Partner at M13
Brent is a Partner at M13, leading early-stage software and marketplace investments. He previously worked at Battery Ventures on growth-stage enterprise software and at Samsung NEXT on mobile software strategy.
I've been a venture just shy of 10 years at two different firms. I got introduced to venture while I was in college. I grew up in a smaller rural area in eastern Washington state, went to school at BYU in Utah, had never heard of venture basically in my whole life. I got to college and there was a student group called the University Venture Fund. It was about a 20 million fund. Real LPs and capital and students ran the organization and were allowed to make investments in startup companies. So it was an internship type of deal that ended up changing the trajectory of my career.
I got introduced to venture capital as an asset class and I was exposed to this industry where you get to study a lot of different industries, invest in entrepreneurial and mission driven founders and then see how they succeed over time. I spent about two years investing in startups part time at this University Venture Fund.
When I graduated, I took the finance track. I started in investment banking and worked at Lazard doing tech M&A. Then I was recruited to join Battery Ventures. That was my first foray into full time venture career. I was there for a little under two years investing in later stage enterprise software. We did a lot of vertical and horizontal SaaS investing. And then around 2017, I got approached by the two co founders of M13 and had an opportunity to start a new life in Los Angeles with a new venture fund.
For the last seven years, we've been building a venture firm, starting from fund one, going through a few different funds now and setting up a long lasting venture franchise. It's been a crazy journey. I definitely empathize and sympathize with founders now that have had to raise capital.
A sense of urgency. That is a very common trait that I've found. We have a portfolio of a lot of different companies and founders, some risen to the top, become more successful and had exits. The ones that get to that stage is the sense of urgency and it's evident and apparent in the way that they respond to texts or emails, how they take feedback and incorporate it, how quick they are to implement changes to pivot or take on recommendations. Instead of, hey, let's set up a meeting next week to talk about it, it's what are you doing today? What are you doing to in the next couple of hours? Let's get to this or tomorrow. And honestly, I've used that as a north star in my career. I've taken that feedback and now I try and do the same with founders. I try and do the same internally with my team. I rarely go 24 hours without implementing some action on something that I've received.
The fundraising environment has really changed drastically. The time between rounds is increasing. The likelihood of a Seed to Series A is decreasing. In other words, the graduation rate is decreasing. It's just becoming much harder for startups to fundraise. And not just startups, right? Over the last couple of years, VC fundraising is down. It's just becoming an asset class that's it's separating the cream of the crop from everybody else. Only the best companies and funds are raising.
For myself and a lot of my peers, we have only known a bull market, up and to the right. If you've been investing starting in 2009 until now, that's a long time. Most people's venture careers are not 15 years long. So in other words, most of these VCs only had a career where things were going well. And we've all had to adapt. Things have changed drastically since 2022. It's harder for my portfolio companies to fundraise. And so it requires much more action on my part to help and support to get them to that point.
The other thing that comes to mind is this whole notion of preempting rounds. When I first started, most people waited until a company was going through the fundraising process and then they looked at the company and they did their analysis. If it was a great company, they'd receive multiple term sheets and you'd make your decision. Larger funds start to come down market and start to invest earlier than they typically have. And so what we're seeing a lot more today is this notion of preempting where a fund comes in, they either know the space well, or they like an asset, a company in the space, and before they're ready to raise capital, maybe even before they have the metrics that are necessary to raise a round, they'll come in and do a round before anybody else and sweep it off the market.
So M13, we invest typically at seed and series A. I would say series A is our bread and butter. That's where we spend a lot of our time. We typically look to lead those rounds. I spend a lot of my time in the commerce ecosystem, so I invest in a lot of commerce and commerce adjacent companies. A lot of software tools that sell to ecommerce merchants, a lot of DTC marketplaces that connects supply and demand. A Series A is a company that's probably over a couple million of ARR. They have improving cohorts over time, their net revenue retentions above a hundred percent. They have really good merchants as customers that are sophisticated buyers and have looked at them versus other companies and chosen them. So there are a couple of things that check the box items as we look in commerce.
But then there's so many other intangibles. How stellar is the founding team? What are customers saying about the product? What is the chatter on different Slack channel and communities or X or some other social platforms like Reddit? There's a lot of other qualitative metrics and feedback that we get. But I would say those are the typical Series A metrics that I look at.
