TSP028 | Eric Scott – Transcription

Posted by John Livesay in Uncategorized | 0 comments

John Livesay:

Today’s guest on The Successful Pitch podcast is Eric Scott who is in charge of the investment at HVF, which is Max Levchin, the co-founder of Paypal’s investment world. Eric is in charge of hearing all the pitches that Max’s company is involved with. Two huge companies have come out of HVF, which stands for Hard, Valuable and Fun, by the way, which is how the evaluate their pitches and Affirm is one and the other one is Glow, which is an app for women who are pregnant or want to get pregnant. What they’re talking about here is a whole new way of looking at pitching.

One of the things they care about most is when you pitch to show them how you think. That’s what they’re most interested in. Eric covers companies they’ve invested in that have been bought by Twitter. Companies they’ve invested in that are in their Series A and finally, companies that they have now given them their seed round and what the criteria is for each. It really all comes down to what is your defense against competition coming in and taking your idea. Enjoy the episode.

Hi and welcome to The Successful Pitch podcast. Today’s guest is Eric Scott who handles all the investments for HVF investments run by Max Levchin. You might know Max as the co-founder of Paypal. He works for a company called Slide that Google bought and now he is running a company called Affirm, which actually came out of HVF and Max handles all of those things concurrently, so he needed a wiz guy like Eric to manage all the other things that HVF is doing. So, let’s get right to it. Eric, let’s get to the show.

Eric Scott:

Thanks for having me.

John:

Eric. I am so impressed with the volume of things that you and Max are doing and the intensity. Let’s first start off with the cool acronym and what HVF stands for, which is Hard, Valuable, Fun. What a great culture description. How did you guys come up with that name and what’s it like to work at a place that’s Hard, Valuable, and Fun. Can you tell us a little bit about what that means?

Eric:

Thank you. Yes, yes absolutely. Well, first of all, I can take no credit for coming up with the name. I was hired under Max’s technical assistant at HVF around a year into its inception. The origins of the name actually date back to Paypal at some point or another, Max was working on an incredibly technically hard problem and Peter came up to him and basically said, why – Peter Thiel, the CEO of Paypal at the time basically came up to him and said why are you working on this problem. There are much more valuable things that you could be doing and Max, as a 23-year-old CTO basically said, What are you talking about? This is like an incredibly hard problem, so it’s obviously valuable. Peter then essentially explained to him why the things that are technically hard, while fun, are not necessarily the most valuable things to work on at any given time. So, HVF has essentially become the three criteria for which we evaluate whether or not we’re going to work on a product or invest in a project.

John:

Wow. That’s such a great insight. So, let’s talk about your background just a tad before you got to working with Max. I know that you – I have read some of your blogs and you’re incredibly savvy technically and so he must have an incredible trust factor for you to be his go-to guy and decide, you know what, this is something we should invest in or not invest in and I know you’ve worked at some startups, but just tell us, did you ever in a million years imagine you’d be doing this?

Eric:

You know, the weird answer yes.

John:

Oh, I love that.

Eric:

I had no idea that I would be doing it with Max and I had no idea I’d be doing it so soon and I get to be working with as great of people that I get to work with, but I always kind of knew that I would be starting companies, help start companies, and my goal is to kind of eventually be a venture capitalist that happened ten years sooner than I really thought it would and I got really lucky along the way, but yes. I sort of always had been drawn to technology and entrepreneurship.

My background, you know, it’s pretty, it starts like a lot of, sort of, you know, people new to Silicon Valley. I graduated from Claremont Mckenna, small liberal arts school down in LA. I started a company when I was there. It was an e-commerce company that let you split the cost of a gift between friends.

So, this is like slightly before Venmo and right as KickStarter was becoming a thing. I got into the 500 startups accelerator. I successfully ran that company like straight into the ground and worked for my competition, which was a company called Wantful. I got laid off from Wantful and I was more or less unemployed on my couch watching West Wing when a friend of a friend texted me and told me that Max Levchin, this guy named Max Levchin; first of all, have I heard of him? I was like, of course I’ve heard of him; was looking for a technical assistant.

So, this is an important thing to understand about HVF is that we do three things. We start companies, we run companies, and we invest in companies and the people who really do like the grunt work for starting these companies are the analysts and technical assistants. So, these are people that can get up to speed really quickly on any technology, any market, they are usually PhDs or masters in computer science. I’m neither of those. I barely got my minor in CS from Harvey Mudd. I basically texted my friend back saying, hey, thanks, but like why are you at all, you know, why do you think I’m at all qualified for this? And more or less, I decided to just go for it at his behest and so I guessed Max’s email.

John:

Your first hack. I love it.

Eric:

Yeah, yeah. Ironically unlike the second or third interview with Max, he told me about Reportive and that has like changed the way I guess people’s emails forever, but no Reportive, I just sent it into the ether and three days later he, you know, was weirded out by the fact that I knew he was hiring this strange position and I started as his technical assistant and then around three weeks it became apparently that I wasn’t great at the technical assistant thing, but I had sat in on one pitch with him and he asked for my thoughts and I wrote up three paragraphs essentially saying, I think I might have been the first person to just bluntly say like, hey, look, you can invest in this and you’ll probably like not lose your money.

In fact, you’ll probably make it back, like you’ll, I don’t know, get 20% or maybe double or triple it, but like, who cares? And he said, this is a very good analysis, would you like to do this more? It’s kind of after that the rest is history. The next big break was essentially when he decided to go run a firm full time and that sort of left this vacuum for me to step and make sure Max’s money continues to be put to work, but he still, I should clarify now that he’s still very active in helping our portfolio companies. He doesn’t have as much time to sit in on pitch meetings as he used to, but beyond that, you know, we’re definitely a team along with the rest of the HVF labs crew.

John:

Just to give the listeners a big picture, correct me if I’m wrong, from what I can gather from all the research I did, HVF; Hard, Value, Fun, Affirm and another company Glow, which is an app for women who want to get pregnant or are pregnant grew out of HVF and Max really wanted to run Affirm so that he now really spending a lot of time doing that, but there’s obviously a tremendous value of what Max is interested in and keeps his pulse very much on what’s going on at HVF and what you’re doing. Can you give our listeners a ball park of exactly, you know, how much money HVF is investing these days? You’re obviously a VC, so it’s not just seed money.

