Rick Zullo
@Rick_Zullo
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@equalventures @Threeflowtech @leap_retail @smarthop @thedavidenergy @stardayfoods @mvmnt_freight @ghst_io @odysseyenergys @vquiprentals @textureenergy
New York, NY
Joined June 2012
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1) “Moats” are a term thrown around a lot in startup circles
In reality, companies don’t build moats, they build "CAPABILITIES" that yield them
We’ve created a simplified, but exhaustive framework for capabilities that create company defining moats
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Noticed that McKinsey has a special talent in producing talent that will present themselves as the smartest folks in the room even when they have no clue what they are talking about.
What is the most ridiculous thing you’ve seen a McKinsey consultant say/do?
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In a room of seasoned energy executives with hundreds of years of experience deploying tens of billions of $ in successful projects, a MCK consultant 3 months out of bschool puts his feet up on the chair next to him and says “let me tell you the HBS school of thought on this”
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Retailer seeing margin compression from increased competition. MCK consultant recommends raising prices to increase margins. Client asks “but won’t that impact demand?” MCK consultant responds “right, you might want to hire a pricing consultant to take a look at that”
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First week at bschool, MCK consultant tells me that he does “strategy” and Deloitte (where I worked) didn’t
Me: So what did you do?
Him: Strategic cost realignment
Me: What’s that?
Him: Identify labor cost synergies and reorganizations
Me: You mean, fire people?
Him: Well, yeah
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@J0EDUB
100% disagree. Been in client service for 15 years (as a consultant and now as a VC), and u establish trust by saying “im here to listen, u are the expert of ur business, Im just here to help u accelerate that, by leveraging tools that ive seen be successful before. I work for u”
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There are 3 ways to get alpha in VC:
1) Invest in companies before it's consensus
2) Help non-consensus companies outperform
3) Have founders take your $ at a lower price
If you're not doing one (or all) of these, you're underestimating the competition.
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An investor told me that they just saw a 4x liquidation preference in a TS for the first time in years
Be forewarned, aggressive terms are the first sign of a crunch
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Back in 2015, I was leading my first investment as a VC.
It was a NYC based company in the HR space led by two non-technical founders who went to a state school, neither of which had ever worked at a startup (they came from finance).
When I tried to syndicate the deal with
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1) Next year of venture seems like it will likely look VERY different than that of the last 3-5 years.
Here’s what VC in a bear market could mean:
1) fundamentals matter
2) path toward profitability matters
3) preference matters
4) VC continuity matters
5) flight to quality
🧵
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30m pre-money valuations on pre-product, 1st time founders is a real thing.
This is NOT good for the VC OR the founder.
VCs doing these deals view your company as pure option value (price does not matter).
Do you really want your baby to be someone elses lottery ticket?
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Who is someone you know/respect that is super helpful to founders, yet under the radar? (Include twitter handles please)
Time to give some love
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1) As long as I’ve been an investor, VCs have leaned on revenue multiples to justify valuations
We’re now seeing these multiples are useless predictors of long-term value for a company
Learn why we are focused on future cashflow generation in our latest
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@roshanpateI
@BexelInitiative
“Why would I hire University of Richmond and Deloitte, when I could hire Princeton and McKinsey?”
- mid-level VC interviewing me back in 2011
Fwiw, he’s out of the industry and I’m keeping on 💪
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Me: "I invest in seed stage companies in Climate, Insurance, Supply Chain and Commerce Enablement"
My inbox:
- Series B Tequila company
- NFT for music pre-seed
- Ed tech Series A
- Pre-seed proptech
- Series A+ lending company
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1) As a seed stage VC, our job is to invest in companies before its obvious. This is how we develop conviction in the non-obvious. While each company is different, we look at 4 things: 1) “moat trajectory”, 2) proximity to PMF, 3) “why now?” and 4) team.🧵
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Can honestly say I’m more excited to invest right now than any time in the last 3 years
Less noise, more talent available, greater certainty that you are in bull market at maturity
Incredible companies will be built through this cycle and our doors are open
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1) Later this spring,
@EqualVentures
will turn 3. At this time, 3 years ago, I was nearly broke. Fundraising was next to possible, I hadnt taken a salary in close to a year and had a baby due. When
@kerby
and I went fundraising, we shared rooms in a hostel to cut costs. 🧵
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The fact that you can write off mortgage interest but not basic childcare expenses is just absurd
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1) A lot of founders ask me, “what metrics do I need for a seed round?”.
