VC10X - VENTURE CAPITAL PODCAST
Venture Capitalists (VCs) & Angel Investors share their investing thesis, screening process, value-add, exits, and more. Hosted by Prashant Choubey (@ChoubeySahab)
Matthew (Matt) Weinberg is a Partner at Max Ventures, an early-stage venture capital fund based in New York City that primarily invests in digital commerce and digital healthcare startups across the United States and Europe. Prior to his current role, he was a White House appointee in the U.S. Small Business Administration and served as Senior Advisor in the Office of Investment and Innovation. He helped drive federal programs that directed over $6 billion in capital to investment funds, early-stage technology companies, and accelerators and incubators across the country.
We talk about:
Matthew's story & how he started investing?
So I started my career actually in government. I was in the Obama administration for many years, first at the White House as a sort of travel staff aide to President Obama, where I got to travel around the country and do events for the President. It was what people might call a really glamorous job in politics. It's funny because that led to my next job, which was in the Obama election campaign, where I think I had one of the least glamorous jobs, which was head of selling offline merchandise. So I would travel the country and send hundreds of pounds of merchandise to a national network and sell that for the President's campaign, which was every dollar counted.
I then transitioned into, I think, a more pertinent role to what I do today, or more relevant and more exciting for me, subjectively but objectively, it was more in the investing world. So the government has a ton of resources that it has that it gives to entrepreneurs early stage research and development firms, early stage tech companies. And I helped run a bunch of those programs that helped get dollars from the public sector into early stage deserving private sector companies. So really interesting job. I think the government has tons of resources that a lot of folks don't know about that are really relevant for entrepreneurs. So I was very lucky to work in a bunch of those programs.
Actually went to the City of New York and Mayor's Office of Economic Development there and then back to DC for the last year of the Obama administration. And then there was a certain election that happened in 2016, and it changed my perspective on my professional career. And I ended up leaving the administration when it ended and the new one began and then went back and got my grad degree and then joined Max Ventures in 2018. And the rest is history. But that's sort of my quick path to venture capital.
How to get your startup funded by the government?
The broad answer is it really depends on your venture and the program. The government is sort of operating at the current time, and there's some legacy programs that I'll touch upon in a second. But a lot of capital directed to these communities or these constituencies, these profiles of businesses really dependent on the political climate.
So if a bill just got passed that is very much focused on climate, there's a ton of money out there for folks working on climate related solutions. First and foremost, I would just keep updated of the sort of political temperature in the government and kind of what the funding priorities are at the moment. That said, there are legacy programs that I would always suggest entrepreneurs go for if they are in some way, if they're able to access them and their candidates, they're able to if they're able to take the time and the resources to actually apply for them, because they're pretty comprehensive. And if they make good candidates, which just really depends on the specific funding.
But SBIR is sort of the government's seed fund. So that is called the Small Business Innovation Research Grant. It's directed at very early-stage tech companies, so companies just starting or that don't have too much traction. So it seems divided by the agencies across the government to think about healthcare, think about education, think about energy. So part of energy, part of education, health and human services, they all have their own innovation funds directed at startups. And so if you're a startup working on a project that they're articulating a need for and they all have sort of subheads and sub RFPs, you can apply and it's non-dilutive funding. So basically it's free money.
And so if I kind of detect an entrepreneur might be a good candidate, I'll definitely recommend that because it's a great stamp of approval and it's non-dilutive capital. So it's a great resource out there. But yeah, I would check out nsf.com to NSF SPIR. That to me, National Science Foundation is the most like a venture capital fund that the government has, and again, can't argue with free money if you're able to get it.
What's the investment thesis at Max Ventures?
We are early stage VC funds based in New York. We do have a global profile though. We do about 20% of our investing in Europe, primarily Scandinavia, 80% across the domestic US. By early stage, I mean that we're pre-seed and seed. So our average check size is around 750,000, up to a million. We'll make about eight to ten investments a year. What we focus on at the half is healthcare. So digital healthcare, it's not life science, biopharma. It's really focused on what are the new companies coming out today that can help expand access, decrease costs, or improve quality to patients. So really excited to have that as a focus. I feel like healthcare investing is almost impact investing in a sense. And it's really aimed at helping and transforming a very backwards and messed up part of our economy, which is actually 20% of GDP. Healthcare, that's half. The second half is, I'd say, pretty generalist, but it's rooted in ecommerce, consumer SaaS, some enterprise tech, but it's really just us trying to find the best entrepreneurs to work with.
We also incubate, which is very important. So we've started seven companies out of the fund to healthcare, to Ecommerce, to SaaS, and one community network for athletes, which is actually pretty exciting. So I think in addition to being investing partners, we're really good operators as well. So I think the first 24 months of companies lifecycle kind of getting to that series A, we like to be really hands on with our portfolio companies and just the fact of growing seven companies, scaling them, all of them received outside venture capital funding outside of Max Ventures. So any time you stand up seven companies, you get a lot of learnings both good and bad. That hopefully makes us really good partners to our founders.