Eric:

Yes. So, we are, so we’re certainly not a traditional fund. Our investment kind of look like a, our investment portfolio or our investment strategy you could say looks like a double helix on its side. It’s kind of hard to imagine, but essentially the sort of strand , the first arm of the double helix looks like a barbell, right, so by percentage of round, we take up an enormous percentage of very, very early seed and pre-seed rounds.

Every once in a while we’ll do this like once a year, maybe this includes Affirm and Glow, includes some companies that we did not start, but we aboard seed, we’ll kind of be as close to being the founders as we can without actually being a founder, actually being involved day-to-day. Then there’s a dip where like when you look at Series As and Series Bs, we are investing a tiny percentage of the round. Like, we work very well with almost every venture capital firm in the valley or, not, I shouldn’t say almost every, but we work very well with many, many venture capital firms.

Not really a competitive for any of those Series As or Series Bs and then there’s like some later stage kind of special situations where we’ll do, again, maybe one of those a year, but take up the entire round. It’s like something a normal venture capital firm would ever do. If you look at number of investments, these are kind of like $250k investments where we’re just coming in alongside a 10 million dollar round.

It looks like just a very straight forward bell curve where, you know, we’re investing pretty much like seed Series A, Series B party round or not and as far as how much money we’re trying to put to work in a given year, like I’m not actually like a real, because we don’t sit on a real fund, we get to be very opportunistic about it. It’s like last year we did roughly 28 investments.

This year we’ve done one and I know we’re about to do another next week. It’s just a matter of mechanics. So, we sort of get to pick and choose, you know, the things are only going to make money, but also things that we can actually help with.

John:

Got it. So, in those 28 investments that you’ve made. I’m sure it’s all public knowledge, right, it’s in CrunchBase and stuff. Can you give us a ball park of how much that dollar amount was last year?

Eric:

I cannot give you the exact dollar amount, but I can tell you that around a third of those were follow on investments both from things that we have really big on ownership stakes in and also some things that we don’t have as big ownership stakes in and two thirds of those were completely new investments.

John:

Oh great. Right like you said $250,000 is sort of the average investment that you make in those situations or you do bigger ones as well, yeah?

Eric:

$250k is more like the, it is just below the average, but it’s also the minimum. So, $250k is kind of the amount where we’re like, this is a lot of money, we are highly motivated to help you succeed with this money.

John:

Got it. Let’s go back to what you said using a hard valuable fund as their criteria of which pitches you hear that you decided whether you want to recommend to Max to fund. How does that filter through when you’re hearing a pitch, since everyone listening to The Successful Pitch podcast is trying to learn how to pitch better. How would they pitch HVF making sure they’re hitting all three of those?

Eric:

Yeah. So, every VC, every angel investor kind of has their own style that they’re attracted to. Their own style of listening to a pitch, they’re own style of pitching a company themselves if they’ve been on both sides of the table. I think for us, honestly, the best thing to is to try not to pitch, just explain. Like, we kind of – we view our pitches as a search for some sort of fundamental truth about what the company is, what true the defense ability is, how, probably more important than anything, we’re just trying to get a sense of how the founder thinks, which at the ultra early stages is arguably more important than what the company is actually doing.

It’s likely that changes a few times, but what the company is doing and how the founder thinks about it, how the founder decided to attack this first is the kind of ultimate way of understanding how this person in front of you actually looks at the world and reasons through problems.

John:

I love that. We’re probably going to tweet something out about that. How a founder thinks and views the world is one of the key elements to pitch and show when you’re pitching. Can you explain a little bit about the search for truth being defensible? Are you talking about, what are you defending? The barrier to entry with competitors or the numbers, what are we defending here?

Eric:

It’s all about competition. Let me rephrase that. When I refer to understanding how something is defensible that means how do you prevent a competitor from coming in and taking away your revenue. There are many ways of defending the business, there are some that we understand better than others, certainly, but the sort of arching like, search for a fundamental truth, it’s much more holistic and abstract than like, we’re looking for truly how is this defensible. Usually you can reason through that pretty quickly, but there’s lots of nuances around how they’re pitching what they’re saying.

John:

Can you give us an example of a pitch you heard that had a great defensible barrier to entry from competitors.

Eric:

Yes, yes. So, probably my favorite type of defensibility is a network affected data. So, this is a specific network affect in which basically a central brain makes all the decisions for these like customer nodes out in a network and the more nodes the central brain has connecting to it feeding it data, the smarter it gets. So, what the heck does that mean?

John:

AI.

Eric:

Uh, not really. It doesn’t need to be…

John:

Really?

Eric:

Yeah, like it definitely, part of the defensibility, part of the mote or at least initially getting there can certainly be machine learning as it is for one of our portfolio companies, Sift Science, but it doesn’t need to be. So, Sift Science is a great example to kind of understand this. They started out and I believe still are really leading the charge in fighting fraud, fighting fraud online, and basically the way it works is your company that come up to you, let’s say your Twitter, and they come up to you and they say, hey, you have all these people buying ads with credit cards. Give us a whole bunch of your data and we will tell you when somebody is about to fraud you.

You Twitter and you say, okay, that’s great, how are you going to do that? The answer is, well, we’ve got Uber’s data or we’ve got Facebook’s data or we’ve got these restaurants’ data or we have like these people who have no relationship to you. If Twitter succeeds or fails that has really no impact on whether or not Walmart is going to, I should be clear, I have no idea who their actual customers are.

John:

Right, it’s just an example.

Eric:

So, these are just an example. These two like popular Silicon Valley companies, Twitter and Uber, like they don’t seem competitive. So, as soon as let’s say Twitter’s data, you can look at someone who is swiping their credit card on Twitter and say, oh, they’re a fraudster and alter everyone else on the network. Hey, we have this fraudster on an unrelated website, you should watch out for the transactions. That’s like a really strong network effect on data, because if a competitor pops up the next day, all of the customers are already on one website. They already have all the transactional data on Sift Science, there’s no reason to switch.