For better or worse, I don’t focus on metrics at seed and don’t know why others do.
I want to see the 1) “moat trajectory”, 2) proximity to PMF and 3) team. 🧵
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1) Very little of venture capital $s deployed is true venture capital
Majority of capital goes into:
1) Post-PMF growth investing
2) Consensus “doable” deals by high velocity investors
3) Financial arbs of proven legacy biz model with digital layer to capture multiple expansion
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Today, I’m happy to announce that
@EqualVentures
has raised $175m to “Bridge the Digital Divide”
While I’m proud of what we have accomplished, I couldn’t be more excited about our future
Thank you to all of our amazing founders, LPs and teammates!
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Introducing Sutton “the Button” Laine Zullo. She’s 7.5 lbs of pure inspiration and
@lauren_zullo
/ I couldn’t be happier to welcome her to the world.
To Sutton: While you may not always smile like you do in this picture, mom/I will always be there for you every step of the way.
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Yesterday we held a remembrance for my grandmother
In accordance with her wishes, there was no funeral, but rather a party to celebrate her 96 years of life
She left us a cheerful video thanking us for giving her so many great times over those years - even in her last moments,
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So this is the week that my daughter decides to take her first steps...
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I know which VCs are parents based on which ones like my tweets at 630 am
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Excited to announce the launch of
@EqualVentures
, a thesis-driven, seed-stage venture firm focused on bridging the digital divide.
See thread below for additional details on our mission and please reach out if you know talented founders who share our vision for a better world.
1/ We (
@kerby
and
@rick_zullo
) are excited to announce the official launch of
@EqualVentures
, a thesis driven, seed stage fund focused on bridging the digital divide
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LPs can get 11-13% in senior secured credit markets, that’s >3x return over a 10 year time horizon
You better be swinging for a helluva lot higher if you’re in venture and trying to raise in this market
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The disconnect between seed pricing and what VCs are pricing subsequent rounds will break so many companies
Founders need to be disciplined for long term success, but dont expect founders to show discipline if their VCs wont
Thrill of a high priced seed isnt worth the hangover
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Me on Twitter: I invest in retail, supply chain, insurance, care and climate. I don’t care about traction or other what other VCs think, but like to get to know founders in advance.
My DM Inbox: Were a Web3 startup with 100k ARR meeting w A16z and deciding on a TS next week
🤷🏼♂️
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The way a VC acts when a company is struggling tells you more about them than when the company is succeeding
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1) VC is the businesses of identifying founders who are outliers
Some folks think outliers are born, given gifts that others havent
In my experience, outliers arent born theyre made. They arent more gifted than others, theyre just more selfless, work harder and focus more.
🧵
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Yesterday was a special day
Amidst all the troubling things happening in the world, >250 emerging managers and LPs came together for the 2nd annual Emerging Manager Circle Summit.
Those who know me best know that this community means a lot to me. Starting
@EqualVentures
was one
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Venture is a LONG game
People obsess about whether the market is “founder friendly” or “VC friendly”
In reality, it’s far more productive if these are in balance, if it’s just “friendly”
When all sides respect each other and work together, incredible things can be accomplished
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Evaluating on “pitch” ability is an extreme form of bias, enabling VCs to justify institutionalized prejudice as “pattern recognition”
It’s wrong, plain and simple, and our industry won’t reach its potential until we get past “pitches” to focus on the person and their substance
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I will have a very long memory for the the way co-investors and down-stream investors act right now
These are 10+ year journeys, but NOW is when a VC shows their worth
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1) I’m excited to announce the 2nd Annual Emerging Manager Circle Summit in NYC on 10/25!
The EMC Summit is a free, off-the-record event for emerging VC managers and the LPs backing them
Learn more about the event and how to request an invite below!
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And we’re off!
