Chris Nakutis-Taylor: Mastering Marketplaces with Nomad Ventures [Ep 37]

This episode explores Chris Nakutis-Taylor's journey in the venture capital world, focusing on his expertise and experiences with marketplace dynamics and investments.

1. Early career exposure to operations is crucial for understanding early-stage investments.
2. Transitioning from angel investor to running a venture capital fund involves focusing investment strategies.
3. Marketplace investments require deep understanding of sector-specific dynamics.
4. Venture success often depends on identifying and investing in businesses with strong network effects.
5. The evolution of investment strategies from angel phases to managing a venture fund showcases a learning curve and adaptation.

1: Introduction and Sponsor Acknowledgment

Brief discussion about the episode's focus and acknowledgment of the sponsor, Sidecar. Harry: "We have a great episode lined up with Chris Nakutis-Taylor from Nomad Ventures."

2: Chris's Background and Entry into Venture Capital

Chris shares his journey from private equity to becoming a key player in Uber's expansion and his transition into venture capital. Chris: "I joined Uber to gain early-stage operational experience, which fundamentally shaped my investment approach."

3: Discussion on Marketplace Dynamics

In-depth analysis of marketplace dynamics and Chris's strategic focus in his investments, highlighting different sectors like B2B and consumer platforms. Chris: "Marketplaces are not just consumer-focused; B2B and fintech are significant components of our investment strategy."

4: Venture Fund Challenges and Strategies

Exploration of challenges in venture funding and strategies for managing a successful venture fund. Chris: "Raising a fund requires demonstrating a clear and focused investment thesis to potential LPs."

1. Gain Operational Experience: Early exposure in startups or operational roles is beneficial for understanding business mechanics.
2. Focus Investment Strategy: Develop a clear investment thesis based on past experiences and market insights.
3. Understand Market Dynamics: Deep dive into specific sectors to understand and predict market behaviors.
4. Network Effect is Key: Invest in businesses that demonstrate strong potential for network effects.
5. Learn from Each Stage: Use experiences from various roles to refine investment approaches and strategies.

Thank you to Sydecar for sponsoring today’s episode! Read more about the SPV product that both Harry and Colin use for their investments below.

In this episode Harry and Colin speak with Chris Nakutis-Taylor. Chris is the Founder and Managing Partner of Nomad Ventures, an early-stage venture fund investing in high-network-effect businesses with marketplace dynamics. Before founding Nomad Ventures, Chris was one of the first 250 employees at Uber, where he played a pivotal role as a Regional General Manager and later as a founding team member of Uber Eats.

Wannabe Angels, begin your venture capital career with Sydecar--the go-to platform for those new to managing SPVs and funds. Sydecar is on a mission to make private markets more accessible, transparent, and liquid by standardizing how investment vehicles are created and executed.

To learn more, visit Sydecar's Wannabe Angels page: https://www.sydecar.io/wannabeangels

Chris's diverse background includes private equity at HIG Capital and founding his own e-commerce startup, which he successfully exited within 18 months. He holds an MBA in Entrepreneurial Management from the Wharton School of Business, where he led the Private Equity and Venture Capital Association.

Throughout the discussion, Chris shares his deep expertise in marketplace investments, the transition from operator to investor, and the strategies that have driven his success. He provides valuable insights on identifying high-potential startups, the importance of having a focused investment thesis, and navigating the evolving landscape of both consumer and B2B marketplaces. Chris also offers advice for aspiring venture capitalists and angel investors, drawing from his extensive experience in building and scaling innovative companies.

People

Chris Nakutis-Taylor, Colin (co-host), Harry (co-host)

Companies

Nomad Ventures, Uber, Uber Eats

Books

None

Guest Name(s):

Chris Nakutis-Taylor

Content Warnings:

None

Chris
Yeah, I was all over the map when I first started angel investing. I invested in, boom, supersonic, like, supersonic jets. And that was late stage supersonic jets that are now almost ten years later, are still working through building those out. I invested in probably my biggest home run as an angel was liquid death. So I invested in the seed round of liquid death.

So CPG water, very different than supersonic jets.

Harry
Colin, how are you doing today? I'm doing wonderful. I'm actually doing wonderful today. That's great. You seem like you're in a great mood, so I think today's episode with Chris is going to be a good one.

You've been looking forward to this, huh? I love talking marketplaces with other marketplace investors. So I've been looking forward to this one for a while. You know, I scheduled Chris. You know, he's at Nomad vlog, Nomad fund VC's, and they focus on marketplaces.