John:

Right. It’s almost like if you Uber you don’t need Lyft. How many apps do you need to get a car to pick you up, right?

Eric:

Yes, yes. Most market places have these types of network effects. Our favorite, like you said, a network effect that is dependent on some form of somewhat intense machine learning to actually get off the ground.

John:

Got it. I want to ask you about three different kinds of investments that you’re marking it Hard, Valuable, Fun. One is you got a couple of companies that have actually been bought. Another that is in Series A and then ones in a seed. So, I think it’s fascinating, I love to just have you touch on each of those three topics. So, I saw that you have a company called Cover that got bought by Twitter and something called SmartThings that got bought by Samsung. Let’s just, can you take a minute and pick one of those companies and describe how you guys invested in them and how long it was before they got bought by Twitter or Samsung?

Eric:

Sure. So, I can – trying to think of what I can and can’t say. There’s definitely things I can say.

John:

Just top line. You know, this is what the company did. This is why we liked it and then it got bought x numbers of months or years later because, so obviously that was a successful investment.

Eric:

So, for your listeners, there’s not going to be too much that’s new or surprising here. I mean, both had excellent founding teams, both had visions that fit really well in line with sort of the thesis of the year for HPV investments, both had pretty good traction and decided to take acquisition offers within two years for both cases, because things were going well, somebody offered a price the founders found really attractive and we are certainly not the types of VCs to prevent any sort of acquisition nor are we big enough investors in either deal to have prevented that if it was the case. So, I think both of them were really good outcomes for all the investors and the founders and really good situations. The SmartThings was -…

John:

Yes, please, tell us what they were. For those who don’t know, what is SmartThings and what is Cover? What do they do?

Eric:

Sure, sure. So, SmartThings is, excuse me, was basically the first sort of internet of things platform for your home. They launched on KickStarter I believe several years ago. They come with a central hub and a package of devices and sensors that let you know when a door is opened, motion sensor, all sorts of things like that.

John:

Kind of like Nest, right? Monitoring your temperature and all that?

Eric:

Nest except for just one device, they have many sensors that weren’t necessarily push and pull. Like, you could just read data from it, so you can see that the temperature is raising, you couldn’t necessarily raise the cost, but you could also see like, oh, your front door is open and things that Nest couldn’t tell for you. So, that was SmartThings. The second company Cover, really cool idea, basically it was a plug-in to Android that would predict what you were doing given the sensors on our phone and show you the relevant apps. So, it would detect that you’re driving and have the see immediately on your cover scene show Google Maps and Pandora, because those are probably the two things that you want to use when you’re driving in a car. It would detect that you’re running, again, probably put up Pandora and automatically open up Strava so you can track your run.

John:

Fascinating that Twitter wants that, yeah. Those are great. So, the only one I want to ask you about is in a Series A is ZenPayroll. I love the name,, what are they doing with Payroll that makes it zen and what can you share about their process to be in the Series A.

Eric:

Man, this is one of those deals that we are so lucky to be apart of, the founder, Joshua Reeves came and pitched me and I was extremely skeptical when he walked in to the pitch and I was like incredibly fired up when he left.

John:

Wow. This is what, a year ago, two years ago? How long ago?

Eric:

I think a year and a half ago maybe sounds right. It was a year ago.

John:

I love to get people a framework. A year and a half ago they came in to pitch you and now they’re in Series A, just the frame work. What was it that made you go from skeptical to excited?

Eric:

So, I went from skeptical to excited in maybe like 22 minutes. That’s – that sounds about right, around 20 minutes. So, on the surface, you know, the way these things work is we had email intro, we rarely take cold meetings just because our network is pretty strong. The email address says, hey, look, there’s this guy in his team and they have a bunch of already pretty famous Silicon Valley investors in and they’re working on payroll and I’m like, alright.

We already invested in a lot of thin tech, so we know this space really well, payroll has super thin margins, it’s not like preventing aging or any of the like crazy biotech stuff we’re investing in, like why should I really care? And kind of took the intro because it was a warm intro and the way that Joshua really, like genuinely cared about this problem is just infectious and it sort of like, alright.

At first, we were extremely skeptical kind of anyone that walks in with a bunch of like who touts their existing investors and anyone who like pretends to be more excited than they are about their current problem, but the sense that I got and this is after listening to thousands of people kind of try to sell me their BS is like, this guy really cares and he is really smart. Like, if nothing else, this will be the world’s best payroll solution and I don’t think anyone can do it as well as him.

John:

Wow, I love that. We’re going to tweet that out. When you show that you care about the problem, it is infectious to the investors.

Eric:

Absolutely, but here’s the warning. If you try to make it seem like you care and you don’t actually care, a good investor will pick up on that in four and a half seconds.

John:

Authentic has to be part of that. It’s not acting, it’s actually really caring. Can you tell us what the problem is that he’s so passionate about solving?

Eric:

Yeah. I think he views payroll as something that should theoretically be used by companies to be the life line of the relationship between the employer and employee. Like, when somebody does really well, the payroll is the mechanism that delivers this like, the most – excuse me, the payroll is the mechanism that deliver this great news. Like, you’ve done well, you get a bonus. You’re doing well. We care about you. A check will show up every two weeks and provide sustenance, provide opportunity, provide everything else that money provides, and yet today it’s been twisted into this like terribly complicated, decrepit system run by these giants who have no attention of innovating any time soon.

They’re like trying to take down Silicon Valley startups by reneging on contracts. I mean, it’s just a pain. I remember running my startup setting up payroll and I was like why the hell am I spending three hours figuring out like who to call and then paying hundreds of dollars a month when I should be spending that money on rum and I’m ultimately just like sending these like really small checks to the few employees I have, like these are just numbers moving from one account to another, why am I stuck in this old system? So, that is the problem Zen Payroll is solving.

John:

I love it. It seems to me that he connecting money to the whole spirituality zen, if you will, of there’s a person behind the check and it’s not just some automated thing that’s coming to you and therefore there’s a connection between your performance and payroll that’s more than just numbers and data. I love it and so you guys invested in that or heard it and said we want in and you gave them some seed money and now you’re going for Series A, is that sort of the snapshot of it?