How do you evaluate the startup pitches?
It really depends. So we have invested at seed and pre-seed. Naturally there aren't many metrics to go off of. So we're talking about maybe early contracts, maybe early revenue. They haven't been in market very long. So obviously seeing that growth, if they're going to market six months, you want to see growth, some sort of growth. Or it's like they have partnerships that they've contracted. I think it's really about like what's de-risking this investment? And so there's a few things. One is kind of quantifiable metrics. Their revenue is exceptional. The contracts that they have with their high average contract value, with multi-year clauses in them or multiyear conditions, it's like a path for them getting to a certain ARR because they have like a really big inbound pipeline or they have line of vision, line of sight into pretty extensive revenue opportunities.
That's one, two is the founder. And that should have been number one. I think that is the first and foremost the most important thing. But having a founder, that is a little bit of a buzzword. But like founder product fit. So a founder, we all have good ideas day to day and then when we consider incubating companies starting one, we really think ourselves like, are we the best equipped to start this company? Like, do we have the knowledge, the expertise, the network, the resources, some sort of cornered advantage to give us a good shot at scaling a business? And so I'm always asking these entrepreneurs like, why you? And then there's also other tailors like why now? Why are you best positioned to scale this company and take it from a C to a Series A to serious B and sort of all the way up? I think a lot of times you see companies get funded that might not have that product founder fit and eventually it catches up to them if there's a competitor that has a CEO that just super ingrained in the details and super in the weeds on what the problem is they're trying to solve. So that's something I definitely look for. And then yeah, I mean, besides that, it's like broad market conditions.
Do you believe the concept? Is the market big? What's the competition out there? But I think the primary two things are like, how are you kind of derisking it from a revenue opportunity side? A little bit of that is about market size and competition. But really, what else are you kind of doing on getting customers? And then two, which should be one, is just the founder and the team and how are they well positioned to execute.
How does Max Ventures add value to portfolio companies?
Yes, I mean, sort of the post value versus the pre-value is really significant and I think where you can honestly create a lot of alpha and that's where you can kind of drive results. It really depends on the founders. I wouldn't say every founder and every team has the same needs. They have a very diverse set of needs. I think for us, just because we've started seven companies, we're really well positioned to offer advice and insight across a lot of different areas, whether it's hiring, whether it's fundraising, whether it's product development, whether it's structuring contracts, whether it's strategy. And so for us, it's really like generalist in the sense of what we can offer our founders just because by factor being seven-time founders ourselves, anything kind of under the sun that pops up, if it's within the area that we've invested in or operated in before.
Most likely, we'll have some constructive way to help the company or kind of help address their needs. It really depends. And I think for us, getting a company to a Series A is sort of our benchmark of success. So anything that's needed to do that, we're sort of all hands on deck. But a lot of it is networking introductions, helping with their pitch deck, introducing them to investors, helping them shape their narrative for when they go out to fundraise, doing hiring interviews. We're there sourcing candidates for them, we're there helping them interview, closing them. Really kind of strategic questions on products and market entry and sort of resource deployment, stuff like that.
I think we especially have good ways to help them just because of our nature of being company creators as well.
How do you conduct due diligence?
So first of all, the diligence comes on the I'd say like secondary and tertiary information side. We're like third party resources. It's like we're just figuring out what the market is saying about this concept. What's the competition verifying everything they say in the deck about market size. We're going through the footnotes, just making sure that the opportunity is the sound. And we're talking about companies that sort of advanced to the sort of hard diligence page, right. So we're making sure that the opportunity matches what it supposedly does on paper. So that's one, that's pretty easy. I think anyone can kind of do that. Two is definitely like the reference checks. It's like you need to have them give you references for sure. And also you need to find people that have worked with them before that can kind of give insight on their previous companies, maybe like a board member on one of their previous companies they don't have previous companies. Want to find people that they work with that can really attest to their character and their ability to ultimately grow and manage a team and scale a business. I mean, it's not something that everyone can do phenomenally well.
So ensuring that we have good insight on the sort of person to person side to make sure that folks are going to be up for the task and up for the job and have a really good reputation that people want to work with them, that's critical. And you don't really get that from just doing research. You get that from actually getting references and character references I like to get before I work with someone almost saturated on the information that I'm intake. So it's like talking to enough people where the data points I'm getting from them start to all align. And then the conversations I have maybe like the 7th or 8th person, just like I'm not getting any new information, so I feel like it's been saturated. And that's when I feel like I can get conviction on someone's character. So, yes, a lot of it is that especially at the early stage. I think if I was a growth stage investor, I mean, you're doing different analysis and it's more on the quantitative versus qualitative side. So for early stage, it's very much about these references in addition to just doing your homework on the market to make sure the opportunity is as big as it stands.
