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Investors Must Drive Revenue (Collin Groves and Jamie Schneiderman) · Unstuck Pod

• Jamie Schneiderman: Hi everyone, welcome to the Unstuck Pod. very excited today to have Colin Groves here from Beta Ventures. Colin, welcome. Collin Groves: Jamie, thanks for having me. Jamie Schneiderman: I'm glad you glad you're here. why don't you start off by letting everybody know a little bit about you, your background, and sort of where you're focused today. Collin Groves: Yeah, thank you. So I run a a family office and a venture capital fund. My background for how I got here is a little non-traditional. I started out in the energy sector, focused on commodities at Phillips66, and then you know, progressively moved my career. I went into the consulting world and strategy consulting side. And there was a that's really where the I found a lot of opportunity. in the investment space and and it started looking at what corporations did. And so I was doing buy-side work and and as one knows and when they see MA headlines, corporations are great at buying other companies, moved into the digital transformational space, so helping you know Fortune 500 companies work with new technologies and found that corporations are are are also pretty good at partnering with other companies. The was a negative connotation when it comes to corporations investing in other companies specifically. And I'm not talking about JVs, I am talking about minority investments, specifically corporate venture capital funds. And so my partner and I launched the corporate venture capital as a service within e-byparthenon. And that's where we by the time I left, we launched five corporate venture capital funds. across the energy spectrum, into CPG, all the way into healthcare. And setting up those funds, helping them make their first investments, that is what led me to BDEV, where Bdev today is effectively the family office of the founders of BIESDev. BIEREDES fully bootstrapped near shore software development company. Okay. And it gives us a little bit of an edge when it comes to Understanding from the development side what it takes to make a great company. It also gives us a little bit of an edge of what it takes to scale a company. And so I came on to help stand up the family office and our venture capital fund, where today primarily we make direct investments in startups, anywhere from pre-seed to series B is typically what we look for. And it's almost always has to have an adjacency to software or an element of software. because of my background, I I tend to focus on sort of those real world economies. being from Oklahoma and Texas, that tends to be also where my network is, where we can add a lot of value to these companies. And today, within our core fund, we have a few funds, but within our core percent of their revenues. So the idea is not to be the traditional, you know, investor that writes a check and walks away. We we really want to be a true value ad. At the end of the day, you should be able to point to your cap table and your PL and say, I know exactly why this team is there. They're driving tangible revenue and results to our count. Jamie Schneiderman: So can you like so look, A lot of investors, especially early stage investors, talk about being value add. It's not not uncommon. I've heard it many times and aside from the money, maybe you can get into a little bit more about, you know, how are you doing that? What's different? How Where do you view that? Again, you 70 investments. So it's not like you're actively working in companies every like i in the businesses every day. So so what does that look like? How how do you see your How do you guys help is the is the question. Collin Groves: Yeah. When we look at startups, realistically there's two things they need at any given moment. It's revenue and it's capital. And so the idea is we want to bring both. Now, the revenue piece is where, like you said, the value add is there, but it's also from a financial lens for us, I should see lower beta, higher alpha. I should see lower risk because we can drive revenue. I should see higher alpha in the form of either raising more capital, raising less capital because their CAC is going down. Or maybe they can get to profitability faster, they can exit faster, things along those lines, but adding that velocity and revenue is key. And so we've got a couple of tools that we use for that, because you're right. I I can't get involved with every company, my team can't, or a smaller team, too. What helped scale buyers dev into the company that's suing hundreds of millions of revenue each year? We also leverage with our portfolio companies, these are non-commercial tools. That we actually use with our portfolio companies. So we have cold outbound, warm introductions, all of these different ways to A-B test your strategy, A-B test your messaging, landing pages, et cetera, that we let our portfolio companies use. Now, what is also a little unique in our perspective, that I don't think many other investors do, is we will actually test out one of these tools. Before we invest as a form of diligence. Meaning we're we'll use, let's say, our cold outbound tool. We will let a startup use that for call it one to two months, sort of depending on sales cycle. If it goes well, they get you know, maybe 10, 50, 80 leads during that time frame. And in return, we get exclusive diligence that no other investor is going to do and be able to see. So we get all the metrics that come, whether that's open rate, whether that is conversion, whether that is sales cycle and a little bit more intimacy there, but also operationally, what's it like to work with this company? And so at the end of that period, if all things go swimmingly, we like what we're seeing, they like what they're seeing. We want to be in the position position of them actually fighting for us to be on the cap table, saying that we've seen what this firm can do. They've already brought me 50 leads. I've already closed four of them. They get they need to be on the cap table. And