Don’t be a sucker for dumb money. Dumb money will eat your startup alive.
What is dumb money? Dumb money tends to be solely transactional. You provide equity, and the dumb money provides the cash. The deal is done.
Smart money is relational. Smart money provides value beyond just the dollars and cents. You want to find a venture partner that will provide a cash investment, of course. But you also want a team that truly stands behind you, can leverage a network and knows best business practices and thinks about the company as passionately as you do. Your equity is your most important asset, so you need to find like minds who truly want to amplify your vision and build things that matter. That’s the way to success and a profitable outcome.
OC4 Venture Studio positions itself as ‘the better way to build technology companies’. We spoke with Carey Ransom, President, and Dave Herman, Former Chief Data Scientist at Bird and now Head of Data & CTO, about their approach to providing smart money to their portfolio of companies. Check out their site, read this interview, and see for yourself.
LA Startups (LAS): Tell us what you’re up to?
Carey Ransom (CR): I’m the originator of pulling OC4 Venture Studio together and co-founded this with my partner Kyle Kamrooz. I’ve been a serial entrepreneur my whole life, and I’ve been what I call an “operating investor” primarily in the software-centric world for the better part of 25 years. I have lived a lot of lives in the early to growth stages of companies. So I think like a founder, I think like an owner.
So if I am good at anything, it’s finding those people who are really good and timely and bringing them together so that they can solve bigger problems more effectively, and optimize the chances of competing and winning in the world.
At OC4 Venture Studio, we are investing in companies that are trying to build value through solving real problems and building good products. Number one is we wanted to be really clear that we are way more than capital. We orient ourselves as operators first and foremost. And we believe that it all comes down to people and getting the best players on the field. Capital is a part of the equation for sure, but it is literally like a quarter part of the overall success formula. We believe that collaboration is a huge part of it too, and that’s why we emphasize coaching. This idea of ‘we all need to be learning from each other, coaching each other, collaborating along the way.’
We believe that you can do this in a much more community abundance mindset approach. That’s our focus at OC4 Venture Studio.
Dave Herman (DH): Yeah, I mean the point of capital is to get a thing done, right? So in order to get that money usefully spent to help build that thing, you need to also have people. You need the right ideation, the right road mapping, the right systems, the right tech stacks, the right attitudes, all these different things. And so just giving you money and advising you is helpful, but it is not really a full solution. And if you’re very early stage, I believe we can make companies move twice as fast with the proper thinking, technologies, collaboration, and community. That’s what we provide.
LAS: We all know partnerships can be tricky. Tell us how you guys decided that you shared the same vision enough to go into business together.
CR: Dave and I are a long time kindred spirits. Even though we’ve come at the world from different places, we have a philosophical alignment, which is core to who we are. And this is the idea that we can help force multiply a lot of impacts and good in the world through a community and support system that we’re building.
DH: I got my Ph.D. in Systems and Computational Neuroscience, and then began my journey into the startup world and FinTech when I started an AI company focused on psychologically modeling in machine learning. The goal was to try to have machines represent mental states and not just predictions and outcomes. That led me here because when you see products today, they’re literally becoming more and more inseparable from data and the user experience. That’s what I like to do. That’s my vision of the world, to see how data is being used to drive products and build things. To affect change. This is the future, and Carey and I are passionate about that.
LAS: You mention that you want the companies you invest in to have an impact. What other metrics do you use to determine if you want to back a startup?
DH: While our core value proposition is that we are experienced experts in digital technologies and scaling start-ups from two to 2000 people, we’re not an expert in the thing you’re passionate about and the way you work. And so we really look for people that are passionate about a thing that we see as a viable, scalable business and fits with the expertise we bring. That person is going to help us understand ‘the why’ and understand their customers. We’re going to bring in all the technology and our experience with customers and what works and doesn’t work from marketing, from technology to internal business culture to developing your early teams and all those kinds of things. At the end of the day, this is your dream and you’ve been living in this problem.
I want to hear you say “I know there’s a problem. I got an idea. It makes a lot of sense. I can fix it but I need help building it.”
CR: We think there is a way smarter way to build companies. I’ve been in far too many companies where there hasn’t been any real strategic view about data. And so we end up with a garbage in, garbage out the problem and we have flawed decision making or maybe even worse, we have no ability to use the data. And so we were working very hard at the wrong problem.
DH: Right. It’s gotta be the product first, and then you make sure you think beforehand what data you need to support that product. What kind of math do I need, what scales, what doesn’t.
LAS: What should an entrepreneur look for in a venture partner?