Eric:

No, no, no. He had already raised his seed money and already had a lead for his Series A. We were participants in the Series A. So, we’re not major investors in that from his perspective at least. We’re just glad to support him in his journey.

John:

Got it. Alright and then I picked one, but you can certainly talk about another one. You have BlockStream as a seed investor. Is that a good one to talk about?

Eric:

Yeah.

John:

Tell me what that is? What was that pitch like?

Eric:

So, that was a super impressive pitch, especially for us because we are mega crypto nerds. Well, I should rephrase that. I like to pretend I’m a mega crypto nerd, but everyone else at HVF actually is. So, this thing called Bitcoin really hit the scene so to speak a few years ago. We read all the papers and basically were just taken a back by the math. Economically, politically, business perspective like the actual asset of Bitcoin has a lot of debatable positives and negatives.

We could probably talk for three hours about that, but what is not debatable is the math behind it. It’s elegant, it’s powerful, it is like a true peer crypto innovation and BlockStream was the first or at least, maybe not the first, but the most serious attempt that we had seen at fundamentally innovating, again, on the block chain. Founders are very serious, they’re all extremely well known in the Bitcoin and security communities. So, we decided to basically take a bet both on the really cool math they were pitching us as well as just knowing that these are great founders that we want to bet with and we want to play with, so to speak.

John:

But, what problem are they solving with this whole Bitcoin world?

Eric:

They are the high level, they ultra, ultra high level and I’m going to purposely avoid some of the technical details, because I’ll just talk over myself.

John:

Please dumb it down. Like you’re talking to a 7th grader.

Eric:

So, today a Bitcoin is this digital asset and the way that you record that it is transferred from person A to person B is via the block chain. The block chain is basically what makes Bitcoin what it is. It’s this huge public ledge where stuff is going. What you can not do today is you can’t transfer other goods and services, because other goods and services are more complicated. The deed to a house needs third party approval, fine art has all sorts of implications with it, you can imagine; other things that require somewhat more complicated contracts. So, the technology BlockStream is building is essentially helping turn the block chain into more of a platform so that people can build complex contract on top of this trust-less system.

John:

That’s so clear and easy to understand and I can see why you got excited about it. Thanks. Before I let you go, I want to ask you about your recent blog. This whole concept that one person could – the race for one person to create a one billion dollar company as oppose to – because of technology, can you give us another one or two sentences about how did you come up with that idea to even write a blog about that?

Eric:

Oh, so I was sitting eating lunch with two of Max’s technical assistants at the time and one of them came up with the idea. I actually don’t remember which one it was, so it was certainly, it was certainly not my original idea. I’m just the guy that dug into the data and wrote the blog about it. I’m not sure if it was Derek or Elliot, neither of whom are currently technical assistants anymore. They’ve all moved on to awesome things within the HVF family, but yeah. I wish I could take more credit for it. It’s become a pretty well known concept. I’m the first person I know to have blogged about it. I did digging to make sure I was, but since then people from other reputable parts of the venture capital community have realized this very well might happen and might happen in the next decade.

John:

I love it. Eric. Is there a book that you think is really helpful for startups when they’re coming to pitch or just about life that you think is useful to know, especially when you’re talking about – if you’re evaluating how a founder thinks, is there a book that you think would help a founder present that or really be attractive to you when you’re thinking about, you know what, I can tell that guy read this book because he thinks like I think or he looks at the world like I do.

Eric:

That is a good question. I don’t think there’s a single book.

John:

Whatever comes off the top of your head that you like, you found useful.

Eric:

So, here is, I think there’s, so there’s two, there’s one and a half. There’s one book I’d read and there’s one message that I would leave you with and there’s probably a book out there that describes it really well. So, the book that I just finished that I really should have read a long time ago is Barbarians at the Gate. It’s about the hostile take over of RJR Nabisco, the biggest transaction of all time, at the time at least, and it is really interesting because the transaction that we do are in order of magnitude, maybe – sometimes two orders of magnitude simpler than an LBO.

Like, somebody comes in, they pitch us, we get fired up, we do two weeks of research, we do four weeks of research, we invest, we help them, it’s done, but even with that simple of a transaction, the number of moving of parts, the number of incentives that need to align; the number of different types of incentives for different research, the number of different parties you need to corral is enormous at the smallest level and if nothing else, Barbarians at the Gate does a really good job of showing you how everyone you’re talking to may or may not be talking to each other, may or may not have different reasons for talking to each other, and may or may not have different reasons; in fact almost certainly does have different reasons for talking to you.

So, with that in mind, I would say the most important thing when you walk into a pitch, into any pitch, is to just understand exactly or as close to exactly as you can what that investor is looking for. What gets them excited, what type of personality are they drawn to. What type of company are they excited about.

John:

Great. We’ll tweet that out. Know the investor before you pitch them. That’s the tweet. I love it.

Eric:

That’s it — for us, for us that thing, you know, we want someone who is thinking is just as clear as day.

John:

Got it. Don’t confuse people. I always say the confused mind says no and it’s very true. You have to explain yourself clearly.

Eric:

They’re hard concepts really. A lot of these things are complicated. So, if you can explain a really complicated thing very clearly in a way that doesn’t dumb it down. That’s great.

John:

Yep. I love it. How can our listeners follow you and follow HVF and what’s the best way to keep in touch and follow your blogs, etc?

Eric:

So, probably the best way to follow HVF and myself is through Twitter. So, my handle is TweetOfEric. HVF’s handle is HVFLabs. Anytime we write a new blog, launch a new company, invest in something that we can publicly talk about, one or both of those will be active.

John:

Fantastic. Eric, it’s been a pleasure having you on the show. Thank you for sharing your insights and your wisdom across companies that have been bought, Series A and seeds and all the important things that really jump out when people come to pitch someone like you. It’s been great having you on.

Eric:

John, thank you so much for having me.

TSP027 | Chris Camillo – Transcription

Posted by John Livesay in Uncategorized | 0 comments

 

John Livesay:

Today’s guest, Chris Camillo is the CEO and Co-Founder of TickerTags. Chris wrote a book called Laughing at Wall Street and tells a story of investing $20,000 in three years making it into $2 million. All about analysis of meaningful information before the main street knows what’s going on. So, if you get information on trends like the hot new Christmas toy, for example, then you would know to invest in that company before the stock would go up.