And I didn't forget, but I almost, like, didn't even think about it that like, oh, gosh, you guys are just going to hijack this interview and talk about marketplaces the whole time. So I feel like for this one, I kind of played moderator more so than interviewer, but I think it was a good one. It was a great one. I'm excited for the. All right, awesome.

Well, before we get into the episode with Chris Nakutas Taylor from Nomad Ventures, I want to give a quick shout out to this episode's sponsor, sponsor Sidecar. So, wannabe Angels, begin your venture capital career with Sidecar, the go to platform for those new to managing spvs and funds. I actually use their syndicate product for every investment I make. And Colin uses his, uses Sidecar to manage his fun. To learn more, visit sidecars wannabeAngels page at Sidecar IO forward slash wannabeAngels.

And we'll leave a link to that in the show notes. And I guess the little test there is you have to know how to spell wannabe angels, right? But it's difficult. Just like I think people can do it. Have you made any investments since our last episode?

Colin
I have. I can't announce it, but I made one investment, and we'll be closing an SPV with Sidecar alongside the fund plus. Ooh, interesting. Ok, well, maybe we will talk about that on the next episode once that closes so we don't get in trouble with legal and lawyers and people I don't know, FTC SEC, who would sue us or come after us, but someone not good, some three letter bad organization. Right?

The investment police I'll give you one guess, though, what type of investment it is. Marketplace. How'd you know? All right, well, that's a great tease. Until next time, and without further ado, let's get on to the episode with Chris.

Harry
Chris Nikudis Taylor is the founder and managing partner of Nomad Ventures, an early stage venture fund investing in high network effect businesses with marketplace dynamics spanning B two B vertical SaaS, Fintech, consumer and commerce infrastructure. Prior to Nomad, Chris was one of the first 250 employees at Uber and spent five years building that business, first as the regional general manager of the south region for the rides product and then on the founding team of Uber Eats as a regional general manager of the half of North America. Before Uber, Chris worked in private equity at HiG Capital and also founded his own e commerce startup, which he sold to a competitor in less than 18 months. He graduated from Northwestern University and holds an MBA in entrepreneurial management from the Wharton School of Business, where he ran the private equity and venture capital Association. Chris, how you doing today?

Chris
Doing well, doing well. Thanks for having me on, guys. Yeah, I'm excited to chat, and it's almost like we've got a meeting. I don't know if I count myself as a marketplace master, but we definitely have a couple marketplace minds on the calls today. Right.

Harry
So welcome, everyone. Yeah, when I think marketplace, I think Colin, so. Oh, yeah, that's flattering. Harry's trying to convince me to be the marketplace guy, and I actually asked Twitter if I should do that. In resounding vote was definitely no.

Really? I think I said yes. Too cringe. I think people are like, ooh, but Harry, you wear it well. I mean, you know.

Chris
Yeah, I think when Mark, when Twitter says something, you should do the opposite, so maybe you should be. All right. All right, all right, well, I'll rebrand and get after it. I'm just really amazed that you said Chris's last name right, Harry? That's the.

Colin
I'm impressed. I think I said it wrong before. I didn't even ask you if you wanted to read his bio. I just sort of took the lead and maybe I'll let you read a bio one of these days. Colin, it's okay.

You know, you've got the voice for radio kind of thing, so. Yeah, very few people. Very few people get the diaspora from Lithuania, the Nakutas. Right. I think there's less than a couple hundred thousand of us around the world, so.

Harry
Very nice. Well, you're definitely the most famous nakudas I know, Chris and I've been looking forward to chatting with you, obviously one, because of your uber experience. But I think you have a really interesting sort of pathway to venture. And I like how you described it when we're offline, that it's very linear. So talk a little bit about your linear progression into the world of venture and now the fund that you're running.

Chris
Yeah, yeah. So I originally started in private equity, so more late stage investing, but really wanted to get into early stage investing and making that transition. That's actually how I ended up at Uber. I realized that being really good at excel and building out models is not helpful for early stage companies. And what is helpful is starting your own business or working at early stage ventures.

And so I joined Uber to gain that experience and then realized I actually really enjoyed operating. And so I ended up staying at Uber for about five years and then made a transition from there to run global operations at Bird and ultimately onto venture. So when you think literally step one was originally just getting into operations, understanding how early stage companies work, understanding how I can help founders, and then from there, starting to take little bites at the apple that gradually got bigger and bigger in terms of writing checks to founders. So Uber started getting some liquidity in 2017, and I started writing small angel checks. I was writing, you know, started at like $2,500 and then moved up to the sort of five to 10,000 range.

