16 December 2021

In today’s episode, Trey Lockerbie explores some interesting topics around fintech, entrepreneurship, and the pitfalls of crowdfunding with Ryan Caldbeck. Ryan is the founder and Chairman of CircleUp, a platform that set out to democratize investing, but ultimately pivoted away to a different model. They discuss why. Ryan is an experienced investor and operator, who has surrounded himself with a large network of great investors. So without further ado, please enjoy this discussion with the very thoughtful, Ryan Caldbeck.

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  • Leadership techniques Ryan learned from Coach K, the famous basketball coach at Duke University, while he was on the basketball team.
  • The traditional path and alluring appeal of becoming an institutional investor, but also what it lacks.
  • The hidden misalignments of incentives in the crowdfunding space.
  • How investors can protect themselves while considering crowdfunding deals.
  • Insights into building your own board, team, and cap table.
  • The future of fintech and web3.
  • And a whole lot more.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Trey Lockerbie (00:02):
On today’s episode, we are exploring some very interesting topics around fintech, entrepreneurship, and the pitfalls of crowdfunding, with Ryan Caldbeck. Ryan is the founder and chairman of CircleUp, a platform that set out to democratize investing, but ultimately pivoted away to a different model, and we discuss why. We also to discuss leadership techniques Ryan learned from Coach K, the famous basketball coach at Duke University, while he was on the basketball team, the traditional path and alluring appeal of becoming an institutional investor, but also what it can sometimes lack, the hidden misalignments of incentives in the crowdfunding space, how investors can protect themselves while considering crowdfunding deals, insights into building your own board, team, and cap table, the future of fintech and web3, and a whole lot more.

Trey Lockerbie (00:48):
Ryan is an experienced investor and operator who has surrounded himself with a large network of other great investors. So there’s a wealth of knowledge here. So without further ado, please enjoy this discussion with the very thoughtful, Ryan Caldbeck.

Intro (01:00):
You are listening to The Investor’s Podcast Network, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Trey Lockerbie (01:25):
Welcome to The Investor’s Podcast Network. I’m your host, Trey Lockerbie. And today, I’m super excited to have with me Ryan Caldbeck on the show. Ryan, welcome. Thanks for coming on.

Ryan Caldbeck (01:35):
Thanks for having me.

Trey Lockerbie (01:36):
I am very excited about our discussion today, which is going to involve a lot of talk around, not only your background and how you funded CircleUp but crowdfunding in general and where this is all going. That’s such an interesting space, and you have such a great background. So I wanted to start there and learn a little bit about how you got your start, what led you to founding CircleUp, and how you got to where you are today?

Ryan Caldbeck (02:03):
I am from Vermont originally. I grew up there, went to college down at Duke. Out of college, went into consulting at BCG, and then business school at Stanford. And in business school, it’s a great opportunity to explore what you want to do, and I did not do that in business school. I went into business school with a mission, which was to get into growth equity, and that’s exactly what I did. And there’s a lot of incentives to do that, whether it’s financial or you’ve got a lot of encouragement from the career center and whatnot. So I went into growth equity in 2005. And there were parts of it I really liked, frankly.

Ryan Caldbeck (02:39):
I did that for six years or so, six, almost seven years. I liked who I worked with, I loved the team, the pay was phenomenal. Frankly, the hours were incredible, but I just didn’t feel like I was building what I wanted to build. I didn’t think I was doing what I wanted to do. After the best days as a growth equity investor, whether that was like a huge bonus at the end of the year or a closed deal or whatever, I never felt pride, I never felt like I wanted to talk to my family or friends about what I was doing. I’d always change the subject. And after a lot of soul searching with my then-girlfriend, now wife, I wanted to try and build something, build something that’ll help others, and that’s what led me to start CircleUp.

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Trey Lockerbie (03:20):
Real quick about growth equity. There’s a distinction here because you’ve got your venture capital, your growth equity, your private equity. You specifically chose growth instead of venture or even private equity at first. What led you to that? Is it just a certain market cap? Check sizes you’re writing? Is it a certain appeal for the industry? What was the appeal of that space in particular?

Ryan Caldbeck (03:43):
I think it’d be disingenuous for me to say I had some grand understanding of that world, frankly. Had I, I probably would’ve gone for the venture. I think, first of all, the terms have changed over time and that landscape’s evolved quite a bit. But when I was doing it, private equity, a lot of leverage, much, much larger deals. The venture was almost at the time exclusively technology, certainly no leverage, typically, companies that lost money, much more speculative than the growth equity deals. And again, those definitions have changed over time. For me, it was those were the best firms I got offers at, that’s it. There was not any other grand vision beyond that. I wish that I had taken the time to do that.

Trey Lockerbie (04:27):
It’s funny we’re coming at this in opposite ways. I was an operator and have been, and still am, with aspirations to do more and more just investing down the road. You started as an investor and then became an operator. I’m curious if there’s an interesting point here about fulfillment because I’ve heard writing checks and that side at the table if you will, can be not that fulfilling because you’re not the operator and you’re not getting that experience. Is that what you were craving at the time or was it about the actual product itself you wanted to see in the market or a certain problem you were trying to solve? What led you to the circle of landing on that idea in particular?

Ryan Caldbeck (05:06):
Some of the realizations that I’ll talk about now were clarified overtime after leaving growth equity and becoming a founder and CEO. Some of them I knew at the time, and some of them I knew, frankly, even before. I guess it was probably when I was late high school, early college from, as I mentioned, Vermont, originally. And JetBlue, the airline moved into Burlington. And I remember reading an article in the newspaper talking about that and state, and certainly the area that I lived in was incredibly excited that JetBlue was going to offer one-way flights to New York City for 50 bucks or so, 25, 50 bucks. And it opened up this whole new world to the people that lived thereof, “Wow, you can just go there. It doesn’t take seven hours to drive through the snow. You can just fly there, have a night and fly back.”

