The Chainsmokers' Alex Pall in crossing over from a grammy nominated group in the music industry to starting Mantis VC

0:00Welcome back to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. I'm your host, Samir Kaji. On this week's show, we're thrilled to have Alex Paul, general partner at Mantis VC, a LA-based early stage fund with over$100 million in AUM. Alex is a great example of someone that has made a significant crossover from another industry, as he is one of the two founders of the Chainsmokers, who have become amongst the largest EDM and dance musicians in the world, with five songs that have been on the Billboard Top 10. In our chat today, we discuss how Alex and the team thought through joining the ranks of venture capital, their early learnings, and the importance of knowing where your strengths lie in investing and really leaning into them when building a fund model.

0:42I hope you enjoy the unique perspectives that Alex was able to bring. Now let's get right into the show. Samir Kaji is the CEO and co-founder of Allocate. Allocate and Venture Unlocked are independent of each other. Any statements or references made by Samir or his guests regarding third parties, investments, or securities are solely their views and opinions and are not intended as investment advice or an endorsement of such parties or securities by Samir, his guests, or Allocate. Allocate or its clients may maintain relationships with or investment positions in guests, third parties, or securities mentioned in this podcast.

1:16This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Alex, it's great seeing you, man. Hey, what's going on, Samir? How are you? I'm good. I'm good. I'm excited about this conversation. And you have such a unique and interesting story. And I actually do interview a lot of folks that have made a crossover from a different sector industry. You've followed a really interesting path in your career leading up to starting Mantis. But maybe a good place to start, Alex, is just going through your background and how you arrived in starting Mantis in 2019.

1:51I won't go too far back into the genesis of the Chainsmokers, but I do think there's some relevancy there. And Drew and I met, our anniversary is actually, I think about a week away to today for 11 years of chain smokers, which is pretty wild. And, you know, we met in New York City, probably not far from where I am now, actually. And, you know, we got together and we obviously, you know, had these huge ambitions to become some of the world's biggest electronic acts. And beyond that, from the very first time we met, we kind of shared this passion for wanting to be super entrepreneurial. From the get go, we were like, and not only do we want to become the biggest electronic act, but if we become the Biggest Electronic Act.

2:26Let's use that platform to create adjacent opportunities and businesses and things that we're interested and excited about. So we went off on our journey to begin the Chain Smokers. And looking back now with hindsight, I didn't know any of this at the time, but we actually employed a lot of interesting tactics from growth hacking to crowdsourcing that are now kind of commonplace terms that I've learned as I've gotten more into venture and just the journey of other people's stories building businesses. probably about six years into the into the chain smokers we finally had some success we're no longer broke starving artists our business manager who's kind of i say the mvp to our team i think it's so critical especially with people like myself we're not idiots i've graduated from myu what drew into syracuse and graduated but you know like setting yourself up financially for the future is so important and i can't tell you how many other artists i've spoken to that they don't even know where their money is and i was like blown away by that josh did a great job kind of preparing us for our own future.

3:21And he was like, listen, guys, you know, you're kind of in a great place financially, you own your homes, you're diversified your portfolio, you know, you have this huge platform, and you have a ton of inbound interest from different types of people and companies that want you to potentially participate and partner in. And he was like, you know, I'm not going to tell you what you should or shouldn't do here. And I'm happy to help guide you through this process and vet these different opportunities. But you know, I would think about it the same way, Alex, that you told me how you think about buying art, which is like, don't buy things for the promise of it becoming a multi million dollar painting by because you love it, you know, you're gonna have to live with this thing in your home, there's a good chance that it won't be worth a lot of money in the future.

4:00So make sure that you're passionate about it. And you can look back fondly on the experience, at least of owning or being a part of that journey. So we began to start investing. But it wasn't long before we kind of realized that we were the victims of adverse selection, and maybe victims too strong a word. But kind of the reality was, and it really is at the time is that, you know, with CPG consumer related companies, the most important X factor in their success is distribution and marketing. And so naturally, as an artist or an athlete, or actor, whoever, that's kind of the bread and butter of our whole platform.