I did about 20 angel investments in that, you know, call it ten ish thousand range, and then from there took the next step in my progression. I became a scout for Mark Suster at Upfront Ventures. So Mark had asked me if I wanted to do their scout program, and it was a unique opportunity to do what I was doing in the angel community, but with bigger checks. Right. Going from five to 10,000 to writing scout checks of $40 to $50,000.

Harry
Yeah. Let me jump in on the angel investments. The two questions I have are, one, how are you funding these angel investments? You said liquidity. Was it more from your salary at Uber, or were you able to take some secondary, or how did you get the funds?

Because, I mean, obviously the 2500 to ten k times 20, that does add up, right? Yeah, no, 100%. I found it hard to take it from my salary. Startups aren't the highest paying businesses out there. I was thinking, how much are you getting paid at Uber in those early days?

Chris
Definitely not much as people think. But when you hit your four year market, Uber, you were allowed to take. They had something called clockwork. You were allowed to take a percentage, like 1% of your stock off at the current market rate per quarter. So little by little, you could take a little bit of liquidity.

And instead of investing in the stock market or bonds or buying a home or anything, I started investing in startups. I'd say about that, and I'd love to hear your thoughts on if people have a similar angel story. But I originally, as an angel, the difference between being an angel and being a vc, of having done both now is I invested more in passion projects. Right. Like, I didn't really have a thesis.

I mean, Colin, obviously you have a pretty structured thesis. I know, Harry, you do as well. Mine was all, he's the marketplace guy, and I'm the mobility guy now. That's how we're branding our investment thesis. Yeah, I was all over the map when I first started angel investing.

I invested in, boom, supersonic. Like, supersonic jets. And that was late stage supersonic jets that are now, almost ten years later, are still working through building those out. I invested in probably my biggest home run as an angel was liquid death. So I invested in the seed round of liquid death.

So, CPG water, very different than supersonic jets. Invest in superhuman replicating. I'm guessing you were thinking that one day they could serve liquid death on the supersonic jets, right? Exactly. Again, there was like a.

There's like a wow factor of my angel investments. There was really no rhyme or reason other than that. And, you know, as a vc, you obviously have to. You have to be more thematically driven because you're investing other people's capital. But at first, I was all over the.

I was all over the map. Yeah, I had a similar experience when I was putting together my, like, fund memo thesis, whatever. And I was just putting up the whole portfolio, and I was like, ooh, a few of these, uh, these don't follow really any thesis on this, you know, but this was super cool. Like, there's one that was literally, like, capturing carbon out of air and making water, you know, like. Like just cool things where I was like, well, if this.

Colin
This happens, you. I want to be a part of this, you know? So invested in Rainmaker, too. No, not that one. That one was cool.

That was. I mean, that I just. Morgan Barrett, on our recent episode, gave a shout out to that one. So I was going to say, wow, you missed that episode, though, Colin. No, I was on that 01:00 a.m.

i. That easily forgotten. Harry mentioned that one. You must have not talked that much. But, yeah, it's interesting, especially as you like, for those people out there that are thinking, how do you make that progression from angel to vc?

Chris
In hindsight, I should have had more of a thesis as an angel investor because it was harder to convince people of my thesis as I was raising a venture fund because my thesis was marketplaces. I understand marketplaces. I worked at Uber. I found a team of Uber Eats. I've done it repeatedly.

And then people are saying, oh, what's your biggest marketplace investment? I'm like, well, I didn't invest in marketplaces, but I want to now. And so as much of a hits some of my angel investments were, they didn't necessarily, you know, qualify in the, in the minds of lP's as, you know, a nice data point. Like, you know, the same thing and same thing with the scout fund at upfront, I was starting to work towards my thesis. I invested in a marketplace called Buildforce that did ex uber people that it's a marketplace for construction work in Texas.

But I also didn't. I invested in a company called Zeroize that does AI, gun detection software for schools and shopping malls and government buildings. And that one's a huge home run. I invested in that at a sub $10 million valuation. It just got valued in series b, north of 280 million.

But it's hard to explain that to LP's because they're like, well, do you still invest in AI? Are you focused on that? And we're like, well, not really. Yeah, it's definitely an interesting point because one of your biggest hits may end up being liquid death. It sounds like big CPG company, but you're totally right.

Harry
If you're going to raise a 1020, 30, 40, $50 million fund focused on marketplaces, I don't know if you'll really get the credit for that great CPG investment. And it sounds like when you're conversations with LP's, they're sort of like, cool, that's a positive, but we're not going to give you a huge check for that. Exactly, exactly. Yeah. It's like the focus really matters in the sense that I feel like for LP's, they want to know exactly what they're investing in.