Ryan Caldbeck (05:54):
And I remember thinking like, “What an amazing feeling must be to create something like this, JetBlue, that creates so much joy for other people. And for many years, I thought, “I don’t care if it’s a cardboard box company or a zipper company or whatever, I just want to build something that helps others.” And then you go to college and then you talk with a career center, and then you get into a great place like BCG, and then the people at BCG encourage you to go to business school, and business school encourages to go to a hedge fund or a private equity. And you let yourself get put on a hamster wheel. And that was my fault.

Ryan Caldbeck (06:29):
I remember in college, I talked with the head basketball coach at Duke; I was a walk-on at Duke, so Coach K, who’s retiring this year, about offers that I had coming out of college, an offer at McKinsey, Bain, and BCG. And I went to meet with him and he said, “Well, what are you passionate about?” In the moment, I remember where I was sitting when he said this, and I was like, “Ugh,” I didn’t roll my eyes in front of him, but in my head, I rolled my eyes, thinking like, “Coach, you’re lucky that you get to work on what you’re passionate about. I have to put food on the table. I need to get a job and I think it should be a good job, so we’ve got to pick here the options.”

Ryan Caldbeck (07:04):
And it probably took me more than a decade to understand what I think he was saying, which is, “You’re talented enough,” and I think this is true for a vast majority of people, “Find something that gives you passion, that you want to think about on a Saturday night or in the shower in the morning, that you just obsess over.” And that was not private equity for me. It was not consulting for me. I’m not sure that Coach K is uber passionate about basketball, I think he’s passionate about building teams and creating something that’s bigger than himself and bigger than the players only. And I missed that concept of finding the root passion for me.

Ryan Caldbeck (07:42):
Had I taken the time to take a few steps, I would’ve understood. At the time, I was passionate about basketball, but had I really thought about it, I wasn’t really passionate about basketball, it was like, how cool is it when you can come together with other people to try and accomplish a goal, to climb a mountain together? I loved when I had leadership roles on different teams, I loved talking to teams, I loved being a leader. Those are things that are not skills that are really utilized in growth equity, to be frank. You don’t really have much of a team and you’re not really looked upon to stand in front and rally the team to climate mountain in the same way.

Ryan Caldbeck (08:16):
And so it took me a long time, and frankly, it took me being successful as a growth equity investor to realize that I didn’t like it. Had I failed, I think I would have continuously tried to push, like, “Okay, I just got to get better at this, then I’ll like it.” And a problem was, in my last couple of years, it went very well, and I still was unhappy. And I had some phenomenal years that I left each conversation or closed deal thinking like, “Meh, I don’t really care.” It’s true. I loved the CEOs that I worked with, I loved my team, but in terms of the accomplishments, I didn’t feel much satisfaction, much intrinsic satisfaction from that.

Trey Lockerbie (08:59):
Well, that Coach K piece is incredibly interesting. It didn’t come up in my research, but now I’m filled with questions around that and what you learned from him, not only finding what you’re passionate about, but oftentimes when you go off and you’ve found your own company and become the leader, not everyone is equipped or even aware that they need to graduate into being a leader of a company. Oftentimes, when you’re founding something, it’s just you, and that’s all you’re worried about, is getting this product out. But as you grow and scale a team, that becomes more and more important. So I’m wondering, were you a natural-born leader or were there tips and tricks you learned under Coach K that even applied to your business later on?

Ryan Caldbeck (09:40):
I think it’d be probably arrogant or what not to say I was a natural-born leader. I can say that I was always interested in it and drawn to it, whether or not I was good at it, or I’m good at it today, it’s a different question. But like I remember being grade school teachers asking me to lead different things that seemed very unique and out of the ordinary, and in hindsight, I think complimentary and were awesome opportunities, or captains of different teams or being just asked to step up in different ways. I loved it, I still do. I love that opportunity. And I also learned a lot from Coach K.

Ryan Caldbeck (10:18):
To be frank, I don’t usually like the analogies of sports and business. Sometimes they work, like the concept of an organization being more like a professional sports team than a family, I think makes a lot of sense. But a lot of the tactics that coaches use in sports teams cannot be used in a business setting. You can’t scream at your team, you can’t swear repeatedly at your team. You can have an engineer who can quit and can get a job at Google the next day. That’s a different sort of interaction and relationship than exists, at least when I was playing college basketball, where if you transfer, you have to sit out a year.

Ryan Caldbeck (10:55):
There’s some things that don’t transfer over to business and there’s a lot that does, particularly around helping to understand motivations, to help people and help recruit people and help people buy in on a common mission to be a part of something bigger than themselves. I was at dinner with some C-level executives from JP Morgan right before COVID, and we talked a lot about, with some other fintech executives, the concept of what leads great talent to go to a startup. And one of the things I talked about was like intrinsic benefits, meaning the opportunity to grow, the opportunity to help build something, the opportunity to have a seat at the table, the opportunity to feel like you’re in the game.

Ryan Caldbeck (11:35):
Coach K was amazing at doing that. I was a manager my first year, which means I swept the floor, made Gatorade, and I was a walk-on my last three years. And you feel like what you’re doing, and this is going to sound like a joke, and I really don’t mean it to be, he makes you feel, when you’re the one holding the marker, to hand to him in a huddle, I will tell you, you feel like the most important person in the world. And if you screw up taking off that cap of the marker, and this is not a joke, you think about it for days. Or sweeping the floor or the Gatorade you’re making, he just has an uncanny ability to make you feel like your job is important. And I think that that lesson is something that I try to do with the team when I was CEO.

Ryan Caldbeck (12:16):
Another one is just the importance of clear communication and getting everyone on the same page. He did that in an extraordinarily effective way, making sure that everyone was rowing in the same direction, communicating with urgency and directness, and looking each other in the eye and having hard conversations, and being willing to hold each other accountable. Those were all things that, and many, many more things, that he taught me that I’ve tried to build on as a leader. Now, I’m not trying to compare myself to Coach K at all, but certainly, he gave me nor a North Star to strive for.

