CIBC Innovation Banking Podcast

[00:00:00] Jason And so the more of that that we can impart on founders of "Hey as you're building, here are some things to keep in mind. Here are some do's and don'ts. Here are some ways in which you might think about really selling and taking your product or service to market." Kind of helping create those guardrails for them to execute within. It's a huge benefit. 

[00:00:22] Michael Hello, I'm Michael Hainsworth. The CIBC Innovation Banking podcast explores the world of startups, growth-stage companies and late-stage companies that have made a big splash in their industries around the world. Startup entrepreneurs need help and we know it. And sometimes the best insights into strategy and execution come from early-stage investors. Those who have seen it all before and can help guide a company in the direction of becoming the next big thing. That's something Jason Felger knows a lot about. As the head of operating platform  Jump Capital, his firm closely works with founders to build and scale in their formative years. 

[00:01:08] Jason We are a venture fund, which means that we invest capital and provide support to very early stage technology companies. And so in essence, our mission is to invest in early-stage companies and partner with founders very early on in their journey, building a company and hopefully, you know, see success with them through that entire lifecycle, that entire journey of company building. 

[00:01:39] Michael And I could imagine at that very early stage, you know, every startup entrepreneur knows they're going to make every mistake in the book. What role do you play in helping guide them in those early formative years? 

[00:01:53] Jason That's exactly right. I think building a company early on is not about preventing mistakes, because that's impossible. And frankly, you learn a lot from making those mistakes. It's making them quickly, minimizing their impact and learning from them. But there are some things that early-stage investors can help with, that maybe mitigate some of them or shine some light on the dark corners that founders might be looking around. And in large part, that's simply because we see those happen time and time again. You get that pattern recognition of you see a situation, you see kind of what's coming and you can provide some perspective and maybe a little bit of support and advice to say, well, I've seen that happen 10 times. In nine out of those 10 times, here was the outcome. So maybe in, you know, infuse that kind of insight, infuse that type of knowledge to a founder, particularly first time founders, because again, you know, situationally we all make mistakes all the time. I certainly do. But particularly when you're doing something for the first time and building a company is very complex. And when you're doing it for the first time, it's nice to have some partners who can share those insights of how they've seen it work and how they've seen some mistakes happen in their experiences. 

[00:03:23] Michael What are some of those mistakes that a first time entrepreneur makes that someone who is a serial entrepreneur has learned from? 

[00:03:30] Jason There's a lot of intangible ones, of just how they are, how they become a leader, their style. And so some of this is obviously also just a personal journey that they're on of being an entrepreneur and being a founder. But as it pertains to building a company, I'll maybe try to make my comment specifically about that, which is company building at the early stages. There's a few fundamental pieces to building an early-stage company. So one is clearly if you are building a company where you need capital to fuel the development, finding the right partner to do that with you is essential, and we obviously are part of that equation for many companies. But finding a partner who understands what you're building is aligned with your vision and can be supportive to you is a big part of that process. Not all companies need outside capital to build and scale, but if you do, picking that right partner's huge. The other component is also around really building people and talent. It's you going through the right process of finding the right people to build your team around and finding the right people to build your team with. And so a big, big component of any company is obviously your team, your people and by default, your culture that you're building. But at the early stages, every hire makes such a big difference, right? Like if you're a thousand people, that next hire might not have the, you know, magnitude of change that when you're 10 people and you make that next hire. So a lot of just intricacies around team building, team composition, skill sets. There's just a lot that goes into that early on. And then three is really thinking about what you're building and who you're building it for. And so regardless of whether that's a widget or a piece of software or whatever, that might be really having a strong idea with great insights, and we can talk a little bit more about what those insights might be. But great insights into what are you building and who are you building it for. So you could paraphrase that into just saying like, you want to have a good partner who's providing you capital. You want to have, you know, great team members to be building your company and you want to have a great product or service to service your customers. And so there are very simple fundamentals, but in the early stages, they're so critical because every one of those little decisions has such a impact and such an imprint on the business. 