4:34So there's this kind of alliance between our two worlds that, you know, frequently sought out. So for the most part, that's kind of the kind of companies that we were being sent and looking at. But simultaneously, I'm reading the news about companies like Palo Alto Networks and Stripe and Robinhood and so on. And I was like, damn, why are these companies not emailing us to be a part of their journey? I didn't really know at the time, you know, what to do so much, but we were very fortunate. And, you know, I'll kind of stop after this, because I can talk all day about this stuff. But that's part about being the chain smokers is really just our ability to have met so many great people throughout our career, you know, and we've never approached those relationships transactionally.

5:11We've played shows for every fortune 500 company on the planet, every rich guy or woman's daughter, sweet 16 or bar mitzvah. And going into these shows, we're always, who are these people? What can we learn from them? You know, I have no like actionable thing that I want from them right now, but if we can become friends with them and accumulate their knowledge, and maybe one day there'll be something really relevant for us to work on or help us with. And so, you know, the reason I bring it up is because a couple of those people were like Brian Chesky for Airbnb. be. I give Drew Houston from Dropbox a ton of credit, Justin and Daniel Kahn, Michael Seibel from YC.

5:44And, you know, we became really close with them. And they were like, guys, it's very clear that you have this real passion and interest in technology and investing. I don't even really know or want to know what you guys have invested in so far, but I'm just going to go out on a limb here and say that it's not as good as what it should be. You guys have this superpower where you can kick down doors and build bridges and connect with people that other people can't. And I just feel like you're selling yourself short. And, you know, we're sitting here in front of you telling you right now that we would have loved to have had you as investors in our company at any part of our journey.

6:14And not only that, but I think you guys could have been, you know, instrumentally helpful to us. And that's kind of where things really began to kick off. So Alex, one of the things I always think about is I look at things through the lens of opportunity costs. The opportunity cost of starting a firm obviously comes at the expense of other things that you could do. What led to the decision of, hey, we want to do this full time and we want to actually create a firm, which is obviously a long term commitment versus continue to just angel invest. Maybe give us a little bit of background on the thought process you and Drew had.

6:44It was years of kind of mulling this idea over, you know, before we jump into anything, Drew and I are very critical about we're either in or out. There's no kind of 50 % with anything. And there were a lot of questions that we wanted to have answered, a lot of conversations that we wanted to have. And I think it really started actually with this lunch we luckily had with Jimmy Buffett, of all people. We weren't friends with him before. We got connected with him and we were lucky enough to, you know, sit with him in LA and have a great lunch. And, you know, at that lunch, I was asking him all about his like Margaritaville empire and kind of how he had the idea and the evolution of it.

7:19And he was like, listen, I'm buying I'm building retirement communities now for my fans. I've created this business model that has served my fan base throughout my entire career. And it's always aligned with the core values of my music platform being Jimmy Buffett. And he's like, so you don't be ever be ashamed to go out and start new businesses. just make sure they're like inherently connected to the things that make you special and or core tenants or principles that you know chain smokers are built on so he's like i would think long and hard about you know what those things are and then go out and seek out those opportunities that are exciting and interesting to you obviously venture wasn't like oh we should do venture then but in through our angel investing through these conversations with different people that we had met through our lifetime, it kind of became more clear that some of the most powerful parts of venture are just like the relationships, the network, the connectivity, and just most importantly, just the work that goes into it, and the willingness to do that.

8:16And from our perspective, like we love hosting people, we love connecting people, you know, we've never been the smartest person or best musician in any room we've been in. But our work ethic is really what has what allowed us to succeed. And I love the idea of kind of using the accumulated knowledge experiences and things that we've built over the years and paying it forward to different founders. And we kind of got a taste of it in our angel investing. I remember, you know, you get a call from a founder being like, Hey, do you know, a buyer at Whole Foods, you know, we're trying to get on a shelf there.

8:45I do actually change the whole course of the direction of this company from a very low lift, you know, phone call that I would make. And and that was exciting to us. And firstly, like in talking with, you know, people like Brian and Michael Seibel and Drew Houston, it kind of became clear that there was no real strong bridge of connectivity between the entertainment world and the technology world yet. I think like Ashton Kutcher has done a bang up job. He's definitely an exception to what I'm about to say. And I'm sure there are a few other people out there like Joe Montana, and some other people, but especially from the musician side of things, at least, it felt like there was this, I don't know, sour taste between both worlds where there was no way musician could invest in cybersecurity or understand it.