Trey Lockerbie (12:49):
Well, sure. Not everyone gets that kind of mentorship, especially from someone like him, even directly or indirectly, as you mentioned. Going back to CircleUp, which is the company you founded after coming out of the growth equity space, was there an opportunity there that you… I guess better asked is, what was the opportunity that you saw that you said, “I’m going to leave this growth equity industry and go in on this, solve this problem?”

Ryan Caldbeck (13:15):
Well, the first and most important opportunity is, I wanted to build something that had an impact on other people. And so if it wasn’t going to be CircleUp, it was going to be something else. Going through an exercise with my then-girlfriend, now, wife, Kim. She helped me over the series of several weeks on Saturdays draw out, what did I care about? What did I love? What did I feel passionate about? What did I not like? And we created these huge posted boards that we’d write on each Saturday for a couple of hours. And some of them would be silly things, I like Buffalo wings. Some of them would be very important things, I loved to help someone else grow, I loved it. In basketball, I always, this sounds probable like maybe it’s altruistic or whatever, I don’t mean it to be, it’s very selfish.

Ryan Caldbeck (13:59):
I like to pass to a basket more so than I like to score myself. I get goosebumps when there’s like a backdoor cut or whatever. And I feel the same way about being a CEO. When I can help someone else be successful on my team or outside the team, like a customer or a teammate, I just love that. And so it was that exercise that helped me realize like, “Okay, I don’t think this is investing for me, I think it’s building an operating company.” And then in terms of like the business opportunity… A quick background about CircleUp started as a marketplace that helped connect investors with consumer companies, consumer meaning food, beverage, personal care, pet products, things like that.

Ryan Caldbeck (14:36):
That’s an industry that’s about three times the size of tech, has terrific returns on par with tech, but with about half the volatility of tech. And yet there’s about one-50th, one-75th, the amount of early-stage funding for those companies, at least there was at the time. And I started CircleUp with the thesis that, all the returns are great, the problem in this industry is that the cost to find the companies is just way too high. There’s no Silicon Valley for these consumer companies, the companies are just as likely to be in Portland, Oregon, Austin, Texas as they are LA or New York.

Ryan Caldbeck (15:10):
On top of that, there’s no infrastructure like Y Combinator or TechCrunch to help investors and companies connect more efficiently. And so Rory and I had a thesis that you could use a marketplace model to help these companies connect, and over time, add value to them in a variety of different ways. So that was the original idea behind CircleUp,

Trey Lockerbie (15:28):
Great idea in concept. Fantastic idea. I heard about it for the first time, I said, “Oh my gosh, hallelujah, someone is democratizing this and getting people involved in these companies who need funding and making that connection.” So what went wrong? How did that not prove out? Because ultimately, CircleUp pivoted to other things. So maybe talk to us a little bit about why that was.

Ryan Caldbeck (15:51):
We pivoted after about five and a half years or so, about five years, to another model, which I’ll talk about in a second. I think it depends, in some ways, CircleUp did really, really well with that model. We attracted some phenomenal investors. Union Square Ventures was our lead investor, along with Google Ventures, Caanan Partners, Rose Park, which is Clayton Christensen’s fund, did really, really well. The vanity metrics, things like GMV were fantastic. The problem and I went to the board about this in advance of recommending that we were going to pivot or that we pivot, was that it didn’t seem like we were building a good business.

Ryan Caldbeck (16:32):
Vanity metrics are great. We are going to keep raising money as a technology startup because sometimes there are investors who later rounds like those vanity metrics. I just thought we were selling dollars for $0.40, $0.50. Why? I think the biggest reason, and I have put out some content about this on Twitter. I think the biggest reason that model didn’t work is that the financial feedback loop took years. Meaning if you were an investor and you came on a CircleUp and you invested, it would be five, six, seven years before you got your money back. We had investors that put money into Beyond Meat early, and there’s one investor that put 250,000 in and took out about 31 million, and that’s a phenomenal return.

Ryan Caldbeck (17:17):
And it took five years. Along the way, you can give them updates on how the business is doing, but fundamentally, if you’re not able to take your cash out, there’s a lot of investors who are going to be hesitant to put more money in. I think that feedback loop was brutal and made it really difficult to encourage at least the investor side of the market.

Trey Lockerbie (17:39):
For follow-on investment ultimately?

Ryan Caldbeck (17:42):
For follow on investment. Yeah. And if you’re just acquiring new customers, which would be the investor side of the marketplace, each time, there’s not much of a network effect there, and you’re selling deals then to a new investor base each time. And that’s a hard way to build a business. Uber and Airbnb and others work because both sides of the marketplace tend to be repeat customers, there’s a frequency of transactions. You know if you like your Airbnb immediately if you like your Uber ride immediately, and you can give feedback on that and both sides can respond to that feedback.

Ryan Caldbeck (18:17):
So I think that that’s probably the number one reason. There are a number of other reasons as well, but the number one reason why I think that that model did not work is that one.

Trey Lockerbie (18:26):
So that explains it from a business point of view, but from the actual investors using the platform and the businesses, was there a fundamental flaw there as well? Or was it just strictly on the business side?

Ryan Caldbeck (18:38):
Look, I’m biased, so let’s caveat everything I’m going to say that I am biased. I think the equity marketplace, or in some cases, crowdfunding, I always bristle at that term, but other people use it, model I think works in some industries, and it really does not work in others. In the technology world, there’s a lot of sources for capital, for technology companies, a lot. And in the consumer space, at least for companies with less than 10 million in revenue, when we started CircleUp, there were not. And so I think that there was an adverse selection that exists in these types of marketplaces that work with technology companies that I didn’t think existed for our consumer companies, but of course, I’m biased.