If you are trying to raise a next round of capital, one of the red flags that we see are a current investor that has the capacity to invest in the next round, choosing not to. If the person that knows the company the best is deciding that it's not a fit for them, that doesn't disqualify us, but it's just one of those signals that you take in. Another thing that we look at is market size. We look for TAMs or addressable markets above 10 billion. Even to support a one or two or 3 billion outcome, you can't be investing in a one or two or three billion dollar market. No company is going to get a hundred percent market share. Other things I've noticed, if I have two or three or four calls with a founder, doing diligence on a company, and never once does he bring in his team or his co founders or other management or executives, I start to see that as a problem. Maybe he or she doesn't believe that they have a strong enough team around them to be able to bring them into the different meetings. If it's been a handful of meetings and you haven't met anybody else, it starts to become a little bit of a signal.
We have a business, it's called interviewing.io. It's a marketplace for software engineers to get mock interview practice before they do their real interview. You pay for packages and the person on the other side is a real experienced software engineer that's giving you very close to equal questions that you'd be getting on the real thing. And it's been shown that if people do a handful of interviews on interviewing.Io, their likelihood of getting a job increases by three X. It's a very standard, typical marketplace. And what we saw was the founder, she was a big thought leader in the space. She put out a ton of content.
We then started to really dive into that and build out an SEO strategy around her thought leadership and the success stories. We went to Hacker News and Reddit, and different communities where software engineers were talking about interviewing. We just blitzed marketing those go to market channels so this marketplace started to become more well known in the space. And then from there, we were able to recruit more of the supply, more experienced software engineers were willing to give up their time because they had heard about this company. They had seen fellow employees get jobs through this company. And so they wanted to give back. And it just started to build momentum over time.
It really helps make the match of supply and demand much easier. So we have Pietra, a vertical marketplace. One of their key products is a marketplace to allow new consumer startups to access factories, designers, everything they need to get their product off the ground. If I'm trying to design a new t shirt brand, I go to the Pietra marketplace and I source from thousands of different factories and vendors that could make any type of material I want. I source from designers that can design it the way that I want. Pietra implemented a AI design tool, where I could type in and ideate any type of design I want. So I want a soft t shirt that can be used for workouts and out of the gym. And I want it to look like a modern fit. Help me find the right type of design. The AI tool outputs tens or hundreds of different product designs, allows me to look through. And that alone saves me days and weeks going back and forth with multiple vendors, trying to figure out exactly what's the type of design that I want, and then negotiating that. It does it instantaneously. And Pietra uses the data on their platform, so only the factories in their network that can actually produce that. So it's not producing some pie in the sky idea that I'm never going to get made. They're all the designs are actually able to be made. So that product alone increased conversion rate by tens of percentages.
Pietra was not born as an AI native company, but when chat GPT came out and other off the shelf tools came out, they went to work that high sense of urgency. They knew that AI was going to be the next wave for them and they instituted it very quickly so that their customers could find what they were looking for much faster.
I have focused a lot of my time recently in the advertising and marketing space. If you look horizontally across a lot of different verticals, the way that people are searching for things is changing. Historically, everybody has used Google. You go to the search engine, you type it in, and it gives you a bunch of blue links, and you search through it. Now, a lot more people are going to Perplexity, ChatGPT, Claude. They're finding answers a lot differently. In that type of world, advertising is going to be much different. If it's giving me answers and not blue links, how are you going to advertise? There is such a transformational shift going around, what is the SEO and the SEM look like in two years, in three years, in 10 years, could be very different. So I've spent a lot of time looking at new advertising technologies, new marketing technologies, that will allow for brands to connect with consumers in a world where they're getting answers and not blue links.
The number one thing that I've learned is the importance of the founder in the assessment of a new investment opportunity. There's a lot of things that we look at in terms of what makes a good investment. But the founder, time and time again, has risen to the top and that's more unique to Seed and Series A stage. Since I'm investing so early, sometimes before product market fit, I just have to find a founder that is going to persevere and a founder that is going to figure out all the right ways to do something after going through all the wrong ways and be able to have the grit and perseverance to figure it out.
You have to nail the importance of that founding team. And it's not just one person, it can be co founders and they complement each other. What are their strengths, what are their weaknesses, where do we think that they need support, what do we think they can excel at, how are we going to figure out if this is the right team to back in the category.
The other big lesson I've learned is the feedback loop in Venture is very long. You have to divorce and separate outcomes from decisions. There's a really good book I would recommend called Thinking in Bets by Annie Dukes, a economist slash professional poker player. She talks about the importance of doing this in poker. There is a component of luck in every poker hand. The most novice poker player in the world can beat the most skilled poker player in the world in any given random hand. But over time, statistically, the experience is going to trump the novice every single time.
When we think about this in venture investing, we're dealing with such early stage startups. The risk is way more than half of our companies are not going to make it. That's the business that we signed up for. We have to do our best to analyze companies, founders and making the bet. If it doesn't work out, it doesn't mean that that was the wrong decision. It could be the right decision and and either we gotten lucky or things just didn't play out the way that we expected.