Colin
They're like, does this tick this box for my exposure? Right. Versus most of the angel journey. We're like, hey, we want to be invested in the cool upside of things. And so it is kind of an interesting question for venture in general.

It is an outlier game and of exceptions. And so any one model at any given time may have some winners. But if you go across everything, you're probably, I don't know if you're better off or worse off, but you're more likely to be open to your strategy. You're saying finding outliers, that could have really interesting returns. So that's something I always struggle with too, with the thesis is like, hey, yeah, I want to be in this because I understand it.

Maybe I have an edge that's really meaningful. But what are you cutting off in terms of, like, opportunity sets too, right? Yeah, 100%. But I think the former is, it outweighs the ladder. Right.

Chris
I think that having that expertise, because you are trying to find outliers, right. This is venture and even angel investing, it's a home run hitters game, right? You're not like when I was in private equity. That's not a home run hitters game. You're trying to be a leadoff hitter betting for average.

Right? You're, each row, you're hitting singles and doubles don't get strikeouts. Right. But that's not, that's not angel investing. That's not venture.

It's, you want to be buried bonds and, you know, in the snot, out of the ball. And so the thesis, I think, is very important in that, because you, the pattern recognition of being able to identify those winners. Right? Like the. How did I identify liquid death?

It wasn't because I'm an expert CPG investor. You know, I got, I got lucky with that one, right. I really like the founder. I think there's some benefits there. I like the founder, I like the branding, but I didn't know anything about CPG.

Right. Whereas with marketplaces like, you and I both have a real expertise in marketplaces, having run marketplaces, understanding the dynamics of supply and demand and how to build them where you should be able to, it's building a lineup of home run hitters and those founders. And so what was interesting there, and I think for people that are looking to make the jump from angel to venture, is because my angel portfolio was scattershot. Nomad Ventures, fund one had to be that place where I could show LP's the proof of concept, right? More of a proof of concept fund of, here, give us money, I will get in the best marketplace deals.

And now with fund two, fundraising fund two is easier because I can show that as a track record. Whereas in fund one's track record, it was CPG, it was supersonic jets, this random software. What were the details and logistics of fundone? So fund one, we actually, we went out to raise a $5 million proof of concept fund, and we were raising 13 million. So in about five weeks.

Yeah. So we were about three x oversubscribed. What year was this? This was a few years ago. It was the start of 2021, end of 2020.

Started 2021, which allowed us, again, same. We were allowed to do the same concept. We were just, instead of writing 100k checks in the pre seed and seed, we were allowed to write $200 to $300,000 checks. So the thesis didn't change. Number of investments didn't change.

We just got to write larger checks.

Colin
And we've co invested in a few. That's even as is Harry. I mean, I think, honestly, I think the ones we've co invested, one of some of the most exciting in my portfolio. Which ones do you think are the. Well, packsmith autopilot.

Both just like, awesome founders. Really unique ideas that are just outside the box, I would say, and are just. Yeah, and they have really unique distribution strategies. I think those are the things, when I think of marketplaces that are really successful, that's kind of like, what fits the mold for me is like novel product development, really great and unique distribution strategies, solid founders, and a little outside the box such that people don't think of investing in it. So I don't know.

I mean, that sums it up for, I think, 100%. I think autopilot is, is, is one of the most exciting investments out of, out of our fund. One for those that don't know, it's a consumer investing app, so you can follow Nancy Pelosi's trades or inverse Kramer. So it does the opposite of whatever Jim Cramer does. It's a super interesting business.

Chris
They are growing like wildfire with very low cost of acquisition. And I think the serendipity, one of the things I love about Autopilot, and this is tangent, is you can find investments everywhere. And that's one thing I like about investing and the serendipity we have for Autopilot. I don't know if I ever told you guys a story, but the way we found them was my partner and I live in Los Angeles. Autopilot pilot is based in Los Angeles.

The day they lifted restrictions on Covid so you could start going to restaurants again, we were both like, we got to get out of our house, and we went to a coffee shop in Santa Monica. And one of the founders of Autopilot clearly also needed to get out of his house and was talking on his laptop as if he was still in his house, like, very loudly, loudly to his partner, who was on a weekly meeting and we were sitting behind him and listening in on his conversation because it was hard not to. It was so loud. And as he was talking, we were like, my partner was like, I've had this idea before, this interesting, I wonder how they would solve XYZ. And as he was saying it, they were talking about how they were solving these problems we had thought about for the model.

And we're like, the second guy saw the phone, we're talking to him and he hung up the phone and we walked up to him and we started talking to him. And about a week later we put an investment in. Yeah. Wow. I have a funny story with Brian as well.