He has an exciting new company, TickerTags, which helps monitor conversations. He, himself, looks at 15,000 tweets a day to see what the trends are, if you can imagine, so he’s automated this process and anyone who listens to the podcast can be invited to use it for free as a beta customer this year, so that’s an incredible takeaway. I think you’re really going to be entertained and inspired by Chris’s success and he said, you know, most investors today are entrepreneurs like myself, not bankers, and we really want you to be upfront in your pitch about the hurdles you’re facing. Enjoy the interview.

Welcome to The Successful Pitch podcast. Today’s guest is Chris Camillo who is the CEO and Co-Founder at TickerTags. Chris has an amazing story starting with writing a wonderful book called Laughing at Wall Street. In 2006, he was able to leverage social media analysis to invest $20,000 in the stock market and in just three years grew it to more than $2 million. That’s an amazing story of success. Obviously he’s been covered in Forbes, in Business Week. Besides doing that, Chris was involved with eCarList and TrueLinkswear. He really is an expert in turning social conversations into market insights. Chris, welcome to the show.

Chris Camillo:

Thanks. I appreciate having me on.

John:

I just want to take a minute and take our readers back to what inspired you even before you wrote the book to get involved with high-tech and your first startup?

Chris:

Well, I guess you have to go way back, way, way back. I was actually, I graduated from college, moved to LA, I was in the film business for a little while and that didn’t go as well as I had hoped. It was 1999 and all these people were starting dot com, what we called them back then, right. Dot com businesses and I just wanted to be part of that, so I kind of said goodbye to my kind of aspirations to be a film producer and I got involved in a startup at age 21, I think it was, and I never left.

I got the bug. I think my entire career has been in startups and each startup I’ve had more accountability, responsibility, and a great equity piece, right, leading up to my last startup, which is eCarList where me and my co-founders own the entire platform and now TickerTag, which is again a new startup of mine where me and my co-founder started the platform, so it was a 20+ year experience, but we’re finally there doing it for ourselves now instead of doing it for others.

John:

How great. I love that your first pivot was before you were 21.

Chris:

Yeah. I’ve been like an entrepreneur since I was 11, so it seems like I’m way – I feel way older than I am.

John:

Well, tell us a little bit about this fantastic title, Laughing at Wall Street. What were you able to do with data that allowed you to take $20,000 and grow it into $2 million?

Chris:

Yeah, so when I was a kid, I had read a book by Peter Lynch called One Up On Wall Street and it was all about, he was one of the most famous, I guess you can say, mutual fund managers of all time who ran the Magellan Fund and a lot of his investing was based on hanging out at the mall with his wife and seeing which stores were crowded, which products were moving. I realized early on that on Wall Street or investing in general, it’s all about information.

So much in life is about information and capturing meaningful information early and doing something with it. Wall Street, that’s certainty the case on Wall Street, so if you were able to identify information that’s meaningful to a publicly traded company before the general public or Wall Street is able to identify that information, that’s the best way for ordinary person like myself or anyone else that’s not necessarily a financial analyst to do well in the market, right, because we can’t really compete in turns of fundamental analysis, there are thousands of intelligence analysts out there that crunch numbers everyday.

If you think you can do that slightly better than someone who’s been doing it for 25 years, you know, Harvard, Wharton graduates, these are smart people, right. I mean, how much better could you possibly do that. The one thing that you can do better is learning how to see things in your life and then associate those things to investment opportunities, because Wall Street spends a lot of time researching ordinary people, right, conducting market research. We’re living the research, right. They’re trying to get inside our heads, so the research that they conduct, there’s a lag in how long it takes them to understand if a product is trending or if there’s a cultural movement that can impact one or more stops.

I realized early on that I can do that myself and where Peter Lynch had to actually see physical people walking in and out of stores, because our generation has Facebook and Instagram and Twitter, I have access to all the world’s conversations in a way and I can read into them in real time, so it’s limitless as to what we can detect if we know what to look for, so I developed a methodology around that.

I called it social arbitrage investing and I just try to find things that would be important, either positive or negative, to publicly traded companies that haven’t yet been digested by Wall Street. I read 15,000 tweets a night. People don’t really believe that, but for the past three or four years I’ve been reading or scanning, I guess you could say, 15,000 a night just trying to get a sense of what’s happening that could be impactful for companies.

I developed a great methodology around that. It’s actually very easy. It’s something anybody can do. In 2010, I became the world’s topped ranked self-directed investors for $20,000 to $2 million. It was audited and being tracked by a portfolio monitoring service, that’s when I got a little bit of publicity and I had an opportunity to write a book about it. I did, it’s called Laughing at Wall Street and it’s about how any ordinary person can overachieve and really do things that even professional can’t in Wall Street.

John:

Chris, can you give us an example of monitoring either the tweets or the trends, positive or negative, of a specific company and how you were able to buy that stock low before it went high or sell it when it was high?

Chris:

Yeah, one of my favorite examples I think anyone can relate to and it’s not necessarily just tweets, but just monitoring the web and blogs and what people are talking about. In 2011, the top selling Christmas toy of the year was called the LeapPad, it was like an iPad for kids and it was made by a company called LeapFrog, an educational toy company that really hadn’t produced a hit product in 10 or 15 years, so in the fall of that year. I think it was late September or October, a lot of the Wall Street analysts and journalists had discovered that this was going to be the hot selling product of the year called the LeapPad and they all wrote articles and analyst reports talking about how it was going to be huge for the publicly traded company LeapFrog that made this product.

So, over the course of about a month, the stock doubled, so that’s great, but what’s interesting is a full month before anyone on Wall Street started talking about this investment thesis, there were a couple hundred mommy bloggers who were the first people in the world to actually receive the product. Well, those mommy bloggers were the people that started the conversation of this is going to be the hot selling Christmas toy of the year.

