tech entrepreneur, bandit hook logic that was sold to Crayo for$250 million, also from the Detroit area, industrial engineer from Michigan. He started going deep in the food, hospitality and beverage community in Detroit. And from that, we saw all of this incredible well of entrepreneurship in and around food culture here. we then partnered with the founder of marrow ping ho became part owners of marrow started a wholesale meat business called marrow detroit provisions our meats carried at singerman's plum market bushes and that's expanding we then bought some buildings in eastern market three of the iconic buildings on fisher service road that you like those like brick kind of warehouse he Exactly.

1:28:08And, you know, Eastern Market is the largest and oldest food market of its type in the country. Food culture in Michigan is incredible and the agricultural community. So we actually are getting ready to open a marrow butcher shop, retail counter, bar, restaurant and event space in one of our buildings on 2442 Riopelle. we and then we have the building just next to a 1530 winder which is going to be home of our venture studio and we recently brought on a new partner somebody with 30 years of brand building experience from zero to a billion to run the venture studio as our partner and then we have 2448 market this very famous building with the mural with the watermelon on it that's like the total line building that we're programming to do something very exciting that we're hopefully going to be able to announce and you know before the end of the year okay so how do you how do you

1:29:08Turner Novak:do all this well because you're doing a lot of different things that's something a couple people were like oh you gotta you gotta ask them well it's just like how do you do a good job when you're doing so many different seemingly non-related things is there like a thread of commonality or so the commonality is that i work with great people and in the case of Grand Detroit. John Updike runs that. Andrew really works for John and the head of the head of the venture studio. Great Water is run by Matt Temkin and Justin Golden. I run sports. That's what I run. That when I wake up in the morning, that's what I'm thinking about.

1:29:49So I run game changers. I run the family franchise portfolio. So in terms of my bandwidth, my bandwidth is devoted to the sports media entertainment business i have helped co-found seated and effectively serve as a board member of these other activities but it's not my day-to-day

1:30:09Turner Novak:so it's really just partnering with the right people it's like finding a really good co-founder and that's exactly that's exactly what it is yeah okay well roger this is a lot of fun i know you gotta get going but yeah thanks for coming on the show thanks so much turn it has been great And thank you for listening. Thanks again to Hanover Park for supporting this episode. Head to hanoverpark.com slash Turner to upgrade your fund admin to the 21st century. If you missed it, make sure to check out last week's episode with Dux Gupta, co-founder of Greptile, on all things AI coding. And tune in next week for Will Gaber get Stripe on stablecoins, AI, and if they'll ever go public.

1:30:43Turner Novak:If you like this conversation, please like, comment, subscribe, and name your next sports team after me. If you want to miss a future episode, subscribe to my newsletter, The Split, linked in the description to get each episode plus a transcript emailed directly to your inbox every week. Thanks again for listening. See you next time.