Ryan Caldbeck (19:18):
At the time when we started CircleUp, and for the first several years, if you Googled early-stage consumer product funds, you wouldn’t find five in the United States. If you did the same thing for technology, you’d find 750. That’s an example. So I think the adverse selection is meaningful for some industries on the entrepreneur side. I think the cost of working with a wide variety of investors is pretty meaningful, particularly those that are less sophisticated. And you see that on some of the platforms today, you’ve got a lot of dentists and doctors who invest and don’t understand really what they’re investing to. That leads to real issues.

Ryan Caldbeck (19:49):
And on the investor side, beyond the adverse selection, I think the concept of getting transparency into the deal, the valuation of how the deal’s performing on an ongoing basis, etc, I don’t like what I see out there. What I see is a lot of pseudo-celebrity angel investors that raise syndicates or whatnot, and it scares me. It really scares me. Some of them I’ve talked to privately and they talk about like, they put their worst deals in those “syndicates,” and I don’t know why that’s a good thing

Trey Lockerbie (20:25):
That point, in particular, resonates with me because when I’ve been on these platforms, the valuations I’ve seen have been astronomical, even in businesses and industries that I’m very knowledgeable on what I would say. I look at these valuations and it seems just like abuse or something of that lack of transparency in some ways. Does that need more regulation? Is there a loophole people are getting away with here? What is causing this lack of transparency or lack of standardization, I think, when it comes to things like a valuation?

Ryan Caldbeck (20:57):
That could probably be a four-hour podcast on its own, to be frank. I think that a lot of the regulation in private investment has hurt investors, frankly. I think accredited investors, people with more than a million dollars in net worth excluding their home, make $200,000 a year as in individual, $300,000 a year as a couple, those are investors that have access to be able to invest in private deals, whether those are VC funds, hedge funds or individual deals. And that allows them to be wealthier, the rich get richer, and underground investors don’t. I think that that’s fair

Ryan Caldbeck (21:29):
. And I think the lack of information standardization is a really bad thing. We were, I think the only, or maybe one of two platforms that got registered by FINRA. We were a registered broker-dealer because we were trying to do it the right way. The problem with that is that then the things we could communicate about these companies, it was much more restrictive. And so information that I would’ve wanted as an investor, I couldn’t tell our investors because FINRA prevented that. It’s a shame, but I think that that’s part of the inefficiency in that industry right now.

Ryan Caldbeck (22:02):
So do I think that there’s more transparency and standardization needed? Probably. It’s also hard for me to completely sign up for more regulation. I think the regulation needs to be different, frankly. I think FINRA needs a dramatic overhaul. And what’s funny is, people from FINRA would tell you that, people from FINRA would come in, do their annual audit of us as they do for all broker-dealers, and privately tell us, “This needs to change,” meaning FINRA needs to change. But like some other organizations, it’s just really, really slow-moving.

Trey Lockerbie (22:33):
See, what I like about this conversation is, I can tell you have a passion for these unaccredited investors. And having been one myself, I have the same passion and this is a platform to help equalize the playing field. And crowdfunding has become more and more prominent over the last few years. There’s a number of companies doing it, as you alluded to. As new investors who are listening to our show right now are considering investing using one of these platforms, what would be your best advice for trying to get your arms around the information as much as possible on a deal to make sure you’re protecting yourself from some of the things we just talked about?

Ryan Caldbeck (23:11):
Well, I’m really hesitant to give any investment advice. You should be talking to people that understand your finances, whoever the listener is, your financial situation, and understand the investing world. I think some pretty safe pieces of feedback are, one, you have to diversify a lot. If you want to allocate, let’s say 3% of your investible net worth into private deals, that 3% should then be split up into 10 or 15 different companies. It should not be into two companies, that’s just gambling. I don’t care how good of an investor you are. The mistake people make is, “I know what I want to do. I’ll put $100,000 into a private company and I’ll just see for a couple of years.”

Ryan Caldbeck (23:55):
That’s a way to lose a lot of money. Take $100,000 and then invest it into 10 companies, 12 companies, and do better over the course of two years, don’t do it in a month. So I think diversification is absolutely critical. Then I would develop a framework on your own. There’s a lot of blogs about private investing, Bill Gurley and Andreessen Horowitz, Fred Wilson at USV, which is abc.com, Sara Tavel at Benchmark or others do a lot of reading about different frameworks and how to evaluate the types of companies you’re interested in. If you’re looking at a marketplace, Jeff Jordan at Andreessen, Sarah at Benchmark, etc, to create frameworks on how to break down these businesses, to understand them, and then make sure you get the right information to evaluate the company.

Ryan Caldbeck (24:38):
A lot of these platforms, it’s super high-level information and they’ll talk with the founder, and to me, that’s a recipe to lose a lot of money. It is, especially through these investing groups where I’m going to invest behind John Smith, John Smith may or may not have access to the data. By the way, he’s going to get paid whether or not the deal makes money, that’s a scary place to be.

Trey Lockerbie (25:00):
Talk to us a little bit more about that. What you’re describing sounds a lot like what you find on something like AngelList, perhaps you’re following someone well known and they set up an SVP or some fund and you’re leaning on them to find you the deals. Is that what you’re referring to there as far as-

Ryan Caldbeck (25:16):
I really respect founders who are trying to build something, the CEOs who are trying to build something, particularly in the private markets. So I don’t want to talk about any specific platform, but in general, I think you need to make sure that your incentives are aligned with the people you’re investing behind. If that is a fund manager or a syndicate lead or whatever it is, do you win when they win? Do they lose when you lose? That’s not true for all of these platforms. And I would just dig in hard onto those incentive structures, because no matter who this investor is if they win when you lose, you can be sure that you’re not going to be getting their best deal flow.

Trey Lockerbie (25:52):
And that’s just because they’re getting some type of advisory shares just for finding the deal potentially?