9:27And conversely, if they did, they would sit, they would promise the world and then never show up. Drew and I were like, I feel like we have so much we can offer to these different companies. And I'm fascinated and curious about these different businesses that are kind of this invisible fabric that powers, you know, society in so many different ways and somewhat in some cases. And that was a challenge. I like this idea. Like, what if we can build the first real venture fund coming from the entertainment world, leveraging all the things we've done and come into venture. And I don't want to look and feel the same as a Sequoia.

9:59And by the way, I hope one day people will put us on the same level as them. It might be a hundred years before that happens, but that's the goal. But I don't want to look and feel like them, but I reputationally want to be thought of like them. But what if we come in here with kind of a different perspective, a different outlook, a different set of values and things we can impart on these founders and do it in a complimentary way that can really help people grow. Going back to kind of the initial question, like, it wasn't kind of clear to us how we knew it was going to take a lot of work. I didn't know how much I was going to love it.

10:29I didn't know how deep and successful it was going to be by any stretch. But also, you know, we're super self aware, Drew and I and a big part of a Chainsmokers success has always been about putting the right team of people together that are hungry, and excited and willing to go to the same lengths that we are to accomplish these things. And doing so, I was like, I think I'm great judge of character. I can look at someone and determine whether they have the gusto or grit to like pull, do something special. But, you know, I've never read a data room before in my life. And I've certainly not a tradition, have a traditional venture capital background, even operationally, while we built, you know, a multi hundred million dollar business, it's not the same as building like rippling or something like that.

11:08And that's kind of the whole idea of Mantis also to begin with. So we were lucky to find Jeffrey and Milan, and our partners who kind of felt like they had the complementary skills and experiences that drew and i were lacking between us and our extended chain smoker team who became minority partners i think we have foundationally something at least something to begin thinking about what mantis could become not thank god for covid we really used our time that completely decimated our main business and music to like build and start mantis because we needed those two and a half years to have the 20 hours of conversations a day with different people to really understand what it takes to be successful.

11:45What are the things we should be thinking about looking out for? When you think back on all the successes of the Chainsmokers and going from playing in really small venues with maybe not a lot of people to being on the main stage, along with some of the best acts in the world. And you think about venture, you're starting over in many ways. And I I know you and Drew went through this long-term thought process of how do we get to be on the main stage in venture. But at the beginning, I'd be curious to hear some of the early pieces of advice you received from some of your advisors. And I know both of you spent a lot of time with VCs.

12:25So maybe you can unpack some of the early things that guided launching that first fund. Three things kind of jump out to me. I think the first one is just this. I remember this email that got forwarded to me when we launched or announced that we were doing our first fund. And it wasn't a nice email. You know, it wasn't to me directly. It was like the Chainsmokers are launching a fund. This is the end of venture. And I was like, I didn't get mad about it. I used, you know, I was very motivated by it because I actually understood what they meant. I understood that if you just followed us on Instagram, maybe you wouldn't understand how serious we are about this or the types of people we are.

12:58I also understood that a lot of bad blood had been created before us through other, you know, partnerships and relationships. And and I wanted people to really understand that we respected the work that of all the people that had come before us and the people that were working now in this space. And so part of what I mentioned before about doing eight to 10 hours of calls a day with everyone and anyone that would speak to us was like how I imagined like moving into a cul-de-sac. And, you know, and people are like, oh, my God, the Chainsmokers are moving in as neighbors. We're never going to sleep.

13:28And I wanted to come in and have real serious conversations with people to listen to them and also hopefully convey just how serious we were and the type of people we were in the space. Another part and probably some of the most helpful advice in terms of framing our strategy as a fund came from, you know, a mentor of ours, Jim Coulter, who's the chairman of TPG. He's been like a father to us in so many ways. And, you know, we came to him first to kind of like get his perspective on what he thought about us potentially doing this was. he gave us a lot of advice, but the one piece of advice that really stuck out, and it sounds condescending, but it's just our relationship.

