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'Why Venture Capitalists Won't Back Your Business' with Brian Hirsch — Entrepreneur Addiction #22

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Brian Hirsch, a longtime venture capitalist and the Managing Partner at Tribeca Venture Partners, reveals the mind of a VC, what investors are thinking and how to approach them. During the process he shares some surprising information about what VCs are really looking for.

He sees more than 2,000 business plans every year and has great advice before you go out there cold calling an investor (which you shouldn’t do anyway).

Enjoy the conversation.

In this episode of the Entrepreneur Addiction Podcast, we discuss:

  • Patrick and Brian talk restaurants and Freedom Tower in New York City
  • Starting as a 23-year-old Venture Capitalist
  • First investment at age 10
  • Partnering with entrepreneurs
  • Why Brian invested in Lendio
  • Creating a LendingTree for SMB lending
  • What VCs look for in companies
  • Why relationships matter when getting VC funding
  • How passion influences an investor
  • Failure rate of venture-backed startups
  • VCs looking for a home run, not singles and doubles
  • Above and beyond numbers
  • 90/10 rule
  • How to know if you should approach an investor
  • VC relationships are like a marriages
  • Even great businesses are usually a bad fit for VCs
  • 2,000 – 3,000 business plans a year
  • Ambition and the ability to scale rapidly
  • Brian’s all-consuming day
  • A VC is a jack-of-all-trades but a master of none
  • The last thing you should do when pursuing venture capital
  • What to do after you get funding
  • How approaching lenders differs from VCs
  • The lonely CEO
  • Every flavor of daily deal sites
  • Strange entrepreneurs
  • Human teleportation
  • Underserved market for New York City cabbies looking for capital

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If you can’t listen, here’s the transcribed version done by Shad Atkinson

Voice: Fueling your business success, this is the entrepreneur addiction podcast, breaking the small business loan news you need if you obsess about your company. Heard exclusively on Lendio.com. And now here are our your hosts: Brock Blake, Dan Bischoff and Patrick Wiscombe.

Patrick: This podcast is sponsored by Lendio.com, the online source you need to find the right business financing to grow your company. So check them out: Lendio.com, to get your business growing right now. It’s the entrepreneur addiction podcast episode number twenty-two. My name is Patrick Wiscombe. Thank you, as always, for tuning us in and taking us along wherever and however you’re accessing the Entrepreneur Addiction Podcast. Dan Bischoff, director of communications at Lendio.com, Mr. Media Man himself. Good to see ya.

Dan: Good to see you.

Patrick: You’re only two minutes late today.

Dan: Yeah.

Patrick: Well, that implies that you’re late all the time, but that’s just simply not true.

Dan: (laughter) It’s not true.

Patrick: Coming up we’re going to be talking to Brian Hirsch. He’s on the phone, and he is… are you in New York City, Brian?

Brian: I am.

Patrick: Okay, now where do you live in New York City?

Brian: I live down in Tribeca in downtown New York.

Patrick: I used to live in Mid-Town, 83rd and Amsterdam. And I’m trying to think where Tribeca is.

Brian: All the way down. It’s just a few blocks north of the Freedom Tower that’s being built right now. Everyday it’s taller and taller, but I once lived on 79th and Amsterdam, after college.

Patrick: Oh, okay. So we were neighbors.

Brian: That’s right.

Patrick: How many years ago was that?

Brian: We probably went to Zay Bars and H&H Bagels.

Patrick: Oh, yeah.

Brian: That was 1995 for me.

Patrick: I do remember those places. Are they still in business?

Brian: Zay Bars is, htough H&H closed at that location. They got into some tax trouble.

Patrick: Oh, whoops. Well, tax troubles will get you in trouble all of the time.

Brian: That’s right.

Patrick: Okay. Now you mentioned that you were down by the Freedom Tower. Is it really as spectacular as the images that I’m seeing. It’s been a while since I’ve been back to New York City.