Some exciting portfolio companies
Well, I don't want to leave anyone out, but off the top of my head, maybe a few recent ones. Certify OS so they're in the credential in the licensing space. So every company, telehealth company that wants to expand geographies has doctors or providers that are in New York and wants to serve patients in Nevada. For example, those doctors need to get licensed and credentialed licenses and license, operating state Nevada credentials and getting under a payer contractor to insurer contracts in the geography they're serving. In this example of Nevada, and it's a really big pain, it's a headache. And Certify OS, my opinion, is the best company out there to help these telehealth companies and legacy companies that want to engage in telehealth really expand their offerings. You're kind of creating access to more doctors, especially there's a doctor shortage also nurse practitioners, other profiles or providers too. But a company like that that's able to help these telehealth or patient facing companies scale and expand access is super exciting to me. So I love Certify. They're doing great. Stellar team.
There another one that we invested in recently is Sylvanhealth. I love them too. They're expanding access to nutritionists. So building a huge network of insurance, nutritionists, and dieticians. Very key for a population that isn't the most healthy in this country and isn't overweight and has a severe, I think a severe crisis in obesity. So having access to that type of profile, doctors, getting access to me is really exciting.
And then a company that we just incubated, actually, that I'd love to talk about is Elion. So, Elion is a marketplace for digital healthcare software. So we noticed that there was an explosion of software out there for health care, and that our companies that wanted to use technology and use software had a really hard time understanding and eventually making decisions with speed and conviction. So we thought, why shouldn't there be a marketplace that collects all this information on software, a healthcare software out there? So sort of like a G2.com, which is almost like a yelp for software, but we wanted to make something really robust for the digital healthcare community to find source and eventually purchase software. So Elion is coming soon. We're doing a product development. We've raise a good amount of capital from some amazing investors, and we just hired a stellar CEO who's building the product now. So we're really excited to launch that. We think that that can help technology adoption across the whole ecosystem if you're able to buy technology faster and make decisions faster.
So we're really excited about that as a sort of rising tide or sort of like a game changer for the industry. So if it works out the way we think it will, which we're confident it will, but we're really excited about that one for sure.
Perspective on Down Rounds
I think if you asked me a couple of months ago, I thought it would be all valuations are coming down from kind of that pre IPO stage all the way down to see investing. But I think it happened in the pre IPO stage and happened in later growth stages and started having a Series C, B and A, and then all of a sudden seed haven't seen it as much.
My theory is that the investors that typically do growth rounds or like Series B and A can't quite justify the high valuations or need to support their company. That kind of maybe took two high valuations, 2021, and they need to sort of have a bridge loan to grow into that valuation and hopefully keep growing.
So I think it's a hard time to invest in potentially overvalued companies at the Series A and B stage. I think they're looking for opportunity, and if it's on that stage, they're going to go downstream. So they're going to go for the seed stage. And so I'm seeing seed stage valuations hold or increase a little bit, become more competitive. Even in 2021, it was competitive with your Tigers and your Softbanks. And even though they're kind of stepping out of the market a bit, I think there's another profile of sort of gross stage, later stage investors that are coming down to seed because one, you can still invest in hopes. And dreams at the seed stage. And it's still valuations that are TBD that there's no evidence whether or not they've grown into it or not.
And then two, there's really talented teams coming to market. And so if you're not going to put your capital into maybe an overvalued Series A or Series B, I mean, you might want to come down and invest in a really talented team at the earliest stages. It might be a good place to inflate capital. So we're definitely seeing a lot more activity in the seed stage, where I think a few months ago, we were kind of expecting that the seed stage valuations to follow the trends of the Series A and Series B but I think that they're even more competitive than perhaps they were a year ago. Yeah, that's very interesting to know. I didn't know that that the seed stage valuations are going up and not down in that case.
I mean, that's my perspective. Anecdotally I see a lot of companies, but I obviously don't see every company. So, yeah, I think that's my opinion. It has not reflected valuation decline, has not reflected what I've seen in the sort of growth stage profile.
Rapid Fire round
Sectors and regions you invest in?
We invest in digital healthcare, I think digital commerce, ecommerce generally. And we invest in Europe, Scandinavia primarily, and then the US.
What stage you typically invest in?
Pre-seed/seed. And we also incubate companies. We started seven.
What's the typical check size?
750K to a Million.
Where can founders pitch you?
My email is firstname.lastname@example.org
Where can listeners follow you?
My favorite is LinkedIn. So find me on LinkedIn or I'm at @Mattjweinberg on Twitter