Grit and hunger trump raw intelligence every single time. The teams we've backed, that first cohort of employees are always extremely hungry. When they get it wrong, they bounce back very quickly, they have a high sense of urgency, they give 110%. And that has trumped way more experience in the category, or way more raw intelligence from the great schools, or whatever it is. I would take grit and hunger, at least in the early days, every single time.
It's one of the most fortunate jobs out there and I'm biased obviously because I'm in it. I love the relationship building. It's a very human job to me. The things that I focus on most when I make an investment is, I'd like to get to know the founding teams so that we really form a partnership, where they consider me a very close ally to them and an advisor. So developing those long lasting relationships that if they are successful, we're going to know each other for 10 plus years. I want to be able to enjoy that time with them. And it's never going to be all sunny days, there are going to be some disagreements. And in fact, the better the combination, there should be disagreements. There should be a very open and honest and transparent feedback with each other.
I consider myself like very close with most of the founders I've backed and I like to spend time getting to know them. I drop a lot of book hints, and one is called setting the table by Danny Meyer, the founder of Union Square hospitality group. He had a great book that just talked about the importance of hospitality. How do people feel when they're with you? I've always tried to incorporate hospitality in the way that I deal with others.
And the number two is, I love to be wowed and go into meetings and meet founders that just blow me away with different market opportunities. It's a very fun to context switch and go from a commerce startup to a healthcare startup, to a HR technology startup, and just be taught and to learn and then go back and do the research and validate and see if this really is the opportunity of a lifetime that the founders is selling and pitching you on.
When you develop such strong and deep relationships with people, you're there at the worst of times for them and the best of times. You simultaneously have a duty to them to be their investor and their backer and their board member and their advisor. You also simultaneously have a duty to your shareholders and your LPs. One of the big challenges is when you're fighting for a startup or a founding team that you really want to succeed. But there are a lot of signals and proof out there that it's just not going to work out and you have to make the difficult decision to say, I actually can't fund this anymore. I cannot give more money because then I would be going against my fiduciary duty as a steward of LP capital. Those are very, very challenging conversations to have.
You should never accept aggressive terms if you can control it. But it's all about leverage. If you're doing a great fundraising round and you have three or four term sheets, odds are you're not going to accept aggressive terms. Because funds are going to be bending over backwards to win it and you will have more of the leverage. Conversely, if there's only one and it comes at the 11th hour and you only have a couple of months of runway, chances are the terms are going to be more onerous. That's just the fact of the matter.
The best advice I can give to founders that are raising capital is trust your gut. By the time a VC gives you a term sheet, you will have many interactions with that one partner or a big part of their firm. You start to pick up cues on the way they ask questions, or treat you, or respond to you, or answer your emails, or introduce you. You can trust your gut on a lot of things, and start to understand how trustworthy they are.
Definitely talk to founder peers. Ask them what they're seeing, especially if they've raised capital recently, and just try to triangulate around terms that people have seen. The other thing is to look at comps in the market. If you're a supply chain company and you're raising a seed, look at different deal newsletters, pitch book, crunch base, see other supply chain companies that have raised in around your category and try to get a sense of what the market terms are. At the earlier stages where you're pre revenue or 10K of MRR, you're really not going to be valued off of an ARR multiple at that stage. Investors and founders come to consensus around dilution. If it's a successful fundraise, anywhere between 20 to 25, maybe 30% on the high end dilution is typical for a seed raise. So if you're raising $2 million, you should expect a valuation that is gonna dilute you as a founder by 20, 25, 30%. Not always accurate, but that's a good rule of thumb to follow if you're you're looking for a valuation check.
The biggest piece of advice is go above and beyond. The competitive landscape for getting in venture has grown exponentially over the last few years. The people that stand out are the ones that go above and beyond. They have a particular point of view or are curious about markets. They follow up proactively. It's not just about having the best resume, it's standing out. People have wowed me when I talked to them about what I'm interested in. I've had experiences where candidates will get off that phone and in three days, they'll send me a market map of the AI advertising and marketing landscape. They'll share a couple of companies that are seed stage that I might be interested in for the Series A.
The second piece is just having that high sense of urgency. Responding to emails fast and following up with feedback very fast. We want to see that high sense of urgency and going above and beyond to get in front of people.
Share the idea with as many people as possible, your spouse, your significant other, your coworkers, your neighbors. Start triangulating different answers and where people are asking questions. We rarely do it, but sometimes we invest pre-seed, and founders that come back to us with a very thorough market analysis and have spoken to dozens and dozens of potential customers, design partners, things like that, they're much more equipped to understand what the market is going to want. We feel much more confident, comfortable knowing that they know the unknowns of the market. Share your idea and get as much honest and brutal feedback as possible.
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