Ryan Caldbeck (25:56):
They might be. Yeah, they might be. I just think it’s something important to dig into. I think it’s possible to make good investments on these platforms. I think it just requires a lot level of sophistication and work that not all investors are willing to put in. And especially, when it comes to like a technology name that seems to be hot, and that’s a really quick way to lose a lot of money.

Trey Lockerbie (26:21):
Having started your own company, what have been some of the biggest learnings or biggest surprises from founding it, fundraising, it, nurturing it? What are just some of the biggest takeaways, now that you’ve had some time to reflect on being the CEO of your own company, what are your biggest takeaways from that?

Ryan Caldbeck (26:38):
There’s a number of things that I will do differently when I am CEO again. The first thing you mentioned was funding or fundraising. I in general was incredibly fortunate with the investors that we raised money from. Some of the best investors in the world, I mentioned some of them, also TPG, Temasek, a number of others. So by and large, I felt really fortunate, really lucky. And we had one or two difficult experiences too. And I think what I learned from both those is that the importance of aligning on mission and vision is not just motherhood and apple pie. Companies, particularly startups, they change direction, they have to change direction.

Ryan Caldbeck (27:17):
And if you’ve got an investor that is just dialed into, let’s say the financial forecast that you put, are just dialed into the particular product that you’re building right now or whatever it is, and doesn’t really care or isn’t aligned with the mission or vision, then when it comes time to tweak it, to tweak the product, do something different, they might be consistent with the mission or vision, but is not consistent with, let’s say the product that that person invests into, it creates a lot of pain. So getting aligned and upfront on, does this person care about the mission, vision? Why do they care? What does this mean for them? If we have to pivot the company, but we say consistent with the mission, vision, what does that mean? I think that is absolutely critical.

Ryan Caldbeck (27:54):
I think alignment in terms of values is also really important. And those comes through conversations. A difficult thing, I’ve talked with a lot of GPS, general partners at different VC firms over the last couple months about how deals are moving really quickly and on Zoom. People are talking to the company for the first time on Friday. I talked to a top four VC two weeks ago, meeting company on a Friday and investing on a Monday. That sounds like a good thing for a lot of founders and I would have concern that you don’t really know what you’re getting into bed with.

Ryan Caldbeck (28:29):
You don’t understand if there’s vision misalignment, values alignment, and these are multi-year relationships. I’m not going to tell you it’s as important as a marriage, but you spend a lot of time with these people and go through a lot of battles together. And I think some of the good fortune that I had with investors was because we did a pretty good job of job assisting most of them. We made one pretty big mistake, but most of the time we did a pretty good job and some of it was just luck, just flat out luck. So I think from a fundraising standpoint, getting that alignment up front before you take money is important.

Trey Lockerbie (29:05):
On that point, what’s coming to my mind is this comment, I think it’s in the Brad Feld book, Venture Deals. He says, “You should walk away when the potential investor during their due diligence starts to feel like a proctologist, meaning they’re digging in too much.” So is there a balance here because I can totally understand that the snap judgment’s being made over Zoom, but on the flip side of that, there are other diligence processes that are much more involved. How do you strike that happy medium between the two?

Ryan Caldbeck (29:33):
Brad’s a great investor. And I think he’s also not just a great investor from return standpoint, but founders love working with him. I would probably tweak… The point you’re trying to make I think is a good one, but I think for me, I would probably tweak it a bit to say, pathologists serve a good role in the world, and I’m not trying to be funny. They serve a good role. When the investors are asking questions that are just not productive, that’s when you should walk away. I’ve had a colonoscopy, it stinks, but there is a purpose to it. And diligence, I really liked when it was tough and asked really hard, but great questions.

Ryan Caldbeck (30:13):
Then when there’s diligence where the investor is asking just irrelevant questions, just things that have nothing to do with the strength of our business, but really detailed, droning on about just stuff that doesn’t matter, that’s when you should be scared as a founder. It’s so easy for me to sit here in Silicon Valley and the fortune and privilege that I have and talk about walking away from an investor. There’s a lot of entrepreneurs who cannot do that. It’s not easy to raise money for a lot of founders. I would just offer up that sometimes it is worse to raise that money than it is to not.

Ryan Caldbeck (30:48):
There are some investors who are going to be willing to give you money and will make your life a living hell, and not taking their money even if it means the company didn’t work out or yet, take it on worse terms, anything else could end up being a better thing. So pathologist analogy, I know what he’s trying to do, I think I just tweak it a little bit to say, when they’re asking really detailed, unimportant questions and focusing on the wrong issues, that’s only going to get worse and it’s going to suck up a lot of your time and be frustrating and that frustration’s going to shine through and you’re going to spiral into a bad relationship with that investor.

Trey Lockerbie (31:23):
I love that nuance. I think that’s fantastic. I heard some interesting advice the other day, which was basically something along the lines of, you can have great terms and you can have a great price, but you can’t have both. And if you were given the choice, you would take the terms over the price. I’m wondering if just hearing that, what your general knee-jerk reaction takeaway would be if you agree with that statement or sentiment at all.

Ryan Caldbeck (31:49):
Obviously, you don’t have to pick one, but you’re saying if you had to pick one, yeah, I’d pick great terms over price. Yes, for sure. I’m so glad that I’m not an active investor when I’m saying this, I just I’m angel investing, but I mean on behalf of an institution, I just genuinely think the price is vastly overrated. If your company is successful, you’re going to make a lot of money. And so it might be the difference between three homes and four, but you’re going to make a lot of money if your company is successful.

Ryan Caldbeck (32:19):
Terms will make life very difficult. Poor valuation, rarely does. You might end up with too little of the company, but usually good boards will give you more. They’ll give you follow grants and I’ve written about that publicly in terms of CEO compensation, but terms are really hard to reverse and tend to compound in terms of the problems that they create over time as future investors come in, they either take the exact same terms or they sometimes make them worse. And that gets difficult.