Brian: Yeah, it is. It’s amazing. It’s already changing the skyline downtown, and they’re not calling it the Freedom Tower. It’s the World Trade Center, but I call it the Freedom Tower. They are building it very quickly, and it’s now the tallest building downtown and soon to be passing the empire state building. It’s going to be the tallest building in New York again. And then there’s a slew of buildings around it that are either built or in the process of being built. It really is amazing. And the Tribeca area and the Battery Park area are more vibrant and have more life to them than before September 11th. So anyone who’s listening that comes to New York City should definitely come down and take a look at the neighborhood. The population that’s living full time downtown in that area… I think it’s… Mayor Bloomberg talks about it all of the time. It’s maybe 2X or 3X than what it was before September 11th. What used to be a neighborhood that was primarily for work has now become not only a place for work but really one of the top neighborhoods to live. Tribeca in particular. The real estate, although it’s been weak around the country, has done nothing but improve in Tribeca every year for the past ten years. So that’s good for New York.

Patrick: Yeah, it is. I love New York City. As we get started here on the podcast, you are one of the investors at Lendio, but before we go there, for a second give some background on who Brian Hirsch is and what you do.

Brian: Sure. I managing partner and founder of Tribeca Venture Partners, aptly named, I guess. We’re in an early stage of C and series A, early stage venture fund based in New York City. We invest in all sorts of digital technology companies, really across industry, but they tend to fit pretty closely to the markets that are dominant here in New York. While we don’t just invest in New York, we do a fair amount in our backyard. If you think about financial services and financial technology, media, digital media, advertise and technology, publishing, education technology, consumer web, all the things that are really strengths of this region, we tend to invest behind those industries. My background: I’ve been in the venture business since late ’97 early 1998. I was working at KPMG before that doing technology consulting work. And I was recruited away. At the time I was living in Chicago of all places, and ABN AMRO Bank, the big Dutch bank that was acquired a few years ago. At the time they were one of the largest banks in the world. They launched a venture operation in Chicago, and I was part of the early team there. So at the ripe old age of twenty-three I was thrown into the deep end of the pool, and I had to learn the business the hard way, which is just making the best sense and working with companies.

Patrick: Geez. At twenty-three?

Brian: Yep, yep, very young.

Patrick: Dude, that’s really young.

Brian: Yep, very young for my business. I have an unusual background. We have a lot of success in the late nineties, as did a lot of people in our industry. Things were going so well that I skipped business school. Most VC’s have already gotten their MBA. I got my MBA working on deals. It’s a little bit unusual to start that young to actually be doing deals at that age, but I sort of had a history of investing, actually not venture. I started investing personally when I was ten.

Patrick: Okay, now hold on. I don’t remember investing in anything other than McDonald’s at ten, and that was just usually to buy a hamburger.

Brian: Exactly. So, I had a father, who wasn’t in the venture capitalist business, but was in the investment business, more focused on public companies. He taught me how to analyze public companies and to read financial statements. He started me really young, just sitting me down and talking to me about how companies work and things like that. He would talk to me about his investments. He opened a whole account, and I would pick very small dollars, obviously, but I’d pick stocks as a ten year old and do research. That was a lot of fun, but I think as I got older I realized I was less interested in being a stock-picker and more interested in working and helping build companies. I was interested in technology so I liked the idea of combining those two skill sets. One would be investing behind companies that you believe in, that are doing interesting things, and then helping them get there. That I think is the biggest role. Venture capital is part of finance but it’s probably ten percent finance, ninety percent other things, and those other things are partnering with entrepreneurs to build, hopefully, the next generation of great companies here in the US.

Patrick: Okay, so let’s talk about Lendio. Since you’re a venture capitalist, what was the attraction to Lendio.