Colin
When people say I invest in cold outreach, there are people that cold dm me. He literally dmed me on Twitter and was like, hey, you look like you know about marketplaces. Would you be interested in our company? I was like, yeah, send me the dick, you know. And so I looked at it.

I was on a chairlift in Park City and I was just like going up the lift and I was like. Wow, what a real vt. Yeah, I know. I mean I live in the park and I just literally messaged back and forth and I was like these are really great numbers. Like amazing to see.

You know, I think I'm in. And so I think by the end of the day, it was like Friday, I was like I committed. And so anyway, it was just funny. How, enough about autopilot. I think you both sent me this deal and, you know, can't do financial service, but the only tiny restriction I have, I can't do financial services and I love this one.

Harry
And I was like oh man, I want to join but I can't. All right. Because it's tough. I do think, Colin, I think that is out of our fun one. I think that's our coinbase, right?

Chris
That is our, that is our just nailed the grand slam home run. I mean obviously there's still a lot of run, you know, startup life is long and it is not an, but early traction. They, they've really, they've started to take off. Yeah, definitely. Well im glad that you guys started talking about some of the investments in the marketplaces because I wanted to spend the second half of the conversation kind of learning from the marketplace experts.

Harry
So Chris, you mentioned a couple that youve done. Do you want to talk about some recent marketplace investments or maybe things that youre excited about in 2024 when it comes to marketplaces? Are people still pitching, pitching you Uber for this and that or what are people pitching you these days? You know, how it used to be Uber for this. What are people pitching you when it comes to marketplaces?

Chris
We still get a decent amount of Uber for this and Uber for that. Well, you know, the one note I'd say just going into it is that we don't view marketplaces purely as consumer. I think when, when people look at like Collins background and my background and obviously the successful marketplaces of, you know, 2012 to 2020 were consumer marketplaces. So we get a lot of inbound about consumer, but I'd say only out of fund one, only about a third of our investments were consumer marketplaces. About a third were b two b, and about a third were fintech, like autopilot.

Autopilot is consumer. But on the whole, we largely, we dont invest in consumer marketplaces. We tend to look more towards the b two b side of the house. Is that kind of more personal preference or do you think that phase has kind of come and gone? I think both.

I dont think its come and gone. Itll always be there. I think with the era of the uber marketplaces, in a non zurp environment, its harder. You need significant amount of capital to be able to build the consumer side of a consumer marketplace and you don't necessarily need that for the b two b side of the market. Like a b two b marketplace.

So you know, with, with the b two b marketplace, your consumer side, you're selling to other businesses and so you need a sales team. Whereas on the, on consumer marketplaces like you are, unless you have the natural virality of autopilot, you need to spend to gain that, that demand side. Yeah, I have a lot of thoughts on, on all of it. And Chris and I have like a friendly debates on Twitter, which I really enjoy. Let's take it up a notch and maybe you guys.

Colin
Yeah, yeah, no, we'll make it unfriendly. So my thing with the consumer, so there was this initial era of horizontal marketplaces. Think like eBay. And by horizontal I mean like across a bunch of different verticals, right? So like the eBay's Etsy's, like they're very much like how do we soak up this whole kind of like all these different verticals across this one product experience and then you kind of this next era, what I would call like Airbnb Uber era, was like more verticalized.

Chris
Right. Like how do we go deep within a vertical and really just own the whole experience? So they cleaved off entire verticals and defined them. And I think we're kind of entering this next era. And this is really on the consumer side, I'm saying is like there's a next era coming.

Colin
I don't know exactly what it looks like. I kind of couched it in this marketplace plus model of like marketplace plus something else, plus SaaS, plus community, plus content or insurance, finance, whatever it may be, that the marketplaces really aren't at this point, there aren't sufficient verticals. There probably are still pockets, but in general, there aren't verticals that are going to be big enough to support venture scale marketplaces without something else on top of it. I think b two b kind of goes into that where it's like, hey, there's these totally new verticals or potentially horizontal situations too. We're in the b two B world, but they're just very different in behavior.

But the consumer side, I'm really excited for AI, not because it makes things more efficient. I actually think that's a really boring, like overall thought. Great, I'm glad you'll get more efficient. But what I think is really interesting is for matching and search. Like finally we have technology that can do like matching without humans, like built a lot of search algorithms and like through the years and most of them are just like faceted based with scores.

And it's like all past looking heuristics, whereas AI into the future, we can actually do matching in marketplaces for people. And I think that's what's really interesting to me. I view that as the next thing in consumer. I don't know. Those are my thoughts on it.