14:03I swear it's not. But he was like, I love this idea. I think you guys do have unique access. I've gotten to know you over the last six years. You guys work incredibly hard. You're very thoughtful. And if you're excited about this, by all means, pursue it. But my one piece of advice is that make sure you're investing with an adult at the table. That sounds like he's calling us kids and that you're kind of like need supervision or something like that. But you know, what he really meant, and what at least I took away from it is that he's right. He's like, there are so many people out there that have so much experience in this space investing operationally, or just on the private equity side or whatever, that you'd be foolish not to leverage your ability to build those connections with these people and invest alongside them instead of coming out here firing out of the gate, pretending like you guys are no it all is which we never have ever thought we were be a collaborative person, you know, in our music collaboration's always been, you know, our most successful touch point.

14:57So why should venture be no different? Don't come in here and put your frame yourselves as competitors to everyone, frame yourselves as the collaborator, the preferred partner, the companion to everybody. And through that, you'll have the ability to learn and grow and be a part of the best opportunities. Because like I would if I was a founder, and it was like, I'm sitting there, it's me and Alfred Lynn, you know, and I'm like, you got to pick one of us. You'd be a fool to pick just, you know, like, and maybe, you know, that's not maybe the case for everything. Certainly like Alfred has decades more experience and he brings something operationally to the table that I don't know yet.

15:35By working with Alfred instead of against him, we have the opportunity to learn his playbook, to understand the values that he brings. And then hopefully, you know, the idea with Mantis is that we do stuff that he can't do. Collaboratively, we give our founders the most holistic level of, you know, opportunity to go out and build exactly what they want to build. Yeah. So when you think about this value system, and it's largely the networks, the relationships you've built that you can bring to bear to the different companies that you're working with, and it's not just CPG or consumer, it's all across in terms of the type of companies.

16:10You know, as you go back to that 2019, and right before COVID, you launched Fund One, I think it was a$35 million fund. And you have this thesis that you're going to be this great collaborative partner with all these great founders and great VCs as part of their cap table. How did that first fundraise go? Because I remember 2019, still in a very hot period, in fact, leading up to the hottest period that we saw in 2021. But there were so many emerging managers coming to market. You're raising capital coming from a non-traditional background, Milan and Jeff having some experience, but ultimately there wasn't a lot of track record with the four of you together.

16:49How did that first raise go? And what did you learn during that process? Well, thank God that Drew and I have been nice to everybody throughout our career, because I think that played a huge role in it. First of all, I remember when we were having conversations early on and we were trying to decide how much capital we wanted to raise. And someone was like, a hundred feels right. I was like, a hundred, that's a lot of money. Maybe we shouldn't start there. Let's start low. And if we want to exceed that number, we feel good about it. Kind of obviously went back to the drawing board, thought long and hard and pick 30 as the number and then, you know, winded up at somewhere around 35.

17:19Going out, it was funny because I think we started initially in February, or going to start in February of 2019. And COVID was just ripping, you know, just started to like scare the shit out of everybody. It wasn't like the market it was in that tanking phase before it like bumps back. Going back to Jim Coulter, we called him and we're like, what do you think? Should we just, he's like, pump the brakes. We don't even know if there's going to be a world anymore at this point. So there's no point in fundraising until we have clarity around what the economy is going to do if we're all going to die.

17:50A lot of like question marks right now. So we chilled, waited. And then around, I think it was like mid-April, it was pretty clear that things were bouncing back in a really major way. And so we began the process again and went out. I was really shocked by, first of all, how vast our network was, but how awesome everybody was to the idea of us starting something like this. Throughout our whole career, you know, I mentioned we met all these amazing people. And honestly, like everyone has always been like, what can we do together? What can I do for you? All you guys do is take care of me and help me and, you know, your great friends, our family and us.

18:23Is there anything that I can do for you? And we're always like, no, no, just hang tight. It's great to know you. And then finally, we were like, I have something. I have something that I can ask from these people from and totally cool if they say no, and this isn't their cup of tea. But we started going out and approaching those various people. And I couldn't believe how supportive they were of the idea. I always laugh now because part of me feels like it was like, how much of it was charity versus like a belief in what we were actually doing? I didn't have the answers at the time, but it wasn't until we went out and raised our second fund that not only did all those people come back in again, but half of them doubled down.

19:01And then I was like, oh, so these people actually do believe in what we're doing and they see the progress. I give those people a ton of credit because fund one was like a science experiment. Very little discipline across the board. We were making compromises on which rounds we were going to jump into. It wasn't so much that anything was, we weren't out here like shooting from the hip, but it was like, I think we understood that we were like a pledge and a frat or something. We were going to have to take the trash out, compromise on ownership. We were going to have to, you know, it was more important to us than to be a part of the best team than to not be a part of it.