Brian: Lendio is solving a really big problem in the country. Small businesses are the backbone of the United States, and to get financing for a small business is a very complex endeavor. Banks are not very open, or other lenders are not very open about what the requirements are to get a certain type of financing, whether it be a credit line or an equipment line or a business credit card, whatever it may be. It’s a little bit of a black box, and very inefficient on both sides. Small businesses are applying for these loans from banks with very little information on what the banks are looking for, and likewise when banks and institutions are looking for customers, they’re really just diving into the ocean to find customers. They’re spending a lot of time and a lot of money trying to get qualified customers. So I felt like there was a big opportunity to sort of create a Lending Tree for SMB lending. And it’s a massive, massive market, very inefficient, and Lendio and the team there really came up with a great mousetrap to solve that problem, and they’re executing on it. So that got me really excited. In our business you’re looking for sort of massive markets that are highly inefficient and in need of modernization and also that’s going to solve a big problem. And so Lendio sort of checked all those boxes for me.

Patrick: Now, who approached you about Lendio? Was this a Brock, or was this something that you found out on your own?

Brian: So, our co-investor is a venture firm in Boise, Idaho called Highway 12 Ventures. You know, being based in New York, we’re not trolling for investment opportunities in Utah, day to day. When we tend to see thing farther out west, it’s referred through a relationship. In this case, the other venture firm that we partnered with reached out to us because we have a good amount of experience in the tech area and in marketing services as well, which Lendio is kind of a mix between those two. After that, we partnered up, and that’s really how we got introduced to Brock, Levi, and the rest of the team. We met the team, which got us even more excited. After meeting the team, their passion for the business and sort of the mission of the company is very positive. I think if you have a passion and a mission that goes a long way. First is just trying to make a buck. There’s a big difference.

Dan: As you talk about passion, you know, one of the questions we gave to you was “what factor does passion have into it when someone approaches an investor?” How much does that influence and sway someone like Brian Hirsch?

Brian: If it’s organic and sincere, absolutely it has an impact. Just the failure rate of start ups, particularly venture backed start ups, is still very high. Even in our own portfolio, we assume a fairly high failure rate. It’s a home-runs business. It’s not a singles business. So you need to hit home runs, and when you’re hitting home runs, you’re also striking out. That’s the nature of the business, and so because the odds are so long for a start up, and really the whole system is geared towards not having the start ups succeed. Because of that, you need entrepreneurs that are very passionate and have a deep held belief in what they’re doing. The ones that are just ‘see an idea to make a dollar’, they tend not to… you know, when things get rough or there’s a downturn, they tend to stick with it, or they tend not to drive through those issues. I read the biography of Steve Jobs a couple months ago. What comes out of that is just the passion. He had issues for sure, personality wise, if you read the book. He was a genius. But the number one thing was his passion. He was just passionate about creating perfect products that delighted people, and he went through a lot of failure. A lot of his products have failed. The iPhone and iPad have been hugely successful, and I think today Apples has become the most valuable company in the world. They almost have a hundred million dollars in cash.

Patrick: Yeah, speaking of that, did you see the quarterly results that were announced yesterday.

Brian: It’s amazing.

Patrick: I just about fell over.

Brian: It’s absolutely amazing. I think it’s because you had a founder, who unfortunately passed away, that was so passionate about what they were doing. He was able to come out of nowhere and create a massive market. I think maybe not that same scale, but a lot of the entrepreneurs we back and other venture firms back, the ones that have that same driving… you know, internal drive, are the ones that tend to be the most successful. And they’re not just driven by… you know, they want to be successful financially, but they’re driven by something else. We’re not, unfortunately, an investor of Facebook, but Mark Zuckerberg for example. He was in no rush to go public. From what I hear, he still lives very modestly, and he’s got a mission, and he’s got a view of where he wants to take Facebook, and what kind of influence he wants that company to have that’s above and beyond just numbers. I think if we could get that, if every entrepreneur had that, we’d be in great shape.

Dan: Have you seen Money Ball?

Brian: Yes, yes.

Dan: So when you talk about home runs are you kind of setting up the companies you invest in like Money Ball, in a way?

Brian: Oh, I don’t know. I think with Money Ball, Money Ball was more about high on base percentage. I think we’re more like the Yankees.

Patrick: We’re all about championships.