Chris
I agree with you on both parts of that. With respect to consumer, I think on the first part having some sort of additional angle, we're already seeing that we have a investment out of fund one called Zoe Financial, and its a marketplace for investment advisors to find clients. And what they realized as they were building this out, it was growing nice. Growing. Well, theyre getting our eyes on their platform.

They also found that the founder had come from JP Morgan, and a lot of the investment advisors and companies that he was talking to didnt have the tools that he had. They essentially built an enterprise white label software for the companies to use in addition to the marketplace. The marketplace plus an enterprise product. And right now the company is growing a couple hundred percent year over year. And half of their revenue is from the marketplace and half is from the enterprise product.

And so I agree with you completely on that, Colin. You have to have that additional angle. And I agree on the AI side of the house. I think that AI is going to do a lot to revolutionize a lot of industries. But marketplaces are so ripe or advancement from AI because of that supply demand balance and that matching is traditionally the hardest part of a marketplace startup.

And if you can leverage AI to be able to augment that, that's where you're really going to see the lift in growth and a number of the, especially on the consumer side, the consumer products. Trey. Chris, wouldn't you say that, I mean, most marketplaces isn't their final state kind of a marketplace plus model? They all kind of like once they get to a certain scale, like add, you know, financial services or like Instacart, you know, now they're adding advertising, ubers adding advertising. Like, don't you kind of end up adding these things eventually?

Harry
Are you saying now that they're kind of adding it before they get to scale or. You know what I mean? I think, you know, I think yes and no. I think that you need to add those now in ways that you didn't before. To Colin's point, like Uber, the reason we started Uber Eats, Travis had this saying that because a lot of people wanted us to add like the Uber for dry cleaning, the Uber for the XYZ, you had this infrastructure of drivers on the platform.

Chris
And Travis's saying was that we should not use one. It's inefficient to use 1 hour of one engineer's time if the opportunity wasn't as big as the rides business, which we already know. The rides business is like a hundred billion dollar business, right? Yeah. And so we stayed away from doing anything other than the rides business for a number of years.

And then we went into Uber Eats because Mary Meeker really support that. Like 80% of discretionary us household spend is in three things. It's in, it's in transportation, housing and food. Right? And so we saw food as an opportunity to really go into a similar sized market.

I think the issue you have on the consumer is that you don't have like glaring in your face hundred billion dollar opportunities like Uber, where it's just not worth your time to like add something else that now, like you're adding something, you're just, you're adding something else to really your pop up the potential tam. Right. And you know, who's to say, like, Uber didn't put Uber credit cards out there or finance, but there are millions of drivers on the platform that probably, you know, that probably would have been a big business. Well, and I think, I think it is a big business for other rideshare. Companies like in Southeast Asia grab financial, I think is valued in the billions.

Harry
So definitely, I guess, you know, I guess it could work. Yeah. I think for me, the plus piece is really about trying to embed with one side to kind of really like make it stickier. Because traditionally the horizontal marketplaces, they just had a really powerful network effect because they were so all encompassing. It's like eBay.

Colin
They're literally just around forever now. Like they're never going anywhere. Like, and people can cleave off huge chunks of gmv from them with very vertical specific, but they're still there. Right. They're always like, that is buy everybody else up.

But I think as you build new ones and you try to be efficient in your customer acquisition and retention, you got to build something that people come for that or come from the marketplace, stay for that or stay for the marketplace. And so I think that's like the whole idea is that in lieu of this like Zerp era, like huge amounts of capital to go grow, you've got to actually have these very sticky and retentive products from day one. That usually means embedding. And I think a lot of the companies you invested in, Harriet, do this. They start with the fintech element.

They start with what are insurance element and then they expand. I think that's my point, is that if they don't have a strategy for that early on these days, it's going to be hard for them to differentiate and win. Yeah. And that's a big, especially on the consumer marketplace side. One of the biggest issues that we try to see around corners for when we're evaluating companies is that stickiness.

Chris
Right? I mean, we call it fraud loosely here. Marketplace fraud, essentially like our transactions happening, continuing to happen on platform, or are people, you know, doing one transaction and then going off platform making a connection, or are they just, what's your retention? Right. And I think that that, that's the number one reason why we'll pass on a company is that like in our heads, having done enough marketplaces, we can't see a path to stickiness.

And so they'll have good user growth. But we're like, yeah, let's see in six months, like how, what your retention looks like. And, and if you have that leaky bucket on the retention side, then you're never going to be able to grow to the point where you can raise a seed and then an a and a b and so on and so forth and get a successful exit. Obviously, that's different on the b, two B side. Right.