First panel for the
@EqualVentures
“Emerging Manager Circle Summit”with
@kerby
interviewing
@aileenlee
@davidbeisel
@nihalmehta
@semil
about the lessons learned from the First 🌊 of Emerging Managers
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If A16Z/Sequioa/etc invested $1b into SVB (would be about 20% ownership), would that restore enough faith to sure up the company? Not a banking expert, but draws parallels for me to Buffet<>Goldman in GFC
If so, seems like an interesting investment and chance to instill
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When we started
@EqualVentures
in 2019, I only knew a few LPs and had never raised $
The process for raising our 1st fund nearly broke me
On Thursday, we’ll host >75 LPs representing >$100b AUM
Markets may be rough, but transparency and access to LPs is better than ever before
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VCs when they meet with a pre-product archetypal founder with a flashy background: “we don’t care about traction, it’s about Team and Thesis”
Same VC when meeting with a company with $2m in revenue growing 3x: “Can you send me your detailed pro-forma model, 7 reference and…”
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This happens to emerging fund managers a LOT
We had to pitch >400 LPs for fund 1
We pitched a LP 36 hours after my daughter was born, they were late and ghosted us
I was nearly broke, its what our family needed me to do
Emerging managers feel the stress of being a founder too
Founders are not the only ones in the startup ecosystem who get ghosted, signed commitments with no wire, over-promised intros that never come through, etc... emerging fund managers are right there with you.
All we can do it keep going. 🎢
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My grandma passed away today
She was 96 years young, living a life well lived
I visited her this past weekend and she could barely breathe but still talked up a storm
She showed no regret or fear, but rather pride and joy
She insisted we celebrate not mourn
Love you grandma
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If you are a LP interested in micro-managers (sub $20m funds), DM me. Have a lot of insanely qualified managers raising right now who are finishing up their raises.
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The biggest mistakes Ive made as a VC have been when Ive been too shortsighted, too impatient, too focused on gratification of fast markups
In reality this is a slow game w/ a big prize at the end of a long journey and the REAL prize is the journey itself
Go long, not just fast
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1) Over the last couple of months, our team has been working hard on a project that we are deeply passionate about
Next Thursday, we'll host the world's leading emerging managers and the LPs backing them for the first ever Emerging Manager Circle Summit
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OH in VC land
“We’ll pay 10x revenue for really high quality businesses growing >100% at scale ($20m+) with NDR >130% and really defensible market positions OR ignore numbers all together and pay $200m pre for Gen AI company that hasn’t launched a product yet”
🤷🏼♂️
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@markpilip
@tomfgoodwin
Not the first time I’ve seen that. There is an administrator at my business school from MCK and they would repeatedly dismiss someone’s ideas, berate them and push them out of the organization, only to push the same idea once they were gone and claim it as their own.
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Who are the best pre-seed and angel climate tech investors I should be sharing deals with?
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1) We’re in an age where tech valuations are detached from reason. Full stop. Great investment opportunities exist, but tech co valuations are now driven by overly simplified multiples/comps rather than a more holistic understanding of longterm FCF (the backbone of valuation).🧵
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Seeing a lot of SF people blaming Westfield closure on the “death of malls”, but this just isn’t true
Brick and mortar retail sales were up 7% in 2022 and there were 7.9k new store openings compared to 1.7k closures
The failure of that mall is a SF issue, not a retail issue
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@justingordon212
Our exhaustive list of moats (or what we call “sustainable and scalable competitive advantages”) at
@EqualVentures
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PSA for founders: Asking a VC to sign a NDA before your 1st meeting is a red flag. Unless you have really hardcore IP, its unnecessary and signals that you are either 1) super litigious, 2) don't trust VCs or 3) are afraid others are going to beat you. We back people, not ideas.
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The BEST founders are relentless about personal growth
They welcome critical feedback and the coaching / learning opportunities to address gaps and accentuate strengths
Where others hear “imperfect”, they hear “opportunity”
It’s not about who you are, its about who you will be
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One of the biggest mistakes I see VCs make is overestimating the quality of their dealflow
Even (and likely, especially) the best deals are seen by a LOT of VCs
At end of the day, the only ways to win are:
1) Pay higher price
2) Have POV that enables you to make a non-consensus
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“Because VCs usually don’t publicize their successes, they are not driven by a need for esteem or recognition” - Andy Grove re: Maslow’s Hierarchy of Needs
Oh how the world has changed since 1983...