that's the very unique position. And again, we don't run that with every company. There are pre-seed companies that we invest in that are not a fit for that rent, because they haven't really found product market fit. Jamie Schneiderman: Sure. Yeah. Collin Groves: But for anything, I'll call it like seed series B, it can be a great value add. And then when we work with our portfolio companies, you know, that's when we've really unlocked the tools. When and we'll run things to help them run events on the marketing side all the way to massive campaigns where they're testing out which messaging and lands with the ICP best. Jamie Schneiderman: Interesting. So so the tools, you know, you gave the like if you say specific outbound tool or other things like that, each one of those tools will be unique to the nature of the companies that you're dealing with, right? So I assume that there's either it's either that you're focused enough that there's a ver a more limited set of tools or you have a pretty wide set of tools. How how would you look at that from go to market? Collin Groves: We really let the startups sort of drive this. And the reason being, some startups know exactly who they want to target and how they want to target them. Fantastic. You're a founder, you're doing 12 to 20 things at any given day. Let's take one of those off your plate and we will run it for you. We have teams that their CRO wants to go try. This level of customer, this ICP, this geography, but they don't know where they need to put their their actual marketing dollars towards. They don't know where they want to put their Google and Facebook ad spin. They don't know where they want to be on a podcast. They don't know what their link next LinkedIn post needs to be. We will use an assortment of ways to contact and reach out to those leads to see if what is the best form of messaging for them to be reaching out and if it is effective or if this is something that they need to put. Dollars towards. And so the end of the day, I like to think of it in two buckets. The first is the tangible results. So there are leads that show up in your CRM that want to demo tomorrow. There are the intangible results where maybe you had two doors open, four doors that you were sorry, four doors that you were looking into. And we tested all of them and we said, close these two doors. These are not worth your time. focus on these other two. Well, if that's the case, we've increased your chance of success by 50%. I don't know if that is tangible, but I find that that can be incredibly valuable. Jamie Schneiderman: Totally. listen, well, I I always use the term f I'm not unique to, but the fail fast concept, right? Which is it's Collin Groves: Yes. Jamie Schneiderman: better if not everything's gonna work, better to figure out that certain things aren't working as quickly as possible. So you don't devote resources, time, time, money, et cetera, toward that. So I I would argue that it's more than tangible. It helps you focus, and you know. Put your attention, put your money, put your limited resources against the right things. Collin Groves: Or let's say you want to pivot. You don't always know how to pivot or change, and AI is disrupting you, and they say distribution is your moat. Well, Jamie Schneiderman: Mm-hmm. Collin Groves: let's go figure out if that product in the fintech space at the CEO, CFO as a service space actually makes sense. Let's see if there's any reception toward it. All right, Jamie Schneiderman: Interesting. Collin Groves: maybe you can build the next feature that direction. Or We get terrible feedback. All right, scrap that product roadmap. We're gonna go focus on the ERP and supply chain side. Jamie Schneiderman: And if you're work so so listen, you view it as part of due diligence in a lot of cases, which I think is interesting. The I guess the question I've got for you, are any companies apprehensive about that or they're thrilled to jump on board with sure, we'll take it, let's go. Collin Groves: In the beginning, absolutely, you offer somebody something for free. I mean, this is just human instinct. You just think of it as poor quality, right? I mean, if you're if you're offered a you know $20 cheeseburger for free, all of a sudden it's not worth $20 to you. It's worth nothing. It's free. Jamie Schneiderman: Nothing yeah. Collin Groves: And so there was a lot of apprehension at first. And when we first started this endeavor, we had to target a lot of companies because of that. And we had to open up our funnel. And as Jamie Schneiderman: Mm-hmm. Collin Groves: the years have gone on, we're four years into this, right? You know, funds at a little over 3X T BPI, which is great so far. We have over a third of our companies are profitable. We've really narrowed that bucket because one, we have the data. We've seen what where we can add value, right? It's it's not going to be in the cybersecurity space, but it's not where we're experts. It's not going to be in the biotech space either. That's not where people are really receptive. It's that's much more networking heavy. and so for us, it it it a lot of it now comes from referrals. It's companies that we've worked with, the founders that they know, it's other firms that we've worked with. And here's a stat. When we first started only about 15% of our pipeline was referrals. Today it is a hundred percent of our pipeline is referral based. Jamie Schneiderman: Wow. Collin Groves: Yeah. Jamie Schneiderman: Okay. That's pretty good. Right. So I guess it's you're doing something right. There you go. Collin Groves: Look, it it takes years though, and the same thing that startups go through, right? you know, they're reaching out on LinkedIn, they're cold outreaching, and then the momentum gets going and the ball starts rolling down the hill. And you really can change your business because of that and focus differently as well. And so we really scaled up our investing ability because of that. And so we did 32 deals last year. We've done let's see 19 deals this year so far. Jamie Schneiderman: So you you guys are