Brian: Yeah, we’re all about championships and big wins. I think it’s hard to make the math work, just to have a high on-base percentage and not have a lot of failures because the statistics in our industry, which very few people know, is that in the last forty years about ten to fifteen percent of the dollars invested by venture capitalists have returned ninety percent of the capital. The classic eighty-twenty rule, it’s even more extreme in our market. And so knowing that, you have to recognize that a firm like ours, that will invest in twenty to twenty-five companies in every fund, there will be three to five companies that are likely to generate ninety to ninety-five percent of our returns. And the rest either wipe out and be zero or they’ll be situations where we return our capital or make a little bit or lose a little bit, but they weren’t really moving the needle for our firm overall. So we’re playing for those big wins.

Dan: What does this mean for business owners looking for financing? I should they decide what they want to pursue, whether they might be a good fit to approach an investor or get a business loan?

Patrick: When I hear venture capital, I think of guys that are scary that are all about the money, and obviously they are because they’re investing in your company. Take us through the process in addition to Dan’s question.

Brian: So there’s a couple questions. I think the venture industry, sometimes we get a bad wrap. I think most of the successful venture firms and venture capitalists, they obviously are in it to make money, but they are driven the same way the entrepreneurs are. We come across companies all the time that are interesting companies, but we say, “Oh, we don’t want to work with this team,” because it’s like a marriage every time you make an investment. As a matter of fact, I think the average life of a venture investment is longer than average marriage in the United States. (laughter all) So it is like a marriage. You may spend as much time or almost as much time with that team as your spouse.

Patrick: So how many people are you married to? (laughter)

Brian: A lot. A lot. (laughter) So basically, I think that most venture capitalists want to work on things that excite them too, and with people that are interesting and that they get a long with and can work well together and not just the money. I’m sure there are exceptions, but for the most part I think entrepreneurs view venture capitalists as scary. Definitely there’s an impression out there, but I think it’s a little bit misguided. Most venture capitalists are trying to help entrepreneurs and be partners, you know, be in the background and do what we can to help. I think, in terms of a small business entrepreneurs looking at venture capital, because of what I said earlier about looking for the home runs, very few businesses make sense for venture capitalists. Likewise, the odds are that most of the audience here should not be going after venture capital. You could have a great business that’s hugely valuable, that’s doing very interesting things, that can make a lot financially for you, but there are very few businesses that can scale at the rate that venture capitalists need to generate the returns in that home run. We need highly scalable businesses, things that can go from zero to a hundred to two hundred million in revenue in a few years, if the model works right. That excludes ninety-eight percent of the businesses out there, just by definition. Anything that’s generally retail oriented, that are opening up lots of stores, it’s very hard to do it, and it tends to be capital intensive as well. Any service oriented business, a professional services where the assets walk out the door at night, the people, very hard to scale. Anything where you’re getting paid by the hour, where you need more people getting paid by the hour, it’s just hard to get from zero to a hundred million. A great example are the ad agencies in New York. There’s a lot of advertising and marketing agencies in New York. Those are not venture backable businesses, but the technology that drives that advertising industry online, those are. The Googles of the world. The Facebooks. The DoubleClicks.

Patrick: So tech that works around the clock, basically?

Brian: Yeah, basically you’re trying to find a model that can scale very, very rapidly and that has margins that ideally expand over time with that. What that does is it means it’s a very small slice of the market. The vast majority of the companies, and we see two to three thousand business plans a year, and we invest in five or six companies, to give you a sense. The vast majority of those that come in should never raise venture capital. They should either go get a bank loan or get some other form of alternative financing…

Dan: Or go to Lendio, right?

Brian: Or go to Lendio where…

Dan: Where they can get all that stuff. Yeah.

Brian: And in some cases you can get some angel financing. The local entrepreneur, you want to open a restaurant or a chain of restaurants. Well, go find someone older who’s been through that process, who have opened restaurants successfully. That person’s more likely, or other people who invest in restaurants, those people are the people more likely. They’ll write smaller checks and get you to where you need to go. Venture capitalist should really be reserved for companies that have both the ambition and the ability to scale very rapidly. And it also changes the relationship. There’s also a control element. While we don’t take control positions, you now have a traditional board, and there’s a structure. Just last week I was out in Salt Lake City for a Lendio board meeting, and there were decisions to make at a board level. We don’t run the company. It’s the managers that run the company, but there are a lot of individuals who say, “Ah, I don’t want a partner here that’s not here day-to-day that’s a financial partner. I want to have a hundred percent control over my business.” And that’s a personality type thing. So a lot of the reasons it doesn’t make sense to take venture capital.