[00:06:08] Michael It sounds like you're describing Jump Capital's impact platform. Your three core disciplines is you help the founder identifying source talent to optimize, accelerate growth strategies and then fill in the finance and operating infrastructure. Tell me, though, about that second one optimizing and accelerating growth strategies. How does the platform help with that? 

[00:06:28] Jason Yeah, it's a big term for some very simple ideas. So there's two things that we want to be very helpful with. We want to really make sure that we can bring to bear our network, the people that we know that could be potential customers or partners to our portfolio companies. So simply put, we want to make high quality introductions for our portfolio companies and our founders that might turn into revenue or commercial partnerships down the road. So very simple. A little bit tricky to do at scale across a number of companies, but there's arguably no greater thing that you can do for an early-stage customer or early-stage company than introduce them to a potential customer. Revenue is everything at that stage, so that's one part of it. Two is we see a lot of companies be built, we see a lot of sales organizations and sales engines, call them strategies, be built. And so again, to kind of the patterns that we pick up as you see that happen, and many of us come from backgrounds where we've done that ourselves as well, you just, you pick up the best practices, you pick up the playbooks of, here's what to do, here's what not to do. And so the more of that that we can impart on founders of "Hey as you're building, here are some things to keep in mind. Here are some do's and don'ts. Here are some ways in which you might think about really selling and taking your product or service to market." Kind of helping create those guardrails for them to execute within. It's a huge benefit. So really, that's what we're trying to do. Maybe introduce them to some customers and partners and impart some of our thoughts and ideas about how to actually build the sales organization in the way of which is most suitable for what they're doing. 

[00:08:16] Michael So we talk about some of those nearly universal needs that a start up or a high growth company would have. Among them is meeting aggressive growth expectations. How do we establish what an effective growth expectation is and then how do we meet it? 

[00:08:33] Jason Yeah, that's a tricky question. There's a tricky answer. What is the right growth trajectory for a given company? Is it takes a lot of ingredients to come up with the right recipe for that. Our mentality at Jump is that, you know, growth matters, but it's really around sustained growth. What we try not to do is ever encourage or influence or even suggest, you know, growth at all costs, because growth at an early stage and really all the time, to fuel that growth, it costs a lot of capital. And so our point of view is we want to see growth. We want to see smart growth and we want to see it in a way that can be sustained over long periods of time. That's more of what's important to us when we think about partnering with founders than just setting some audacious goal for the sake of having an audacious goal and spending and doing whatever is necessary to get there. We've seen more often than not. If you take that approach and if you tune the company and all of your resources to that, there's a lot of downside to it and there's a lot of unintended consequences to it. 

[00:09:43] Michael Such as? 

[00:09:44] Jason One of the biggest ones that you come across is you can be spending too much to obtain that growth. And so effectively, every new customer that you acquire, you are underwater on that customer because you've spent so much to get that revenue. That it's unsustainable, and you never kind of right that ship, and so your cost to acquire that customer is really unsustainable. And then the value of that customer is really upside down because of what you've had to spend versus the revenue in the margin that you will receive from that customer over time. And so I'm trying to use some basic language to describe what's often used for early-stage companies and for venture capital as some ratios that are important, which is your cost to acquire a customer versus the long term value of that customer or CAC and LTV, as you often hear referred to. And you don't want to have that equation upside down. You want to make sure that that's kind of in harmony. If you've spent inappropriate amount of money to acquire a customer versus the amount of value that you're going to get from that customer in the lifetime, that they're going to be a customer. And it's very easy if you set too audacious growth goals where you're going to just spend and spend and spend to get that revenue. And what that ends up doing is inverting that equation where you're just spending too much and that is likely unsustainable. 

[00:11:17] Michael Yeah, we got that lesson when we went to Seattle and we spoke to the startup founder, and it was far from a startup anymore, David Barrett over at Expensify. He's saying that if you're spending money bringing in an employee who will be responsible for interacting with a customer that's wasted money. That employee should be spent bringing in new customers, not interacting with them. And as a result, what you really want to do is build a company where word of mouth does the job of that employee of bringing in new customers. 