Like when you're using it, when you're doing enterprise software. Like the stickiness. Our first investment on a fund too is a company called Stackpack. And it's a b two b product for companies to manage their tech stack. I mean, these types of businesses.

Your retention is 99% because the value provided. So essentially what this company does is it ingests all of your contracts. So you're a company, you have Asana and your Google suite and Slack and you name it, and you have all of these bills that just recur and you have no idea. You're the CFO or the head of finance and you don't know where they are, when they're due or how many seats you have on Salesforce, who's using them. And this company essentially ingests all of those contracts and then has a nice visualization to see when you're up for renewal, what the cost looks like.

And then also recommends you've kind of outgrown greenhouse because your company has grown. Maybe you should look at these alternatives. And there's an inherent stickiness there on the b two B side. Obviously the sales cycles are longer than consumer, but the stickiness is less of an issue. Yeah, that's a good one.

Harry
I feel like even with my little media business, I might need that because I've got a number. I can only imagine what a real tech company would have and the number of seats and, you know, being able to look at cost competitors. That's a cool one. Talk a little bit more about the b two B side. What are when it comes to marketplaces?

So we talked stickiness. Are there, you know, more downsides, more upsides? Why do you kind of like that as a category? Is it more of a right now thing? You mentioned that we're not in a zurt period anymore.

Like, why do you think right now b two B marketplaces? It sounds like maybe half to two thirds of your investments are in that right now going forward. Yeah, about 40%. Okay. Yeah, it's interesting.

Chris
Obviously it's a completely different, there's completely different dynamics. Some of the dynamics are the same that we look for in terms of strong network effects. We really focus on strong network effects, strong barriers to entry, asset light, scalability. And so it's similar on the consumer versus b two B side. I do think there are differences in terms of the retention issues that you see between b two b and consumers we just talked about.

I also think that there's just like, there's an interesting point right now. Like companies like Stack Pack, you're getting interesting with the non zerp and interest rates where they are and investing where it is. There's a real usefulness of a company like stack pack because it is saving you money on your business, right? So you're cutting costs, you're increasing your margins. Those are things that businesses are looking for.

And so it's not just that companies aren't spending to grow as wildly as they did or two years ago, it's they're also looking for ways to trim their costs, be more efficient. And so that's why we've moved that way, obviously. Like you need to skate to where the puck's going. And so to Colin's point, like we're not out on consumer. Consumer's probably still going to be in fund two, a third of our investments.

I think if too often investors, angel investors, VC's, you name it, skate to where the puck currently is and that leads to bad investments. And so everyone's saying consumer is dead. And it's not. I'm just saying it's not as frothy as it was a few years ago. But now's the time to invest in consumer because at the end of the day, you're investing at year zero for a company to exit in year six, eight.

And so people being down and everything is cyclical, right? Everything goes in cycles. So everyone being out on consumer right now means that you're investing at the better valuations. And based on the cycle, when you're looking to exit, everyone's going to be in on consumer, right. And so I just want to point that out because I think too often, like again, people skate to where the puck currently is as opposed to where it's going and that's where they tend to miss, right?

Like, and then we need to be careful with that with like, you know, you have these cycles with, with blockchain and, and AI. We have to be smarter about, you know, AI as we're investing like the right time to invest in it. We don't invest in LLMs, but the right time to invest in LLMs was like three, four years ago, right? Yeah. The, I don't know, maybe I have a bit of a contrarian take on the B two B marketplaces.

Colin
Like I, I've actually found them largely not investable in certain forms and theres certain ones I do like. But ive learned some real pitfalls from them. One of the things, the paradigms I see with B two B marketplaces is you get the best salesperson in whatever thing and theyre like great. You know what? We always needed a marketplace for this.

Lets just go out and do it. And then they do that and theyre like, I brought all these customers on, weve got Graham GMV and it just turns out their book of business from before or no ones actually self servicing in these marketplaces because thats what the value of a marketplace is to me. Like, you lower coordination costs such that one side can come in at any other time and buy something or rent something. And if its not self service and the coordination isnt solved for by the marketplace and youre basically hand holding it and doing it. Yeah, you can get to a big business, but youre really just a tech enabled brokerage that can get to scale, but you really havent crossed the chasm.

And so one of the things that ive been really feeling as ive done the fund is like, I can see billion dollar valuations, but I can't see beyond those things for some of these companies. I don't see the Uber, the Airbnb style outcomes because I don't see it digitizing and being self service in the way that consumer marketplaces have really embraced new technology. Anyway, that's my contrarian take on it these days. Honestly, I agree with everything you're saying. I think we look at different types of b two b marketplaces for that specific reason.