Patrick: Okay, now take me through your day. It’s eight-o-clock in the morning, or eight thirty… what time do you get in?

Brian: (laughter) Every day is different. I really don’t have a beginning or end to my day. I think this is true with most venture capitalists that I know. The job is all consuming. If you want to be successful in a business, it has to be fully integrated into your life. There’s no workday. It’s just your life.

Patrick: Okay. Take me through a typical day. You finally get to work, or you’re at home at five thirty in the morning…

Brian: Yeah… I’m hoping my wife won’t listen to this. (laughter) Sometimes I’ll wake up in the middle of the night and turn over and get to my phone, and there will be emails from companies for entrepreneurs that are working at two, three, four in the morning. And I’m replying to those entrepreneurs at that time. I’ve taken calls at two in the morning, at five in the morning. It’s almost like you’re a doctor on call in a lot of ways. But if it’s a normal day when nothing like that happens, I’m up and out… I try to get to the gym for a little while in the morning, but I’m up and out somewhere around seven and eight thirty in the morning. I tend to be scheduled back to back to back. We’re on the phone now. If I look at my calendar, just looking at this week, the average day here, I’m looking at, somewhere between six and nine meetings. Meetings are, of course, scheduled calls. The shortest a half hour, the longest being two to three hours.

Dan: I’m glad you fit us into your schedule.

Patrick: Yeah.

Brian: Yeah. Scheduling is a big deal.

Dan: I think we scheduled this interview two months ago or something, right?

Brian: Yeah. I think it was two months ago. It’s hard to find time. It’s just been very busy. The day involves, to give you a sense, to give people more of a real sense, we’re meeting with companies a lot of times that are referred from different places from business we’ve worked with people in the past or other venture firms or service providers. We’re always meeting with new companies. That never stops. I’d say in any given week me and my partners are working with a group of new companies, either in person or doing quick calls. Sprinkled in there is we have board meetings or other portfolio company responsibilities. I’ve got a full plate. I’m on ten boards right now of companies. So if you think all those companies have somewhere between four and twelve board meetings a year. Add that up and it gets scheduled. Then I would say for every board meeting there are three to five hours of work outside the board meetings where I’m on executive team. They’re recruiting for a senior role, a VP of sales or VP of marketing or a CFO, and they’re asking me to get them candidates, people we know in our network. Or they’re asking me to interview those candidates. They’re calling me about structuring those compensation packages. It could be introducing them to a customer or a partner that they’re trying to get into. At Lendio I’ve done some of that, where we introduce them to potential customers and partners through our network. You’re really an extension of the team. I love having a to do list from the management team, where they say, “Hey, these are the five companies we want to get into.” Or “These are the three people we want to talk to. Can you help me there?” And you really where every hat. The expression to use, I heard many years ago, another venture capitalist told me this. He said, “A venture capitalist is a Jack of all trades, but a master of none.” I think that’s my day. I’m a Jack of all trades. I can wear a sales hat, a BD hat, an operations hat, a CFO hat, and a CEO hat all in one day across multiple industries and multiple companies. That’s why I love it. It’s very exciting.

Dan: Yeah. It’s fascinating.

Brian: There’s no day… I’ve never had two of the same days since I was twenty-three. They’re all different.

Patrick: In the media industry that’s why I love doing what I do. My day is never the same. The end result is getting stuff on the air, but the topics always change.

Brian: Yeah, that’s right. It’s funny. One of the guys I actually love in terms of interviews, and I Tivo every one of his shows, is Charlie Rose.

Patrick: Oh, yeah.