[00:11:49] Jason Yeah, that's kind of the utopia, right? If you could acquire every customer organically, word of mouth, whatever that might be, your cost to acquire that customers in theory zero or very close to zero. And as long as you service them and retain them and do right by then, you will have them for a long period of time. Hence you will have a revenue stream from them. That's a beautiful profile. It's a beautiful financial profile for a company. So that's kind of at one extreme. The other extreme is what I was inferring, which is you spend so much to acquire those customers because you're just trying to hit this revenue target regardless of what effectively your expenses associated with them are. But at some point that music might stop, and it does for many companies and particularly in a fluid economic environment like we are right now. Those are things that I think are very topical right now is how cash efficient are you, how expense efficient are you to continue to grow your business? 

[00:12:49] Michael So as a result, you need to build an infrastructure that supports that startup and supports that revenue growth without the commensurate cost growth as well. And you've told me in the past, you know, every snowflake is unique. But what are some of the playbooks that we can lean on as an industry to ensure that we build the best infrastructure so the startup becomes that growth stage enterprise? 

[00:13:11] Jason Yeah, yeah. There's one very simple concept that we always come back to, which is just the concept of unit economics, and you can apply the idea of unit economics to a single customer to all of your customers. You can also apply it to your product or all of your products. And so the idea of unit economics can be applied to both kind of internal factors, i.e customers as well as internal products or business lines, et cetera. But the basic concept is, you know, to really understand what is the revenue that I get for every new customer. What is the cost to acquire that choir and service that customer? And then when I take all the other expenses that I need within my company to run the business, and I attribute some of those to that customer or to that product, do I make money or not? Is there a contribution effectively? Is there contribution margin from that revenue with all of the expenses associated that is positive? Or is that negative or is that neutral? And so the idea of unit level economics for customers or products or divisions, it's a core, very basic premise. But I think one that's it's often overlooked to really understand like how strong, how healthy of a financial and operating model do you have that bring that idea back to what we were just talking about, which is if you're unit level economics are off, well, you're really spending money to make revenue but you're losing every time you sell a customer. And so, you know, you kind of get into this circular event in this circular pattern of really not building a healthy contribution per customer or per product to your company. So I think you can apply some of these very simplistic concepts to somewhat sophisticated types of ideas, and you really start to get an understanding of like what makes your company hum? What are the metrics that matter? Because every company is a unique snowflake. I do believe that it's it is hard to universally apply metrics and best practices across every company, across every industry that that's done unfairly sometimes. But I do think there are some basic concepts that you can apply so that you really do understand the levers that matter within your business to be successful, whether that's growth or whether it's profitability or something in between. And it also just gives you a sense of where do you have soft spots that need to be addressed as you think about building the operations, building the financial capabilities of your business. 

[00:16:03] Michael Felger's Jump Capital is dealing with these unprecedented times just like every other company on the planet. Macro shocks to the economy create a ton of uncertainty. But there are opportunities within uncertainties, even when it's hard to tell where things are going next. So what does this fluid economic environment look like now, and does that even affect Felger's view on early-stage investments? 