Chris
Like I think you and I have actually talked about a couple companies where there's just a good salesperson with a good book of business and we both passed on them, right. We've like yet to invest in those type of businesses because that's a primary issue. It's like, okay, you grabbed a couple people that you were already working with and okay, what's next? And we will, I say largely we 100% stay away from those. I think where we look at like network effect b two b businesses, like a good example for us.

And this falls under b two b also falls under fintech is one of our larger investments and fundone is a company called lunch payments. And essentially these are two founders that were selling into school systems and they realized how hard that process was. They have to send invoices, submit invoices, they get approval, and then they send in their bank information and they can't get wires. They actually get manual checks written and mailed to them. And the working capital days take 90 to 120 days on average.

And its not because say a traditional OEM manufacturer thats messing with working capital days and paying their vendors to mess with their cash flows. Its purely that schools arent allowed to spend any money on payment infrastructure. So that anything where theres a 2% fee to auto wire, they cant do it based on some regulations they have with federal funds. If they take federal funds. And so what lunch payments found, they found that there's this huge pain point.

If you're a vendor, be it someone from them that was a larger vendor in a large number of schools, or like you're the groundskeeper business that mows all the lawns for the school, you get paid in four months. And for small businesses you can't handle that. That's very hard on your business. And so what they did is they created a b two b marketplace where vendors, they connect the vendors in the schools and they get the payments down from 90 to 100 working capital days down to 30, right. Just by creating a better mousetrap in terms of a marketplace to interact.

And because of this, they get the network effects that you want to see on the consumer type business. Because the vendors love it. They're getting their working capital days down, months. The schools love it. And so they sell to the vendor.

The vendor connects the school, the school loves it and sends it to all their other vendors. The vendors love it and send all their other schools, right. And then the schools love it, send all their vendors. And so they're seeing those network effects even though it's b two b and more. There's like a fintech component to it.

So we look for those types of business where we can see the network effects that you would from consumer into the b two b. Another one is Beacon. I don't know if you guys looked at Beacon at all. Beacon's a marketplace for acquiring small businesses. So you want to, you're a business high net worth individual.

I mean it's technically b two b, we think is the purchase prices are billions. But you want to buy a h vac business or you want to buy a sonic franchise. It's a marketplace to find that business and purchase it. A lot of people, it's b two b because a lot of people are like rolling up a number of franchises. But same thing.

To your point, anything that has a salesperson with book business, we are not interested in that. But when we find these ones where we see some high network effects, we'll go in one. One last question for you, Chris, to round it all out. Well, you and I will have to go do a longer deep dive separate. I think that'll be, if we get.

Harry
Enough demand, we can do a bonus episode with just you and Chris, for an hour. We'll get our boxing gloves. Yeah. No, I love it. The.

Colin
So, one thing we always like to ask is if you go back and do it differently and give yourself advice. When you first started angel investing, what would you do differently? What would I do differently? Oh, man. I don't know.

Chris
Again, I think that. Why? I don't think I'd do anything differently, because I think while my angel portfolio did not help me raise a fund because it didn't have a thesis, I wouldn't change that because I really enjoy. Listen, I can help marketplace founders. That's why we have the fun.

I can't help liquid death, right? But I love that I invested in death metal water, and it's going to ipo for billions of dollars. Right. And so I wouldn't actually change anything. Like, sure, sure.

Like, I didn't necessarily have a track record that helped when I was raising my fund, but. But I love that I invest in some really cool things and some things are going to change the world. Like when, boom. Supersonic actually has supersonic jets and you can fly from LA to London and a few hours. Like, I'm gonna enjoy pointing at that and saying, I invest in the same way that I.

I enjoy, you know, telling my kids that the reason that you press a button and a car shows up and drives you where you're going is cause I helped build something. Right? And so I wouldn't change anything. I wouldn't change anything. All right, very nice.

Harry
All right, well, he's timed me that question. Sorry, Colin. Chris, awesome having you on. If folks want to learn more about you, we'll leave a link in the show notes to nomadfun VC. I know you.

And we'll also give a shout out your partner, James. I know you guys are both active on Twitter, so we can maybe leave a link to your Twitter profiles anywhere else people can go to follow you, find you, or pitch you. No Twitter, LinkedIn, website. Those are the top three. All right, appreciate it, Chris.

We'll sync offline over email for you and Collins. Round two. Thanks, guys. Later, Chris.

Chris
Later, Chris.

Colin
Later, Chris.