Brian: I watch the Charlie Rose show, and he does these interviews, and he does such a wide variety of topics. And he does, I don’t know, hundreds or thousands of interviews every year. He just flips a switch and goes from next to the next to the next. He could be talking about politics or art or literature, economics, whatever it may be, science, and he really does a great job. In a way, our business does the same thing. I may have a meeting at nine in the morning talking about education technology. Ten-o-clock I’m talking about thin-tech. Twelve-o-clock I’m talking about advertising technology. It’s just constantly a different topic. We have our special areas that we look at, but you really have to be able to flip the switch very quickly and dive deep very quickly across lots of different areas, and that’s interesting. I’m basically getting paid to get educated, which is a good thing.

Patrick: Yeah, it’s the real world. Go ahead, Dan.

Dan: Since we’re winding down on time here, I want to get two questions answered for the listeners. One is if you think you’re getting ready to approach a VC or maybe an Angel investor, what to do. And also, once you get funding, whether it’s from a business loan or from a VC, what do you do after that to make sure your business is successful.

Brian: Sure. So for the first one, I think if you’re trying to get… you know, if you’re trying to get lending, to get dollars from a lender or an alternative lenders, for sure go to Lendio.com. It’s probably the fastest way to do it. But that’s a little bit of a different of a process for sure. If you’re looking for venture capital, the last thing you should do is send an email or a random phone call or visit. Definitely don’t just show up at the office. That won’t go over well. We want to see entrepreneurs that approach venture capitalists the way they approach potential customers and partners, which is… you know, cold calling usually isn’t very effective. The most effective is usually to find the trust relationship which is that person, and then have the introduction made that way. If I’m trying to close a deal with a customer, I want to find out who I know that may know them and network through. That way I can get a warm intro. Same thing with venture capitalists. I don’t know many venture capitalists that funded a company that they found through email. I can’t tell you how many emails I get that say “Dear, Joe”. Right. They have the wrong name.

Patrick: “Dear, insert name”. (laughter)

Brian: Exactly. “Dear, Name”. And that doesn’t work. You really want to…

Dan: It’s a lot more relationship driven than I would’ve thought of, right?

Brian: A lot more. It’s all relationship driven, and the other things is, as you’re in the process as a venture capitalists, I’m looking at the way you’re going through the process with me as an entrepreneur is how you’re going to be with your customers and partners and your employees. It’s a proxy for that. So, if we have a meeting and I say, “Oh, this is interesting. Can you follow up with these three items?” Then I don’t hear from you in like three weeks. I’m thinking, like, when you go pitch a customer and they ask you for that, they won’t hear from you for three weeks. Why should I pay attention to you if you’re not going to pay attention to your customers? It’s the same thing, right? It’s like with us as individuals. If you see someone on the street that treats somebody badly, the assumption is they’ll probably treat you badly, right? It’s the same thing, and I think it’s interesting that a lot of entrepreneurs are bad with follow up or they just don’t think about it that way. So I think that’s a big piece of advice. Then once you have the capital, let’s say it’s venture capital, before you close a venture investment with a venture firm, make sure you’re on the same page and expectation on where the business is going. I like thinking about the thirty, sixty, ninety day plan in a business. Saying, “Okay, what are the priorities? What are the milestones? How are we thinking about the business together?” There’s no surprises. We don’t mind bad news. We get bad news all the time because all startups have bad news. They have good news and bad news, but there’s always bad news with startups. You know, don’t hide anything. Deliver the bad news. I want to hear the good news, but I want the bad news faster because I can’t help you if you’re telling me it after the fact. There’s no penalty box for delivering bad news. There is a penalty if we hear about it a month later when we could’ve maybe helped you through the issue. It’s being open and transparent with your investors, and part of that is just building your relationship. The responsibility is on both sides to do that. I think the relationship with lenders is very different. They’re much more pure financially driven. They’re looking at their interest rates. They really view you as a credit, and they’re going to look at your monthly financials and make sure you’re hitting the covenants and those sorts of things. And so I think there, they want to keep up to speed on the business, but where the venture capitalist is probably living in the house with you, to some extent, and they’re a family member, the lender is your neighbor or somebody in your town. There’s still a relationship there, but you don’t share as much stuff. (laughter)

Dan: The lender’s more of a robot, and you’re more like the mentor, or something like that.