So, if you were able to come across that information when mommy bloggers were talking about it, three to four weeks before anyone on Wall Street had even knew what a LeapPad was, right, you could have purchased that stock well in advanced of that 100% move when the street started talking about it, right. So, it’s all about figuring out when the kids or the mommy bloggers or just the ordinary people are starting to talk about something before the financial analysts and journalists and researchers catch wind to it, right. That’s one of my favorites.

John:

That’s a great example and it really goes back to what you said earlier. Compiling meaningful information before anybody else gets it is what gives you the leg up. I think that’s a great tweet. Compile meaningful information before anybody else.

Chris:

Yeah and listen, I like to say that, you know, all change is detectable, right.

John:

Oh, that’s even better.

Chris:

All change is detectable, you just have to learn to see things that are happening and you have to know where to look, right, so that’s way now we’re working on this great, this is really the most exciting project of my life. We’ve been working on it for two years and we literally launched it this week. It’s called TickerTags and we have built a database of three hundred, we call the taxonomy of 350,000 tags. A tag could be a product, a brand, a person, a place, a cultural movement, like gluten-free is a tag, right. So, gluten-free is a tag for every company that either makes gluten-free products or makes products that could be harmed by the acceleration of the gluten-free movement. So, in the case of gluten-free, that’s one of 350,000 tags that we track on Twitter. So, we allow investors to monitor social conversations around that tag.

So, you can monitor, are more people talking about that tag today than today a month ago or three months ago or six months ago? Are the level of conversations accelerating or decelerating and are people talking about this thing in a more positive or more negative than they were in the past, that’s what TickerTags is. So, TickerTags essentially allows you to do what I’ve been doing for ten years manually and what Peter Lynch did 25 years ago manually. It allows you to actually automate it and see more, right, rather than doing a one off here or there.

You can actually look at hundreds of thousands of products or brands and people, literally, Kevin Spacey is a tag for Netflix, right. So, he’s the lead actor of House of Cards and God forbid if Kevin Spacey were to get hit by a bus tomorrow, how are we going to find out about that as investors, because that’s certainty a negative thing for Netflix. We could also wait until CNBC announces that and then Netflix stocks start to drop. In our world at TickerTags, since we monitor Kevin Spacey, we know what the normal level of tweets is every minute for the word Kevin Spacey.

So, the word Kevin Spacey starts to accelerate within 60 seconds of people tweeting he got hit by a bus, I just saw it, here’s a picture of it, and people are going crazy on Twitter. We will actually capture that acceleration and social chatter and within a minute, investors of Netflix can see something just happened to Kevin Spacey. I don’t know if it’s good or bad, let me look into it, but something is happening here. Rather than waiting for humans, journalists in this case, to connect dots, curate that into a journalistic story, blog, news report on CNBC, whatever, which takes as we know 10-15-20 minutes, right, for that to happen

John:

Sure, because they have to make sure that he is in fact hurt or dead before they go online. They need confirmation and in the world of stock investing, seconds, let alone minutes, are huge, because stocks go up and down based on rumors and all kinds of stuff, so if you have that information even 30 seconds before it hits the main stream media, you can adjust your investments accordingly. Is that accurate?

Chris:

That’s right and you know, sometimes it’s a few minutes and sometimes you have weeks in the case LeapPad, right? Literally the mommy bloggers were talking about it for weeks and weeks before the first financial journalist saw that and then was smart enough to connect the dots and write a story for the investment community saying that this was going to be a big deal for LeapFrog, right.

So, we try to build those associations in advance so when things happen, you’re able to see it in real time. So, when the Cuba embargo gets lifted, we had the word Cuba in the tag library for a South American airline called Copa Airlines and so in real time, you saw the world Cuba accelerating on Twitter and we showed you the companies that would be positively or negatively impacted by Cuba. So, it’s such a fun time to be an investor, because for the first time, information, we’re really democratizing information for ordinary people. It’s no longer, you know, Wall Street that has this information. I have to wait for them to give it to me after they’ve already traded on it. Now, ordinary people like us can see things on Twitter and Facebook and Instagram in real-time and in many cases beat the professionals to trading on it.

John:

You gotta love that. One of the things that’s interesting to me listening to you talk about TickerTags and this whole phenomenon is it’s very similar metaphor, because angel investors and VCs are trying to anticipate the next big trend on how they decide which startup to fund or invest in. They want to find that little needle in the haystack of I think this is going to be big and this founder has figured out something and if they have it based on any kind of research that validates their premise, then I want to jump on that, whether it’s something disruptive like Uber or just tweaking something to make it better. It’s…

Chris:

You just talked about TickerTags 2.0. It can monitor cultural trends and the startups that are positioned to benefit from those cultural trends or trending topics or whatever it is that people are talking about that’s happening in our world. They can see the companies that can benefit or be harmed by those things that are private, not necessarily public, but that’s until next year.

John:

When is 2.0 come out? I’m so excited for you.

Chris:

In the fall. We’re going to be announcing that probably right around the September time range. We’re working on it. We’re working on it.

John:

I’m sure. It’s fascinating to me that just was organic analysis and then you’re working on it. See, there’s a great example of something making sense when you do product extensions.

Chris:

Absolutely.

John:

Who is your ideal target for TickerTags now? Is it the investment community that wants to or is it other people, individuals? What, I see you’re solving your own problem of having to analyze 15,000 tags a night, is that who you’re solving the problem for? The investment community?

Chris:

Yeah. I’m a self-directed investors. I built TickerTags for myself. So, self-investors, we certainty can benefit from using TickerTags. At the same time, we’re talking to large investment bank institutions, quant funds, hedge funds, professionals, anyone that, any investor of publicly traded securities and in the future private companies as well will have to live on TickerTags. I mean, you can’t ignore the social data that’s impacting these companies, so one thing that’s interesting about TickerTags is we’re building it as an open public free taxonomy and it’s crowd sourced, so anyone can contribute to the taxonomy. So, if you’re on our platform and you’re like, this is great, but you guys should really add this tag for this company. You can suggest tag additions and we’re curate them into the tag libraries, but it’s completely free for the world to use. The only thing we charge for are private tags.

So, we have a tag library for Disney and one of the things I’m trying to figure out this summer, because I’m a Disney investor, is theme park traffic up or down at Disneyland, Disney World, Epcot. So, I’m tracking those conversations around those words. Disneyland, Epcot, Disney World, but those are public tags.