Trey Lockerbie (32:46):
Is there some nuance there? I’m curious because I was thinking about Warren Buffett just now. Our friend, Brent Beshore had dinner with him once and was really pressing him on this hand shaky way he does deals. And somewhat seemingly, lack of due diligence. And I guess Warren said, “Price is my due diligence.” Meaning you really low balls or get something super cheap and that’s his protection long term. So I’m wondering, that makes a little bit more sense to me innately just maybe in public markets or something where it’s a little bit not so new or nascent like a venture deal, but I’m curious if that resonates with you

Ryan Caldbeck (33:25):
A couple of thoughts. One, Warren Buffett’s a better investor than I am. So if you get a chance, listen to Warren not me. Two, I’m talking about it on behalf of founders, I’m not talking about it on behalf of investors. Three, he is a public guy, he’s not a private guy. Now, there have been some interesting examples that I’m thinking of where he did care a lot about terms. In the ’08 financial crisis, when he invested into Goldman, he did not get just a good price, he got great terms too. I forget what this where I knew at one point, but the terms are what made the deal attractive in a lot of different scenarios.

Ryan Caldbeck (33:59):
So in the public markets, yeah, I understand price matters or even late stage price is important for entrepreneurs and reps, I think the terms are more important,

Trey Lockerbie (34:13):
Curious really quickly about the way you compose your board at CircleUp. Were they all investors in the space? Did you recruit anyone who wasn’t an investor to join the board? And if so, what was the profile you were looking for for that kind of guidance?

Ryan Caldbeck (34:26):
There are a number of things that I will do differently next time I’m CEO. And one of them is I will look more actively for independent board members. So we have had two over the past 10 years at CircleUp. One is the current CEO of Lending Club, Scott Sanborn. And the other is a phenomenal investor at Bridgewater. And I wish that we had always had one, but it takes time to get that. It’s a bit like finding a therapist, frankly. There have been years where I knew I needed a therapist, but it’s a 30-hour investments to find it, and it’s just really hard to justify that. And so I’m doing it now when I’m not CEO today, so that it pays dividends throughout whether I’m a CEO or not.

Ryan Caldbeck (35:12):
And an independent board member takes a long time to get. So we have had it and I wish we did it more. The other board members that we had were the investors that led the various rounds. So Union Square was on our board, Canaan was on our board, [inaudible 00:35:26] on our board, they both are, Rose Park Advisors was on our board. And then we stopped giving board seats after the series C or so. And that board has been fantastic for us.

Trey Lockerbie (35:38):
You mentioned when you were CEO, again, I’d like to talk about what it looks like for Ryan Caldbeck to be CEO again, what that venture would look like and how you would be different?

Ryan Caldbeck (35:52):
At the beginning of this year, I was 50/50 if I wanted to be an investor next or an operator. Now I am positive I will be an operator next. Eventually, I’ll probably be an investor again, but I want to be an operator again. I love leading, I love building, I love creating a team, I love creating a culture. I love the things that go into that. I am thinking a lot about, does that mean I want to join something and it’s like a CEO, COO or do I want to start something? But I’ve done a lot of work reflection on my time as CEO, what do I think I did well? What do I think I didn’t do well? What would I change next time?

Ryan Caldbeck (36:23):
And so in terms of organizationally, there’s a number of things that I would do differently or that I think we did really well. I think we did a good job defining upfront what to look for in teammates and to create a process to institutionalize that that I’m really proud of that. And I will lean into that heavily next time. We’ll actively recruit teammates with a growth mindset. I think that’s critical in a startup. We’ll actively try to build a culture that’s intellectually honest, that doesn’t search to be right, it searches to find the right answer.

Ryan Caldbeck (36:56):
I will value startup experience over big company experience leaning a lot into professional development for the team. There’s a number of things like that that’s mostly cultural that either I think we did well or I’ve learned from and want to do a better job of. And I’ve written about that on my website, ryancaldbeck.co. In terms of industry, there’s a lot of different things that interest me. I’ve gotten a lot of calls on existing companies that are starting something new in a variety of different industries from fintech, CircleUp is a fintech company to other sub domains within technology, and I find myself gravitating a lot towards web3 stuff.

Ryan Caldbeck (37:35):
I think it’ll be the biggest technological jump in the last 20 years, I think it’ll be more important than mobile, frankly. So I find myself getting really, really excited about that as an operator and what that unlocks, but I think a lot of people are going down that rabbit hole, I still feel like I am on the one yard line trying to understand, and I’ve got 99 yards left to go trying to understand the space and all the implication behinds it.

Trey Lockerbie (38:01):
On that front, I’m curious to get your opinion on this, there’s a sentiment out there about the web3 space that is essentially, I would put it like a way for venture capitalists to take their company public sooner and without all the same regulation. Whether it’s an existing company or new company, there’s this idea that people are going to be… It’s kind of the Wild West, I guess. So going back to that sentiment about protecting investors, how should investors be exploring this space and making sure that they’re not subject to any misalignment as we alluded to earlier?

Ryan Caldbeck (38:38):
There is a lot of hype behind web3. And I think we had a period two years ago, three years ago or so, around the ICOs, initial coin offerings, where there was just rampant fraud, frankly, and failure, failure and fraud of a lot of them. On top of that, there is tremendous volatility in terms of the tokens and currencies in the crypto space. And so it is a space where you can see someone making millions, tens, hundreds of millions dollars, and you can see people losing everything. And the latter is much more private than the former.

Ryan Caldbeck (39:15):
What would I say to people listening? I’d say, “First of all, Ryan is 300 hours in not 3,000 or 30,000 hours in to understanding web3. There are some people who understand that market incredibly well. And I would urge you to spend the next year digging in before you put a material amount of money of your own into the space. Two, I think diversification is really important. Fred Wilson has put out a post about diversifying in that space, I think is a really important one. But I hate investing in the things that I don’t understand. And the more I have dug in, the more I think I understand about it, even though there’s a lot I don’t, and the more I love it and think it is incredibly impactful.