19:35Goal was like, we had to show people that we could bring value to the equation. getting to our first fintech deal and then having that founder turn around and say, holy shit, you guys really helped me. That enabled us to open that vertical up and now, and then be more serious and disciplined about how much in the stage and allocation and things like that. So it was a really like exciting moment for us, but also like, it was crazy. I mean, I remember talking to, it was some great, I mean, we spoke to everybody. We spoke to Bill Gurley, Peter Fenton, Alfred Lynn, Roloff Bratha, Andrew Brachia, you name it.

20:07We were lucky enough to have the opportunity to speak to them for a couple of hours about venture. And everyone by the end of the two years had contradicted each other. There was like very little cohesive, you know, ideals like people were, you know, but the things that I really walked away was like, your, your best investment that you think you have is going to become your worst and your one you like think is your silliest will become your best. They're like people, things change overnight, but there was so much, you know, wisdom imparted to us of just about how obviously important ownership is, but that only becomes clearer when you're in the winner that you wish you owned more of.

20:40And then you're going to have plenty of losers that you wish you didn't own as much as a result of it. So they're like ventures, like experience. They're like, it's very hard. I could sit here all day, write down 30 rules for you. In fact, Michael Seibel literally presented us 10 rules about venture. And they were very, I don't know, I want to say like contradictory to like what you would imagine from the YC, you know, out of YC, invest in companies that don't need your help. That was like the sort of thing that he was, and he's right, by the way. One thing that really stuck with us from an advice standpoint was just people were like, you know, time for diversification is important.

21:12And they were like, don't rush decisions. It's important to do research and diligence. But then we were thrown into this 2019, 2020 period where I don't think any, I don't think there's a single investor out there that at some point didn't make an investment decision within a 12 hour period about a company. And so we were all, I was like, I thought we were going to have like weeks to make decisions. I'm on calls with founders telling me I have 45 minutes to get back to him. And that was really scary and kind of weird, a weird experience to get into for our first time in venture. What were some of the biggest learnings?

21:43I mean, I do agree that when you're first doing it, there's a model that you're continuing to build in terms of how you invest, how you make follow-on decisions, the ownership, when you flex outside of the normal parameters, when you don't, how do you be disciplined on check sizing, pace of investing, all those things. or the biggest learnings from fund one to fund two from an investment modeling standpoint so much i mean i think we're very self-aware and self-critical people and i think you know we did i don't want to call it soul searching but like we knew we were going to have to kind of come back and look at what we've been doing and create process and structure to our investing build out a team to help do that and support that you know you know we're speaking to these other funds and you're looking at the things that they practice and you're like we have to instill this We want to continue to have the magic that makes us special.

22:31But I think discipline is very important. It's like Kobe Bryant in the gym. You got to have these sort of boundaries and guiding principles and processes to formulate as you're thinking. We can't just be getting on ICs being like, I love it. You know, you need to do the research. You need a red team. You know, you need someone to always play the contrarian, even if they support it. Forget the ownership stuff, which is obvious. You want to own more of the great companies and sticking to certain areas. Don't be so generalist. But I think for us, it really comes down to the team. In fund one, a lot of our deal flow came from co-investment opportunities.

23:10And in doing that, we were kind of filtering through who we actually think are the great investors. There are great funds out there with great specific investors, but it doesn't mean everyone at that fund, even if it's a tier one, is actually the best investor within that vertical. So, you know, identifying your computing, not falling into this herd mentality that just because some tier one fund's sharing you something, that it's actually good. You've got to do the work yourself. And in doing so, you know, you grow a lot more as a fund and begin to formulate your own ideas around where you think you should be investing.

23:42And again, like prioritizing the founder was just like the best thing that we could have ever done. We understood that our survival as a fund really depended on us adding value in a way that literally would have a founder say, holy crap, I am so glad that I let these guys, these people invest. And because we needed them to be our promoter to the next opportunity. Really take building out a team to focus on that area specifically in ways that continue to distinguish us from the other funds that exist out there. because we never wanted to feel and look the same. And we still continue to this day, don't want to.