CR: You don’t want a partner that just gives you money. That’s high risk believe it or not, and frankly, we feel like we don’t want to take that kind of risk either. We talk about a collision, where a good venture partner is going to bring the best people together. We’re going to force them to collide, and that’s going to create great outcomes. That’s going to create great opportunities. That’s how we think about the people and businesses we like working with to really solve bigger and better problems. We have the playbooks, and we have the best practices, we have the networks of people and partners, and we all are committed to continuing to evolve and learn. And we really seek a broad diversity of others to work with.
What we’re trying to do is empower people to be able to express themselves in the world. And be able to go from ideation to creation much more rapidly. You need to look for partners who can force multiply and amplify your innovation. That’s what we focus on. Those are the kinds of values I would look for in a venture partner.
DH: For me, it’s always asking what is the balance we need to be striking when we’re engaging companies?’ Because while we were coaching, we’re thinking about the right way to service our partner companies to add value but not too deeply where everyone is just another cook in the kitchen.
LAS: Tell us about the one challenge you thought about first thing this morning?
DH: What we want to do is figure out how to formalize the process so that we can make this repeatable, make it organized, make it something that’s understandable to everyone. Where expectations are clean and you could build things quickly and feel good about that. Business historically has always been such a soft and squishy thing, but I think it doesn’t have to be. So we’re always thinking about the best ways that businesses are built. That’s a forever question.
CR: I think the challenge right now in this stage is we have a way bigger appetite, which we probably always do. So trying to figure out how to match that. So when I first woke up, I thought about a term sheet out to a founder that I need to get finished, so we can begin telling that story, and start building that company alongside him.
LAS: Tell us about someone that caught your attention that you’re thinking about backing
CR: We just had a meeting with someone we’re about to bring in. He was self-taught, he taught himself robotics using YouTube and some other websites as a teenager. Then he was employed as a robotics engineer by a big global company, youngest ever. And he sees just this huge opportunity to train people in advanced technical skills that they’re not getting good experiences with today and helping fill jobs that are largely going unfilled because the pace of technological change is now surpassing the general education system’s ability to prepare people for it. We can’t learn it fast enough, right? So he sees this challenge, has a big vision for a solution, and he can execute. He’s already generating users and customers and built a nontechnical version of the business. This is exactly why we exist and exactly the type of partnership that we should be building.
LAS: How has COVID-19 affected your thinking or approach?
DH: It’s very hard for anyone to say ‘Oh, your business should have been more resilient and prepared for this.’ We are living a different model right now.
But we all need to be thinking about differentiation. How we handle volatility, cash flow, how to leverage resources rather than just hire more, raise more money. How do you make better, more efficient decisions? How do you tighten up and yet still grow? We’re going to learn new things, and I think it’s an open-minded, humble, empathetic perspective that will get us through this. If you roll up your sleeves and dig into these things, there are lots of opportunities.
CR: To Dave’s point, I think we’re designing the ultimate kind of anti-fragile business structure so that when there are either incremental or significant shifts, we can actually adapt. We’re building design into our organization so that we can adjust as needed. It’s supercritical and always has been. There’s always unanticipated change that’s going to happen.
LAS: Any last advice for the aspiring business icons out there?
CR: You know, humanity creates more problems than they solve. Technology has created these incredible lower-cost access opportunities for people everywhere, even just the access to information is profound. But also at the same time, this has created an inequality that’s never been seen before for people who don’t have the same kind of access we do. That’s a core part of what we’re also really trying to figure out, how to bridge that gap.
So what advice would I give young entrepreneurs? I think for me it’s two things. Number one is: you really need to understand what you want out of your business, right? Like you need to be really clear. If it’s just about money for you, then just get clear about that. But the people who are going to be game-changers for what we’re talking about, for them it’s more of a calling, more of a mission. In our opinion, that’s what it’s going to take to have the resilience and grit to persevere, especially since it’s never a straight line. It’s always going to be a meandering journey.
And number two: when you have an opportunity to take other people’s money and other people’s time, you really need to take that very seriously and really think about it. Because it’s an obligation. It is debt. When you start hiring, now you have other people that you are responsible for. Think about that.
At OC4 Ventures, we think of it as a family and you need to think of it as family. Really get clear about that before you go do it. It’s really hard. But nothing is more fulfilling and energizing when you really wrap yourself into it in this way.
DH: Agreed. Knowing yourself is the most important thing you could possibly do. So that you know what you don’t know. Being really aware of what you want and what your strengths and weaknesses are will save you time more than anything. So you can ask for help when you need to. So you can stick to your vision when you need to. It’ll save you and everyone else around you more than you could ever imagine.