[00:16:28] Jason Yeah, I think for venture investors and for founders, I'll put us into the same bucket. For the first part of the answer is it creates uncertainty. That's tough to navigate, you know, because by the sheer nature of early-stage investing, there's already a ton of uncertainty and risk, right. Even in great economic environment, it's really hard to build a business. It's really hard for founders to scale. I mean, it is not an easy thing. And so then when you layer in a series of macro shocks to the economy, it creates a ton of uncertainty. And so that in and of itself is kind of the prevailing sentiment. It's hard to tell what's going to happen next or where this is going. So if you're building a company, how do you navigate that uncertainty along with all the other unknowns that you have that come along with building a company particularly early on. For Jump's perspective, how we've been thinking about it is it certainly seems like there's the potential for an economic slowdown and for that to be sometime in the near future. It raises some questions for us on how is that going to affect certain industries? Is it going to affect those industries? Well, certain businesses succeed and really thrive in that environment? Or will others be faced with some additional headwinds? So it doesn't slow down our investing activity and it doesn't make us any more or less excited to work with founders. But it does change the, you know, changes the recipe on like, what are we think the next year is going to look like. I say all of that, though but to bring back to like our specific stage of investing, you know, we are early-stage investors. That means that, you know, our outlook, our time horizons are five, seven, 10 years from now. As far as like really seeing the companies that we're investing in today hitting scale and maturity. So for early stage investors, I think the calculus is a little bit different because we just want to make sure that we can invest in a company and they can ride out the near-term uncertainty and maybe even thrive in that. But we don't go and sit on our hands because we're worried about what's going to happen in the next year because our time horizons are much longer than that. 

[00:18:58] Michael I think we even saw that at the beginning of COVID-19 that there was a big pullback in activity in the space. But almost immediately afterwards, once we all figured out how to do a Zoom call, there was an explosion of investment in areas that were almost impervious to these kinds of shocks. 

[00:19:19] Jason Yeah, that's right. You know, the benefit of hindsight is no one knew what was happening and no one knew how long and what that was going to look like. And that gave everybody some pause. So I think pause is the right word. As soon as we even got the glimmer of like, well, the world is going to continue in some direction. You know, it might not be the exact same one we were on, but it's going to continue then OK, how do we all want to react and think about that? And as you said, you know, there were some industries, some technologies that thrived because of that, you know, for very different reasons. We are kind of faced with some of those same uncertainties today is, you know, what is this the rest of this year going to look like because of, you know, what is happening just globally, what is happening and how is that going to affect what we are doing, investing in early-stage companies? 

[00:20:17] Michael And I could imagine you're looking at these companies during all of this uncertainty, hitting KPIs and thinking, heck, if these companies can hit their KPIs during these unprecedented times, imagine how things are going to go once we get beyond. 

[00:20:34] Jason Yeah, it's a great point. It's always important to kind of step back and reflect on, you know, the circumstances of what's going on broadly in the world and from an economic standpoint versus the demand for a product today. And so, you know what, you always have to kind of keep your eye on is, you know, stock prices might be coming down. You know, valuations for companies are all over the place. But has the fundamental demand for this product or technology, has that changed? And that's really at the heart of what we're trying to always ask ourselves is what is the demand for this product for this value proposition? And do we think that that is going to go up, go down or stay the same? How you value that company, how what the prospects of the public markets look like five years from now or beyond? Like those are all important things to consider. But I think you want to get back to the fundamentals of, you know, does anything happening in the macro economy affect what the demand for this product or service might be? And if you can focus on that answer and you can really get comfortable with that, you usually have a pretty good sense as to the long term viability of the business. 

[00:21:54] Michael The headlines tell us that as many as half of us expect to continue to work from home at least part time post-pandemic. And just as many of us say, we'll participate in the so-called great mass resignation if our company demands we show up in the office every single day. This has people thinking differently from their parents about what work means. Jason Felger says he's focused on new market opportunities and startups that help fuel what he refers to as the new creative age. 

[00:22:26] Jason In some respects, it's just a nice new fancy way to say that a lot of people like to be self-employed. You know, we like to use our talents, whatever those talents might be. Sometimes they're artistic and sometimes they are just a variety of other types of talents. It could be teaching. It could be a number of things. But we like to use our talents and monetize our own talents for ourselves instead of doing it for someone else, right? Instead of working for someone else and providing my talents to that employer, to that enterprise, I want to do it for myself. And in some instances, that's just kind of the fundamentals of being self-employed, which has been a concept we've had for literally the longevity of commerce. But I think what's different today is you're seeing a really meaningful switch in both the data in the sentiment of people who have been employed by corporations and by companies just in general, small and large saying that I don't want to do that anymore and I have my talents, I have my skills and I also have this new proliferation of technologies that I can use to monetize those skills. I can bring them to people all across the world. I have ways to charge for them and receive payments for them that I've never had before, and I have actual tools to help facilitate my talents and my skills in a way that that has never happened before. So you know what gets us excited about kind of the creator class in the creator economy is not that it's a new idea. I think that it's actually the power of it is it's an idea that's existed forever, almost. It's that the technologies and the tools that you can put in the hands of a creator now, as well as just a different sentiment about working for an employer, working for a company. Those two things are happening at relatively the same time, and it's creating a very interesting set of circumstances that we are big believers in. 