crazy busy doing that. So how and like are you involved at a board level? Are you in like how involved do you get beyond that? Collin Groves: Really, we try and pick founders that can drive companies and and and know where we can add value. I mean that that's when I due diligence on companies, it's a it's a the it's a box criteria. It's four criteria. The first is can we add value to this company? That's gotta be at the core of it. Okay. The second is because we're more commercially inclined and we're focusing on adding value, there's always this the metrics that we're looking at as well. Growth, burn multiple, burn rate. You know, how you're growing, what's your pricing model. And then the next thing is the founders, because nothing happens without this team. And so, and then then finally what we're looking at realistically is the market. And so understanding that our ability to add value actually corresponds to all three of those. We should be able to affect metrics. A great team is going to be the ones that drive a lot of the results that we see. They should know their ICP, they should know messaging, they should be able to understand the marketing plan. And then also the market, the market size and the fragmentation or competit competition within the market, that should also affect our ability to add value. So it really does come back to our ability to add value when we look at all the other three areas that we conduct a lot of diligence in. and and and ultimately for us. I can't we can't say board seats in all these companies. We're minority investors. We're not lead investors. That's Jamie Schneiderman: Mm-hmm. Collin Groves: why we write so many checks. We're much more of a you know, follow the methodology of we're invested in a lot of companies and we double down into our winners. And so we've invested, call it ninety-five plus times out of the seventy-five seventy, I think four investments now. Jamie Schneiderman: Okay. got it. so so and and a check size, typical check size? I know I'm sure it varies. Collin Groves: hundred to five hundred K first up to three mil a hundred it to five hundred K at first and up to three million for our second check. Jamie Schneiderman: Okay, got it. So once they once they've moved the needle and they've pushed into another place, then you're prepared to go follow on and go and do that. question for you. So so like if you're you guys are very obviously very, like you said, operationally oriented, go-to-market focused, and you obviously add a lot of value there. How much of a struggle is there between when a company is or isn't executing against something that you see versus what may or may not be perceived as strategic or pivot oriented or other things like because your minds because you guys collectively are so much like let's go and again i'm putting words in your mouth i'm not trying to push you there but i'm just saying how hard is that balance that you when you're getting into conversations with a company Collin Groves: It's a great question. So, you know, I'll I'll talk about results first and then we'll back into it. High-level results is because of our process, we tend to focus on more capital efficient businesses and companies that can shorten that sales cycle down so that we can get feedback. And so so far within four years, we have six exits and four companies that have shut down. Meaning the hit rate has been fantastic. And that's partially due to one, our little bit longer of a diligence cycle, two, our companies that we're focused on. And then when it comes to the actual call, like getting to those metrics, whether it's exit or you need to write it off, we really do leave it up to the founding team to figure that out. And we work with them. So we have had companies that have pivoted quite drastically. Now we do help them make that decision because we will go test out. And an example of a company is called Daylit. Daylit started out as a factoring company and in the fintech space. And what they figured out was there was all the lessons that they learned from factoring and working with CFOs that focusing on the accounts payable, accounts receivable side, especially as agentic abilities increased, they'd fundraise from great other VCs. They were able to hire an exceptional team. The CTO is great. The CEO's great. They've really changed this product quite a bit from where it began as a factoring company. And it has scaled tremendously since. That is, we take zero credit for that. I will that is all the foundling team. Will we change the way that we help them market? Will we help them put on events in a different way? Maybe there's different. Individuals that we need to bring and interact with. Yes, but we really do leave that up to the CEO to say, Colin, I'd like you to be involved here. This is where we need help. And how much effort it is going to require. Because at the we set expectations very early, as I think all investors and founders should do. I tell them that I'm not going to be overly involved. That being said, I have a machine behind me and we can leverage it. There are instances where I may add a little bit more personal value to a company and I lean in a little bit more. But that's not to I just can't do that with every company. And that's why working with incredible founders and having a great team with me and having a whole ecosystem behind me more than offsets that and adds tremendously more value to the companies than I could ever be. Jamie Schneiderman: Right. So okay. So if you're looking so you've like you said, you've made a lot of investments over the last four years, a ton just in the last two years. and so if you're looking across the companies worked, haven't worked, you've talked to a way more than you've obviously even invested in, what suggestions, feedback? ideas, thinking would you like to pass on Collin Groves: Yeah. Jamie Schneiderman: to founders? that would help. Collin Groves: Well the the you know there are there are three I call it the three Ps of venture. It is patience, it is persistence, and it is pattern matching. And you're certainly