Trey Lockerbie (39:58):
Well, let’s talk about the benefits that you’re seeing because I’m curious, you it’s a big comment to say biggest thing in 20 years in tech and the future. What does that future look like? What are the benefits, I guess, is the best way to frame it?

Ryan Caldbeck (40:10):
Someone tweeted, and I wish I could remember who because I want to give this person credit, Web1, which is up to the early 2000s was the right period. You would read things on the internet, on your website. Web2, which is Google, Facebook, Amazon, etc, was read, write, meaning, you could also create content.

Trey Lockerbie (40:32):
This is sounding like a Greg Eisenberg tweet. Does that sound-

Ryan Caldbeck (40:37):
And then web3 is read, write, own. So it gives people the opportunity to participate in the value that they are creating. More than a few people have commented that if you are using a product and you’re not paying for it, you are the product, and your data’s being sold, etc. And there’s been a lot of bad things that have come out of that, there’s some good things, but some bad things that come out of that, as the Social Dilemma, the movie we talk about. When you think of an example, company like Uber or Airbnb, for the market participants to own a piece of the market through tokens, as an example, if those companies were set up as DAOs.

Ryan Caldbeck (41:14):
That incentivizes them to of the market grow in ways that they are not only not incentivized, but in some ways perhaps even disincentivized to do in the current structure. I think that’s a game changer, I think it accentuates network effects. So I think if it’s one of several different advantages or many different advantages to this concept of a DAO in that case, but web3 overall, the ability to not just read, Web1, or read, write, Web2, but read, write, own in web3, I think unlocks just some magical properties about building organizations with new business models that can help transform the world.

Trey Lockerbie (41:54):
I’d love to get your take on, speaking of DAOs, there was a recent one called ConstitutionDAO where they were literally trying to fundraise and buy a copy of the constitution from Sotheby’s or some auction. When I was looking into that, I noticed that by buying a stake in the DAO, you weren’t actually getting any equity of the actual constitutional document itself, you are getting these government rights or governance rights. So you could vote on where the document is stored, or there’s a few other examples they listed. And admittedly, very well and I would say very transparently written on the website of the company.

Trey Lockerbie (42:32):
So they were being very for forthright with what you’re getting when you put money into the space. But I think that there were a lot of folks on Twitter or wherever getting involved thinking they’re going to buy this and own a piece of this documents. And when that document sells again, they’re going to get some money from that. But that didn’t seem to be the case as far as I understood it. So if you know more about this subject than me, I’m curious to know because this is the only example I know yet of a DAO and how it works.

Trey Lockerbie (42:58):
And that seemed like a little bit of a misalignment or something that wasn’t what it appeared on the surface, but what’s your take on it?

Ryan Caldbeck (43:05):
That was happening during a week or a period when I was, when my family and I were visiting my parents. So I’ll be frank with you and say I was a lot less in tune with that then I would’ve liked to. But in general, I think you identified one of the incredible benefits of DAOs and one of the early complications. So incredible benefit of them is that they are extremely transparent, both in terms of how they are designed. The code is out there for anyone to see. And in terms of culture, I’m a part of a couple different Discord servers and some other groups that are actually talking about web3 and in particular DAO.

Ryan Caldbeck (43:44):
And a common piece of feedback about a DAO that we’re evaluating is around the importance of transparency, who is the team? Where do they come from? What are the rules of this DAO? And so while a lot of that is structurally in there, there’s also like a demand culturally for them to be transparent, which I think is great. And I think the ConstitutionDAO was transparent. And there are also people who will make snap decisions without trying to understand that. So when you can put $25 in or $100 into the ConstitutionDAO, and it requires fair amount of work to understand whether or not you are actually getting a piece of the constitution, there will be a lot.

Ryan Caldbeck (44:22):
And there were some people that just said, “I’m not going to do the work. I’m not going to try and understand this.” My hope is that that evolves over time, that people become more sophisticated and that tools are created to help people understand what they’re actually getting when they are committing to DAO. So we’re so early. I think someone I heard yesterday on a podcast talk about like, we’re not in the bottom of the first inning in terms of this world. So I think that there’s a lot to understand, but just fundamentally, what blockchain technology can do and what lots of the other innovations over the last several years have allowed us to do, not just in terms of moving money, but in terms of creating smart contracts and organizational structures that allow new business models to form, I think is incredibly powerful and gets me really excited.

Trey Lockerbie (45:13):
So having been at the top of a company, you know what it’s like to run a large organization. And as even Ray Dalio runs Bridgewater, there’s that idea meritocracy element involved where not everyone’s opinion has equal weight. So I’m curious, that’s what a DAO like as far as the governance is concerned of a new organization, I guess they’re weighted based on stake, but knowing how hard it is to run an organization top down, what would be the benefit, I guess, of having it more distributed as far as the governance is concerned?

Ryan Caldbeck (45:46):
Well, it doesn’t have to be run that way. There are some DAOs that are not run that way. So some DAOs are run based on how many tokens you hold. Some DAOs are the values of the tokens, or how many tokens you have are dependent upon, let’s say the contributions you make to the DAO, or how long you’ve held them for. And so an investor coming in and out and doesn’t add any value, gets fewer tokens, etc, etc. So I think it depends on how the DAO is set up, but you can reward people for their contributions and you can reward them for their contributions in real time.

Ryan Caldbeck (46:17):
At the CircleUp, we would move comp twice a year, and a very imperfect matter of someone’s actual contribution with the exception of maybe a sales team at all organizations, it’s extremely hard to understand through contribution. Try interviewing a product manager or a designer from Apple, good luck on understanding what they’ve actually built and how much of it was part them versus the team of 50 that was doing the same project. With DAO structure, I think that that is a bit easier, but look, all this stuff is going to evolve.