🤣🤣🤣
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Investors obsessing over GROSS margin is misguided
It’s about long-term OPERATING margin, that’s how you generate FCF
80% GMs don’t matter if u have to spend 85% of revenue on S&M, CS and R&D to retain customers
Op margins are what matter and that only happens with a moat
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Much of venture invested in the last 2-3 years was on the belief that 10b+ outcomes are bountiful…they’re not
3 things matter a whole lot more in this world:
1) price discipline
2) portfolio construction
3) knowing when to sell
These skills are underrated, but timeless talents
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Being a “lead VC” is now writing $250k of a $2m round at a $30m cap
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Completely disagree.
Associates are the outbound engine for a lot of really successful venture / growth equity firms. Never underestimate the value of a young hustler trying to make their name. The best of that crew will be the partners of tomorrow.
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Staring down the barrel of a big day after just a few hours of sleep
My 2 year old daughter says: Daddy, I have a secret
Me: Come tell me!
My daughter whispers to me: Did you know that I love you so much?
Me: Yes honey, I love you so much too 🥲
All the motivation you need
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This week, >200 of the VC industry’s most exciting emerging managers and institutional LPs with gather for our 2nd annual Emerging Manager Circle Summit.
Amidst everything else happening in the world, I’m reluctant to talk about anything work related, but this group has helped
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Excited to announce
@AliKAfridi
's promotion to Principal at
@EqualVentures
Ali has been an incredible resource to our firm and its founders, so please join us in congratulating him on taking the next step in his investment career!
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There is no upside to a polite pass to a cold inbound email
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Every multi-stage VC tells me they want to go earlier (see data below)
Ripping countless checks at insane valuations in 2021 then being dormant in 2023 is the opposite of what VCs should be doing
Herd mentality destroys returns, independent conviction is what makes them
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1) The challenge of raising money at too high of a valuation (especially when amount isn’t material
@to
that investor) isn’t that you might have to take a down round, it’s that you are a ZERO
Very few investors willing to come in on down round structures right now
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@anothercohen
When I grew up, places like Sizzler and Pizza Hut were luxuries...where we hosted birthday dinners. We couldn't afford anything better.
This myopic elitism just needs to stop. Tech would be far better if it had more empathy and understanding for the way that the other 99% live.
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Had an amazing time with
@HarryStebbings
and
@jasonlk
on the latest episode of
@twentyminutevc
This conversation sparked some thoughts for me about the pivotal moment we are in the venture landscape - what I’m calling the “Jerry Maguire” moment of VC
5 years ago when I was
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1) Today, we’re excited to announce
@EqualVentures
3rd Annual Emerging Manager Circle Summit in NYC on 10/17
Learn more about this year’s lineup and how to apply to join us below! 🧵
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Anyone who knows me well, knows how excited I’ve been for this chat
@fredwilson
is of the best VCs of all time (would never admit it), but I respect the institution he’s built with
@usv
as much as his deals
Their passion for investing, empathy and partnership is second to none
aaaaand we’re going out with a bang! 💥
excited to finish up our summit with a fireside chat with
@fredwilson
&
@Rick_Zullo
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There are VERY few companies capable of generating >$10b outcomes
Contrary to popular belief most of them are not SaaS companies
More often, they’re SYSTEM companies
System companies are messy (in early days and harder to underwrite, but that’s where the returns will be
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What a VC says: We invest in outliers. We develop independent conviction because being contrarian is the only way to deliver alpha.
What a VC does: Slow plays your company’s fundraise for 4 weeks and then sprints after it the second you have a TS from a top tier firm.
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Two things are clear about todays VC firm dynamics amidst a pullback in LP commitments:
1) Mega firms got too big to support the growth of their emerging partners. Too many people to let the super stars shine and they’re getting frustrated with the bureaucracy of huge
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1) The VC FoF business is seeing a LOT of validation right now. Several seed funds holding positions that drive returns for >20x funds. Concentration of those funds among a few select FoFs is high, generating really high net returns.