Anybody can see that and anybody can monitor that through our platform for free, but there are some private tags that I thought of that are more intricate than public tags that I’ve added like Disneyland in association with the world crowd or line. That would be Disneyland + crowd would be the tag and that’s proprietary to me. I guess no more because I’m talking about it, but proprietary to me and anytime somebody tweets, “God, the lines are so long today at Disneyland.” Or “Wow, Disneyland is really crowded this morning.” We could see those conversations with those words are happening more often this summer than last summer or less often, right, which is a great social signal to help us try to figure out is Disneyland having a good summer, is it more, are they selling more tickets?

So, we charge for private tags, but the public taxonomy, which is huge, is completely free. The more people that use it, the more people that contribute to it, like Wikipedia, the smarter it gets and the better it is for everyone. The cool thing is we’re in beta all year. So, anyone that signs up for our beta actually gets private tags for free too this year. So, really, the whole thing is free this year.

John:

Wow. So, eventually that’s how you’re going to make your money, you’re going to monetize it through the private tags, is that what you’re..?

Chris:

Yeah. As you can imagine, the quant funds and the institutional users really want to develop these private libraries that are proprietary to their firm or their fund and they’ll think of their own things like Disneyland + Line, they’ll have lots of their own private tags and that’s how we’ll monetize the platform.

John:

Fantastic. Have you had to pitch this concept to get users or to pitch this concept to get investors? Where are you in that stage?

Chris:

Yeah, so I think one of the, we have, we’ve raised a million and a half in a seed round recently. We self-funded the company initially. We just raised a million and a half seed round.

John:

Congrats.

Chris:

Thank you. I had never done that before. Our last company was founder financed. We exited through a publicly traded company. It was interesting to have a real bootstrap company that we never had to deal with outside investors, but TickerTags, we’re trying to do this a big larger. We’re doing a very large A round right now that we’re in the middle of. My process for TickerTags has really been first establishing myself as a thought leader in this niche that we’re in. Social investment analysis.

This is my life, right, and I think that’s been a big part of my success in being able to raise capital. I did this for myself. I had a big track record in social arbitrage investing. I wrote a book about it. I speak about it regularly. Every few weeks I’m speaking at a conference. So, TickerTags for me was the natural extension of my thought leadership on the subject and what I thought the industry needed. So, there’s a huge degree of trust there and that’s helped a lot.

John:

I just need to pause for a second, because that is extremely valuable to the listeners. If you want to get a million and a half in the seed round, you must, must establish yourself as the thought leader of why you, why are you uniquely qualified to take this idea and run with it. That’s what the investors want to know more so than even the idea, because you might end up pivoting. They need to know why you and you’ve done an excellent job from your book and speaking and all those social media things that you do to really establish why you as a thought leader and, I love your insight on this, does that give the investors confidence when they’re looking at the barrier to entry to any potential competition that might come for TickerTags is, well, they don’t have you.

Chris:

Yeah, it absolutely does. I think, by the way, I’m an angel investor as well, so I kind of play both sides. I think most early stage investors will tell you, they’re investing in two things. They’re investing a concept that they believe in, but they’re also investing people they believe can execute on their vision, right, and that’s almost most important, because usually there will be competitors and you’re really investing in the team that can execute on the vision and also the team they believe will have the ability to continue to raise money as the company needs to raise funds because they will be the a-list time for whatever that niche is, whatever that product category is.

You know, we like to believe we are that team for this niche. You know, when we’re raising money for a large A round now, we’re going to our potential customers and/or partner companies. So, the larger Wall Street firms that are talking about patterning with us, the larger funds that are going to be our first clients.

They are also our investors. If you have a product that truly makes sense and I’m a huge fan, just a huge proponent of crowdfunding in general. I don’t know that we’ll crowd fund TickerTags necessarily, but we kind of are in a mini way by taking these institutional clients and partners of ours and they’re the ones that understand our story better than traditional VC firm, because they get the value, they see the value in it. Obviously, they should want to invest. I think that’s really important.

I truly believe that when you have a concept that truly makes sense and you have the right team and you’re executing, the investment piece flows so naturally, people will push you. You know, we’re having people inquire to invest in us daily, because the story resonates with them and they’ve taken meetings with us and they believe that we’re the right team to execute and then the investment, you don’t even have to ask for investment. I think the investment comes up naturally in those conversations.

John:

I use the analogy of landing an airplane. You know where you’re going to go and it’s natural as well. Now it’s time to land. It’s time, the fact that you’re able to get your new customers to also be your investors, that’s the most proof of concept that anybody could hope to get.

Chris:

I think it’s important and I think every entrepreneur should go into, should plan to raise money from their customers, whether they do or not is ultimately – because a VC could always step in or a big investor can step in and make things easier for them, but in the back in my head I always knew that worst case I would have thousands to tens of thousands of self-directed investors like me who would see the value in our platform and if I have to, I would just crowd fund this.

I will crowd fund it with people putting in $500 to $2000 and I’ll raise 2-3-4-5 million that way if I have to, because if you have a product that resonates, someone has to buy it, right, whether it’s a service, platform. Someone has to use it or buy it, so those people should be willing and fortunately, now the laws have changed the last couple of years. We’re not quite there, but we’re getting close to crowdfunding. It’s not as easy or as inexpensive as we like it to be, but certainty over the next few years crowdfunding is an actual option for entrepreneurs and is long as you can get a 1,000, 2, 3, 4,000 customers or theoretical supporters of your product or brand, go with them. Go to them.

Here’s the funny thing. You don’t have to raise 2-3 million from those people. If you can raise a decent amount of money from a couple thousands perspective customers or users, take that to an angel investor. Take that to an early stage angel investor. Take that to an early stage VC firm and go hey – because we’re always trying to figure out, well, is your product really going to resonate? I mean, are you going to be able to get traction? If you can show us that you have hundreds or thousands of customers who have invested $2-3-4-500 each in your platform that does the vetting for us as early stage investors. That’s what the real investors want to see.