Patrick: You’re the friendly guy.

Brian: Yeah, yeah, definitely. I mean, a big role in our business is as a psychologist…

Patrick: (laughter)

Brian: A CEO is a very lonely job. You can’t necessarily as a CEO for a startup, things are getting you down, you have issues, you just can’t lay it on your team because you don’t want to damage their confidence or their mojo. So a lot of times I’ll get a call from a CEO, you know, “This is really worrying me.” Or, “This is an issue.” Or whatever it is. I relish playing that role and being able to talk through it and giving the pep talk if that’s what’s required. So I think that’s a big part of it. You’re not going to call your lender and say that. You’re not going to call Bank of America and say, “We really had a tough day today. I thought we had this deal closed, and it fell through. You know, blah, blah…” It’s just not the same relationship.

Patrick: Brian Hirsch, Psychologist. We’ll just stick it on the door.

Brian: I actually think it should be training for every venture capitalist. They should have a two year program in psychology because it’s co-investors, it’s your partners, it’s everything. The business is all about human relationships. A lot of businesses are, but this one in particular is about human relationships.

Patrick: Before we wrap up, and if we can do this in two or three minutes here, a couple different things: Number one, when you have a company that is pitching their idea, what industry are you just sick of hearing from? That you just go, “No, no, no.” And number two, part of that is, what are some of the strangest pitches that you’ve either accepted or rejected?

Brian: (laughter) Wow, those are some good questions. The thing we’re sick of hearing is… there’s two areas: One is, if I had a dollar for every “New Daily Deal” site or flavor, a groupon of this or a social of that, I would…

Patrick: Is Groupon good? I’m assuming you’ve taken advantage of some of the deals that they’ve come up with.

Brian: I’ve never used a Groupon before.

Patrick: Is Groupon a viable company? I know they were just featured on 60 Minutes, I would say in the last two or three weeks, but do they have staying power?

Brian: Yeah, I think they’re a viable company. The growth from here? I don’t know. But I think there’s a business there for sure. I think that it doesn’t make sense for every merchant, but for a class of merchants who have a fixed cost and capacity, it makes a lot of sense. For the most part, if I have an incremental cost for a new customer—for example like a restaurant, where I have a cost for the food, and I’m giving a massive discount, and it’s more about getting a trial, and I’m losing money—I think in some cases that might work, but in more cases it wouldn’t. Versus, I have a yoga studio, and I pay a thousand dollars a month for my yoga studio. I’ve got room for fifty yoga students a day, and right now I have twenty. And I have a fixed cost for my rent. It’s just an incremental dollar that covers my overhead, if I have forty students to thirty students versus twenty, and I can make a margin on that, then it makes sense, right? So I think it depends on the type of business. I think there’s a lot experimentation with Groupon and others early on. And I think small merchants get smarter over time and think about the economics more. That’s no different than what happened with Google. When Google’s adwords came out, people were overpaying like crazy for keywords, and there wasn’t a lot of sophistication around the analytics. They were just like, “I need to buy this key word for plumbing. I just want to be the first result, and I’ll pay whatever.” That changed over time, and people got more sophisticated in how they did that. I think it’s the same thing with Groupon. They’ll do some mature model that works, and I don’t think Groupon’s going anywhere. I think they’ll figure it out. I don’t think they’re going to be Apple or Google or Facebook in terms of scale. I’m skeptical there, but I think there’s room for players in that market. But there’s not room for the other three hundred that have pitched us, and we’ve seen every flavor: particular geography, for mom’s, for dogs between twenty-four and thirty-two pounds…

Dan: For dogs? (laughter)

Brian: I’m just joking. I’ve seen every flavor of “Daily Deal” sites, and I’m sort of sick of it. I saw the same thing back in the nineties when eBay came out.

Patrick: Oh, yeah.