[00:24:40] Michael And I could imagine one of the big triggers in this new creative age is that mass resignation that we've seen with COVID-19 and companies dictating to their employees what the plan is post-COVID and some saying, you know what, I don't agree with that. And on top of that, I think I'm worth more than you would give me credit for. So having said that, it feels very much like a millennial and Gen Z type of mindset. I don't know a lot of boomers or Gen Xers, such as myself who were willing to jump ship or jump out of an airplane without having a parachute. So how does advising a younger startup entrepreneur based company differ from one that would say target boomers? 

[00:25:27] Jason I think your assessment is pretty fair. And I always think to myself, as I think about that question is is it about something fundamentally different about, you know, Gen Z than Gen X just to juxtapose those two? Or is it simply that, you know, I'm in my 40s and I have kids and I have a mortgage and my risk profile is just different right than who I was in my 20s. I know there's some nuance to that perspective, so I don't know if it's generational in the sense of like one generation is really fundamentally thinking about the world different than another generation. Or is it just, you know, people, anyone at that age, regardless of whether it was Gen X or Boomers or Gen Z, but when you were in your 20s, if you would have had the same type of technologies in the same type of reach, we would've all done on these types of things, we would have all gravitated towards that. Anyways, that's my little pontification of, you know, is it about generation or is it just like where you are in your life, around age? But I do think there are some differences in how you think about building companies that are focused on those dynamics, those needs that earlier generations or younger generations have today. So I think ultimately, regardless of kind of my perspective on, is it just age or is it about a generation, nonetheless, the needs are different. The customer needs, I do think, are different. If you're building for a Gen Z versus a boomer, for the most part, that offering should look different. That service should look different. So I do think that there is differences based off of who your target customers are. 

[00:27:22] Michael If there is one lesson you want to start up entrepreneur or a growth stage CEO to walk away with, what would it be? 

[00:27:29] Jason There's nothing probably more important that a founder and a CEO can do than to dedicate time to getting the right people in their company. And the best CEOs that I see and the best one whether that's in our portfolio or outside, they put a tremendous amount of their time towards people, whether that is recruiting great people or nurturing and retaining the ones that they have. But they just spend almost a shocking amount of their time on the people part of this. And I think that that gets lost particularly early on, not intentionally. It's just because so much is happening and founders have so many different responsibilities, it's easy to get distracted and get focused on some things that maybe aren't going to create the long term success that they're looking for. But simply said, if you can build a great team, if you can hire and retain great people and you can provide them the motivation and the direction that you are thinking about to build your vision, you're going to be in a really good place. And that is going to be time really well spent. 

[00:28:48] Michael Jason, this has been fascinating. Thank you so much for your time and insight. 

[00:28:51] Jason Absolutely. Thanks for having me, Michael. 

[00:28:55] Michael Jason Felger is the Head of Operating Platform at Jump Capital. Startup founders looking to bring in early-stage investors need to understand, they'll be working closely with them to build and scale the company in those formative years. And when opening a company up to outside investment, it's critical that the founder or CEO work with those who help founders identify and source talent, optimize and accelerate growth strategies, and assist in filling in the finance and operating infrastructure critical to meeting aggressive growth expectations. And as Felger points out, every snowflake is unique and leaning on the lessons learned within a given space while paying attention to the nuances of their specific company will help snowball success. I'm Michael Hainsworth. Thanks for joining us.