Ryan Caldbeck (46:46):
And so I am excited about a number of things that we’ve talked about here and I’m excited what will come, what has not yet been built. Chris Dixon talks, and Chris does, and they’re not the only ones who do this, but talk a lot about we’re in this period of like skeuomorphic analogies in web3, where people are using existing business models from Web2 and trying to apply web3 to that, just as people did with, he used an example the other day, Chris did, of looking at the first commercials for the iPhone, Steve Jobs and the Apple was putting out commercials for the iPhone that revolved around using the iPhone to look up recipes in the kitchen.

Ryan Caldbeck (47:29):
And that couldn’t be a less important use of the iPhone today, but people were trying to use what they knew about the world to predict how people use the technology. I think we’re in that phase for web3 today. So what I look at is that fundamentally this technology allows for new things, how the technology will be used, I’m not sure, frankly. And I haven’t heard many people talk that sound like they know, but I’m incredibly interested in how value will be unlocked through web3.

Trey Lockerbie (48:00):
What you’re talking about sounds a lot like stuff you can’t learn in business school necessarily, although I know Stanford and some others are pioneering DAO education and a lot of stuff already, but it just reminds me of what you’ve learned having come out of Stanford Business School that you probably didn’t find in school. Meaning, are there any other resources, maybe even investing books that you have found made a big impact on your career so far, it might be beneficial for those listening today?

Ryan Caldbeck (48:30):
I think the Intelligent Investor, if you’re going to be an investor, I think you have to read that book, even if you’re a BC investor, I think it’s just such a fantastic book. I think a number of books that lay out like Warren Buffett’s letters I think are really good. I tend to, as an investor, even really read a lot of the books about entrepreneurship to understand, or being a CEO to understand the mind of a CEO and how to build businesses in a healthy and enduring way, and to create empathy for the CEO. Hard Thing About Hard Things by Ben Horowitz, Zero to One, Peter Thiel are great books.

Ryan Caldbeck (49:02):
But what I’ve learned over the last 10 years, and I read a lot, both books, blogs, I am a bigger fan of what you can get online right now than most books, particularly investing books. I think, and people might laugh at this, but I think Twitter is a hell of a resource for understanding investing. That’s a dangerous one because there’s a lot of people spouting off that have no idea what they’re talking about. Blogs from world class investors, annual reports from a number of different public market investors, I think are really good. Books, they take three years to write and tend to be watered down by editors to appeal to the airport community store crowd, I just don’t think those are usually not as good.

Ryan Caldbeck (49:46):
So I found a lot more value from some of the blogs I’ve mentioned and some other sources like that.

Trey Lockerbie (49:52):
One question just circling back to accredited investors, does something like a DAO is part of the appeal this idea that we are breaking that tradition of having accredited investors only benefiting from great opportunities. Does this help equalize in any way in that regard?

Ryan Caldbeck (50:11):
I think it should. I think there’s a lot to get sorted out. We just talked about people not totally understanding whether or not they’re getting a piece of the constitution. And again, I’m not familiar with that. There’s danger to that. And I don’t actually believe that accredited investors are more sophisticated than the unaccredited investors, but they certainly can afford to lose the money more so than most of the unaccredited investors. And so I think the market needs to mature, but I think that there are potential for some of these new structured, particularly DAOs to help unaccredited investor to participate.

Trey Lockerbie (50:40):
In your next venture, do you think it’ll be fintech related?

Ryan Caldbeck (50:45):
I don’t know. I like fintech. I do some investing in fintech. It’ll be technology related. It’ll definitely be technology related. I’m a technology operator, but it doesn’t have to be fintech. I think there’s a lot of different fields, and my wife’s the CMO at Coursera, the EdTech company. EdTech interests me, healthcare interests me, particularly mental health, fintech interests me, B2B or B2C. There’s a lot of things that I get excited about. I just think we live in such an exciting time. In the course of human history, when has there ever been as much innovation in a 10, 20 year span as what we’re seeing right now?

Ryan Caldbeck (51:15):
If you look at the Gold Rush in 1840s or so, look at the Renaissance in Italy, but the innovation that’s happening right now is so incredible. So you as the founder know this, to be able to participate and try and build something right now, God, what a gift? To be able to talk to our kids and our grandkids about that in 30, 40 years. I don’t know how long this period of innovation will last, I hope it last for a long time, but I just feel so lucky to be building right now versus 50 years ago.

Trey Lockerbie (51:40):
Yeah. There seems to be this acceleration happening. I think that’s what we’re all trying to process is just how fast, things are only compounding and getting faster, and we’re just trying to stay up to speed and then it’s dated all of a sudden. And it does make it very exciting, but also just overwhelming sometimes as well, at least in my experience. Before I let you go, I want to make sure I give you the opportunity to hand off to our audience where they can follow along with what you’re doing, where they can learn more about you or any other resources you want to share.

Ryan Caldbeck (52:09):
On Twitter, it’s just @ryan_caldbeck, and my website where I post a lot of blogs is ryancaldbeck.co.

Trey Lockerbie (52:17):
Ryan, this has been so great. I really love this discussion and I really admire what you’ve built and the way you’ve approached it. And I’m really excited to stay in touch and see you what this next venture looks like for you. And thanks for coming on the show.

Ryan Caldbeck (52:32):
Well, thank you so much for having me

Trey Lockerbie (52:35):
All right, everybody. That’s all we had for you this time. If you’re loving the show, don’t forget to follow us on your favorite podcast app to make sure you get the episodes automatically. Ryan and I originally connected on Twitter, you can always find me there @treylockerbie. And if you haven’t already done so, definitely check out my favorite new feature on TIP Finance, and that is the billionaire portfolio. Take a look at all your favorite billionaires and what they’re currently holding in their portfolios, and then compare it to your own. Just Google TIP Finance, it should pop right up and enjoy. And with that, we’ll see you again next time.

Outro (53:06):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network, and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.


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