Brian: I saw two hundred marketplaces, auction marketplaces. They remind me of that. Some of them got luck on exit, but all but a handful died out. So that’s one that we’re sick of. And you asked about…

Patrick: The strange pitches.

Brian: Yes, the strange pitches. We see more strange entrepreneurs than strange pitches, to be honest. (laughter all) It’s just the nature of the beast.

Dan: Like the show Shark Tank, some of those guys?

Brian: Yeah, we get some of that. The strangest thing… it wasn’t a pitch that I got, but it was a former partner earlier in my career. He said that he got a pitch for human teleportation. He had a claim that, just like Star Trek, he could transport people from one place to the other. It was over the phone, and his response was, “Okay, if you can be in my office in two minutes, we’ll fund you.” The guy on the other line said, “We’ll have to get back to you.” And we never heard back. (laughter) So, you know, I think that that’s a… you get some really wild ideas like that. I’ve gotten a couple that are not for a PG audience.

Patrick: (laughter) A PG audience.

Brian: Yeah, they were shocking. For the most part we don’t get there. I start to delete them from my inbox because that’s where the strange ones come. We don’t get them to the meeting stage. Although, we get a lot of movie pitches. For some reason people think that venture capitalist invest in movies. I’ve seen lots of scripts. There are lots of great scripts out there for dollars, but we just don’t invest in those types of things.

Patrick: You always hear about the movies where, “We shot this thing on $250,000 dollars, and we made 10 trillion dollars on it. And it was venture capitalist that got us.”

Brian: The original one was…

Dan: Blair Witch?

Brain: Yeah.

Patrick: Yeah, I think that’s where the movie money comes from.

Brian: I think there’s like three million Blair Witch want-a-be’s that couldn’t raise the money or raised money and flamed out. The issue in our industry is that people see Groupon and go, “Oh, huge success. This is easy.” There’s less Groupons than there are articles about Groupon. So sometimes there’s confusion over that.

Dan: You know, I interviewed Barbara Corcoran last spring, and she said she gets tired of… every time she gets into the cab, the cabby asks her to fund their next restaurant or barbeque sauce or something like that.

Brian: Yep, that’s why I’m not on TV. It makes it a little bit easier. Although in New York City, I had two or three cabbies email me asking what I did. They ask me for my card, and when people ask me for their card, I give it to them. And they email me business plans. I’ve interviewed two or three cabbies that have technology businesses. There’s an underserved market of New York City cabbies looking for capital.

Dan: (laughter) Yeah.

Patrick: Apparently so. Alright, Brian, we’ll go ahead and wrap it up there, who is the founder and managing partner of Tribeca Venture Capital. Did I get that right?

Dan: Tribeca Venture Partners.

Brian: Tribeca Venture Partners.

Patrick: Dang! Let me do that again. (laughter all) Okay, our thanks to Brain Hirsch, founder and managing partner of Tribeca Venture Partners. Alright, Brian, thanks for your time this morning. So for Brian, make sure to check out his company…

Brian: TribecaVP.com.

Patrick: So for Brian, Dan Bischoff director of communications at Lendio.com, I’m Patrick Wiscombe. Be sure to check out the podcast on Lendio.com/blog, a terrific blog by the way.

Dan: I appreciate it.

Patrick: I know that I’m involved, but genuinely when I see the email’s coming in, I think, “Man, that’s a good looking email.”

Dan: Yeah, the newsletter’s pretty good.

Patrick: So check out Lendio.com/blog. Or pick the podcast up on my website, which is PatrickWiscombe.com. So Brian, Dan, I’m Patrick. Thanks for listening to this week’s addition of the Entrepreneur Addiction Podcast. We’ll talk to you next Monday. See ya.

Voice: Making business loans simple, this has been the entrepreneur addiction podcast, helping you secure the capital you need, with your host Brock Blake, Dan Bischoff, and Patrick Wiscombe. Heard exclusively at Lendio.com.

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  • Dan Bischoff

Comments

  1. Thanks very interesting conversation,very appreciative!