leaning into the the pattern matching with that question. And I think some people can take that into more of a bias-y space. For us, Jamie Schneiderman: Mm-hmm. Collin Groves: we try to be as data-driven as possible because that is our edge. We do add value to companies, we do get data. So What are those components that we've pieced together that we think can be really valuable? The first, when it comes to the founding team, is founders that move exceptionally fast and create momentum exceptionally fast. And what I mean by that is you don't have to respond to my email within five minutes. In fact, I don't want you to do that. I'd rather you take a moment, think about it, and you know, come back later. it really is momentum in how they're able to hire individuals. Conversations that they're having with customers and other VCs, you can really actually get to a very metric-oriented space here, you know, with our CRM and we have a whole database that we've built behind us using AI, which has been a a game changer. But we can see how many times other VCs have interacted with this company and asked us about it. We can see how many times. how receptive they are and the campaigns that we run, we can get to a data-driven perspective about okay, we're getting internal and external signals that show that momentum is happening. The Spounder can move with extreme speed and effectiveness. The next thing that we look for when it comes to it is, you know, for for us, there is a balance between ACV, market size, and call it. your ability to actually turn customers over and and and turn leads into customers and that conversion rate. And so we run our own market sizing exercise, very unique. And it's based on sort of our ability to add value, the metrics that we've received and and other external factors. And we come up with a number about this is approximately how much value we think we can add to the company over time. And so the way that we Softball that internally is we say, hey, we have to be able to add 10x value to the company, then we could invest ourselves. And the reason we do that is one, it needs to be a winner for everybody, common stock, preferred stock, et cetera. That's where exits actually matter. You know, you can have a billion dollar exit, but if you invested 3 billion into the company and there's 2x liquidation preference, no one's making anything. Jamie Schneiderman: But it's not so great. Collin Groves: But but so we really do look at that. Quite candidly, pretty deep. And I think that speaks to the return so far in the return profile. The third element that we look for, and that we'll go pretty deep with on founders is how do they think about the business model in this space? And the reason being, if you are simply recreating a SaaS business model where there's tons of competition. There's not going to be a lot of differentiation on the messaging side when you reach out to potential customers, right? There has to be something that edge that's different, whatever that needs to be. I'll give an example of a company that just actually came out of stealth and the Wall Street Journal just produced a great article on them. It's called Fluxco, read by led by Brian Totchman out of Aust out of Austin. And Fluxco is a marketplace for purchasing. Transformers, electrical transformers, a very opaque market that is growing anywhere from three to five X because of the strain that we're putting on our grid, both today in terms of needing to add electrons, but also in terms of all of the future state of the grid, whether that's electrification of fleets, whether that's automated fleets, robotics, physical AI, world models, etc. There are so many improvements that we need to make on the grid. That bringing something to market that's opaque, that hasn't really existed, that I talked to Baker Hughes, they didn't have a great way of doing this. I've talked to Next Air Energy. They had they had only seen, I think, I think it was 16 vendors at the time. Brian has found 150 vendors and OEMs to work with. And you just think this is this is tangibly different. This is something where I can send an email, a LinkedIn message, I can text a friend and they go, They get it immediately. And that immediacy of a problem becomes something that we can also, again, measure. It is how responsive you are, how responsive your customers are, how responsive other investors are. And we can be data driven with it because that immediacy it it feeds back into those other segments that I mentioned as well, right? It's the immediacy of the messaging and the problem. It is, you know, it's it's not future state problems of, you know, for us, we're not going to invest in data centers and space. It's not necessarily a problem today that we can solve and we can add value to the company immediately. It has to be that immediate problem. That immediate problem then comes back to the speed of which the founder can execute. And then it also comes back to the market size that we can tangibly add value to. If there's an immediate problem, if they can move quickly, we can add a lot. Jamie Schneiderman: so how can you say that it's been referrals, but how do people get hold of you? How do they find you? What's the best way to reach you or follow you or however you wanna look at that? Collin Groves: Yeah, LinkedIn is always great. You find me calling gross. I would say start there. We'll funnel it that way. Usually the easiest. Jamie Schneiderman: Okay. awesome. well Colin, thank you so much for this. This is great. I love love all the insights and thinking and sounds like it's been successful. I expect that there'll be a whole bunch of more many more successes with all the new investments that you've put together over the last little Collin Groves: All internal capital. that may change in the future, but so far returns are pointed in a great direction and you know, it's all credit to the incredible teams that we get to work with each day. Jamie Schneiderman: all right. Well listen, thank you to Colin. Thank you to everybody who's watching and listening. and until next time.