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The people that I’ve worked with at
@SVB_Financial
have been hands down some of the most amazing I’ve ever worked with
No matter what, ill cherish those relationships
They’ve been an invaluable partners to so many incredible companies and im hopeful one of the bigger banks is
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One of our founders described their business as a layer cake
Layering on each component to unlock compounding advantages
This is the way most startups work, its not a magic overnight success, its years of hard work building “layers”
Be patient, do the work, build the layers
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On Dec 7 2007, I met my soulmate
We were just 2 crazy kids meeting at a fundraiser in DC
16 years later, we have 2 crazy kids of our own and a life that is more than I could have ever wished for
It’s been a wild ride
@lauren_zullo
and I can’t wait for the journey ahead 😘
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One of the very first investments I ever made was in two guys from U of Florida who worked their way from Wall Street to running a tech-enabled recruiting company
When I did that deal, a senior GP told me “these guys aren’t founders, you don’t know what youre doing”
2 years
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1) We’re proud to announce our investment in
@mvmnt_freight
, a platform to democratize access to software for freight shippers and brokers, and to congratulate them on their $20m Series A with
@a16z
🐥☔️👇
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I grew up with a really bad stutter.
Took me years to work through and made me very much an outcast.
I often joke that I talk so much today, because I couldn’t when I was younger.
This is how a true leader acts.
Bless you
@JoeBiden
.
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1) Despite ample evidence suggesting emerging managers outperform, LP allocations to EMs remain extremely limited
Much of this is structural and needs to be fixed
This transition of LP $ represents one of the biggest opportunities in the market today
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As a startup, the margin for error between greatness and failure is very small
1 key hire
1 deal won
1 PR piece
1 term sheet
All these can make the difference between life and death
Optimize for partners that can increase ur likelihood of success, not just dilution/valuation
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1) With together times ahead, we think obsession over chasing BIG TAMs may be a BIG mistake in 2023
Learn why “niche” markets can lead to BIG businesses and why we think “niche” is the next BIG thing for the year ahead
🧵
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1) I think a lot of emerging managers feel social pressure to raise funds larger than what best suits them. Friends encourage us/them to raise more, because you can, noting others who have raised large funds. Just because you can, doesn’t mean you should.
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1) The longer I’m in VC the more I’m convinced there is NOT a “one size fits all” approach to working with founders
Every company needs something different. As a VC, you have different tools to “add value” but need to discern which/how to use
The relationship NEEDS to bespoke🧵
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Used to be that NYC was pretty dormant during the summer but seems like EVERYONE is in this city right now
Literally have run into founders/VCs on the street every day this week and across multiple different neighborhoods (chelsea, Tribeca. Union Square, downtown Brooklyn,
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1) Today, we’re excited to announce Ghost, the leading marketplace for inventory led by
@deemurthy
and
@Josh__Kaplan
Today marks a major milestone for the company as we come out of stealth, announce our seed / Series A and welcome
@USV
to the ghost family
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Honestly don’t know how these start up / VC folks have the time and energy for the social lives they post about
Im sprinting as hard as I can during the week and generally go to sleep by 930pm on the weekend 🤣
Every moment wasted is an opportunity lost
Leave it on the field
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People ask me a lot about why I spend so much time on community driven activities like the “Emerging Manager Circle” () and put so much effort in helping other VCs connect with LPs (even if those firms might eventually compete with us).
I chose VC on the
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On one of my very first boards, it was the most senior board member who told the founders “if you don’t fire 80% of your employees right now, you will not survive” (they were months away from bankruptcy).
This was a hard conversation, most board members (in todays market) would
A lot of discussion amongst VCs on aversion to delivering critical feedback or bad news to founders
No one WANTS to be the bearer of bad news but founders NEED this information (problems dont go away by ignoring them)
The best service you can do is to embrace the NECESSARY>NICE
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Incredibly excited to expand our firm with the addition of a few Associates
Unlike Product Owners (who are vertical specialists), Associates will be generalist across all our sectors
If you want to be part of bridging the digital divide, come join us!
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