John:

It’s the ultimate traction, isn’t it? It’s the ultimate proof of concept. I think the ideal tweet is, when you customers become your investors, you’ve got traction.

Chris:

That’s right, then you really have customers, you have more than customers, you have investors for your product and that’s what we want.

John:

Right, it’s like the people who first started falling in love with Starbucks, for example, and said, oh my God, I love Starbucks. I see a line. I go everyday, I’m going to buy the stock, right. They become the customers and investors on a much bigger scale. Let me ask you Chris since you’re also an angel investor, did you get asked any questions during your pitch for the seed round that you weren’t anticipating or that you thought, oh thank God, I have an answer prepared for that?

Chris:

You know, it was a fairly easy seed round, because all of my investors knew me and knew my track record, so it was fairly easier, but a lot of them, you know, a lot of them did ask barriers to entry competition. Listen, my investors send me articles every two days with another social, I just read this company in the journal. They’re a threat to us. You know, in most cases, those are our potential clients and I know the founders.

So, investors are constantly worried that there’s someone else out there that’s already doing what you’re telling me you want to do, whether we know them or not and they’re better and they’re bigger, they have more money behind them, they’re smarter. Whether they say it or not, that’s what they’re thinking, that’s what I think, right, when I’m investing, of like, I invested in a real estate startup and I started betting on the technology and there were like 600 real estate technology companies and startups. It’s just amazing how many startups there are today versus five, six, seven years ago. It’s so easy to start a company, right, that’s why execution is so important.

John:

Execution. Well, I love what you said, because that unspoken question that an investor has is key for founders to have in their head, so answer it during your pitch. If you only have ten slides in ten minutes, address that issue so that they don’t leave with that question or don’t feel comfortable asking you the question or certainty be prepared to address what the barrier to entry is a very key factor, because everyone is assuming in their head, well, TickerTags is going to be Uber versus Lyft, right?

Chris:

Yeah, exactly. Address your hurdles and I’d say, you know, transparency is key. When I have someone who is pitching me and they’re very upfront about the hurdles the company has and the competitors and they’re like, these are all of our competitors and I always tell someone if I find a competitor that you haven’t told me about that you don’t even know about, that’s a huge red flag for me, because it tells me that you truly are not the thought leader expert in your space.

You should know everyone in your space, right, you should know them backwards and forwards. Not necessarily to do what they’re doing, but you should be so intrenched in whatever your little vertical is that you’re building that you’re living and dying that vertical. I’m so intrenched in my world, if I find out about a conference that I haven’t been invited to be on a panel. I’m calling up, I’m like hey, you know, I’d love to be a panel. I’d love to be part of this.

I want to be on everyone’s radar that is touching the space that I am in and I want to know about everything. If there’s a new startup in my space, I want to know who they are, what they’re doing, and I pride myself on that and I expect that out of other entrepreneurs and I think as an entrepreneur today, you have to understand that most early stage investors were not bankers like it used to be 15-20 years ago.

John:

That’s great.

Chris:

We’re not like financiers. Most of us are entrepreneurs ourselves that have had one or more exits. Now we’re still entrepreneurs, but we’re also investing in other entrepreneurs. Why? Because it’s all we know and we love it and enjoy it and it’s just our world, but we have high expectations for what we expect out of others, because you know, we’ve done it and we’re probably still doing it in the case of me. I’m doing it all over again and I expect to do all the stuff I do.

John:

I mean, you’ve given us so may great takeaways. Most investors today are entrepreneurs, not bankers. We’re going to tweet that out. Be the expert in identifying all of your competitors and certainty be upfront in your pitch on all the hurdles you’re facing. Those are such great takeaways. One quick last question about do you anticipate being very different from the seed round to the series A that you’re going into? Are you preparing any differently? Do you anticipate more people who maybe don’t know you as well or more competition?

Chris:

Yes, totally different. Totally different. This will be my first A-round, so I’m still learning, but it is much different, it’s a larger A round, the vetting process is different. I’m only half way through it. So, I’m still learning, but certainty it’s still ultimately about those two things. It’s about proving that you have the right concept and proving that you have the right team to execute on your vision. I think those two things don’t change. A lot of the ancillary stuff, you know, the pain in the butt stuff.

A lot more paper work, a lot more people, a lot more conversations, but those don’t change and I would like to mention for TickerTags anyone can go on TickerTags.com and sign up for early beta access. If you mention the podcast, we do have a wait list, but if you mention the podcast, you know, we’ll get you in on one of our first, next couple of beta invites that we send out over the next couple of weeks and then also Laughing at Wall Street is a book that I wrote a few years ago that anyone, I don’t care what your background is, what your financial attitude is, you can become an amazing investor.

Laughing at Wall Street. I tell you the stories. It’s a book that’s very easy to read. I tell you the stories from the time I was 11-12-years-old and how I learned to identify trends on the street and how I was able to associate those trends with investable opportunities and I think it’s a bout that people will really enjoy no matter what place in life you’re at.

John:

Well, we’re definitely going to put the link to your book in the show notes and a link to TickerTags and thank you for your generous offer to let our listeners be investing for the beta. I know the listeners do as well. Is there any other book besides Laughing at Wall Street that you would recommend to startups – someone in the pitch world to read?

Chris:

Yeah, I mean, there are so many. I think rather than books, I would really just regularly read kind of blogs and just keep in tune with the startup finance space. You know, whether it’s reading VentureBeat. Just really understanding what type of companies are getting financed. Who’s financing them, you know, I just love Googling everything from how to pitch to how to answer certain types of questions, what to expect, deal terms. I mean, it’s changing all the time, right, so books get updated almost immediately. So, I Google everything. I’m constantly reading the most current blogs on every little subject to raising capital.

John:

So, how can our listeners follow you? Do they just go to TickerTags.com to be invited?

Chris:

Yeah. They can follow me @ChrisCamillo on Twitter or @TickerTags if they want to follow TickerTags, but either me Chris Camillo or TickerTags on Twitter is really the best way to follow us and I would say sign up for TickerTags. It’s open and it’s free, so just join the community.

John:

Fantastic. Chris, you’ve been a great guest. Thank you so much for joining us today.

Chris:

Thank you. Appreciate it.