In the run-up to an exciting announcement about the future of Loeb.nyc, Ed McCabe interviewed Rich Vogel (CFO/COO) about what he’s learned about building startups, hiring the right people and making smart venture capital investments.
Ed McCabe (EM): In looking for a startup to invest in, how does Loeb.nyc differentiate? What are the key things you look for?
Rich Vogel (RV): We are people-first investors. We would invest in a great CEO (with a less developed business model) before we’d invest in a more established business being led by a less talented CEO. Great early-stage CEO’s are a very unique breed. They’re the people who will walk through walls to move their business forward, so identifying one of them and bringing them under the umbrella – making them part of the family- is a value that’s difficult to quantify, but one that we put very high on the list.
We look for companies that have found a solution to a real problem. Unfortunately, some very high percentage of startups believe they have found a solution, but it’s a solution to a problem that doesn’t exist, it’s a solution to a problem that they imagine exists or might exist, or one they imagine is a much bigger market force than it really is.
Solutions to genuine inefficiencies in supply chains or markets are very important and the ability for that company to scale is very important. We’re at the point now where upside potential drives a lot of our thinking – so scalability and an environment where the flanks can be protected are very important factors in what we’ll bet on.
And then of course somewhere near the top of the list is our belief that we can significantly help the company. We’re excellent investors in situations where we can put our shoulder behind the company and really make a difference. So, if I don’t think there’s much we can do for a prospective investment, I’m less interested in spending much time evaluating it. Our ability to make a positive impact and accelerate the growth of the company is right at the top of the decision tree.
EM: Turning the attention away from the CEO and towards the employees: what do you think differentiates good from great?
RV: We have always looked for brain power. We believe smart folks will have an outsized impact on the company over time. So, I would tell you brains matter for sure, but grit matters just as much and grit is a difficult thing to define and identify. It encompasses ambition that comes from within and a burning desire to succeed. For anyone evaluating early-stage businesses, and for all of us who support and live to see them succeed, I think the grittiness of the people who work in our ecosystem can’t be overvalued.
Somebody who can find their way to a solution without being given a roadmap, without having every resource in the book is a pretty good fit. Gritty, smart, hungry, intellectually curious employees and contributing members of the community – those tend to be the great ones.
EM: How has your model/position changed and where do you see it growing in the future?
RV: When Michael [Loeb] and I started this company [in 2006] we did not know who we were, or what we were, or what we wanted to be. We were fortunate enough to have sold a few companies prior so we had a little bit of time to figure it out and what we came to know is that the most exciting part of business development for us is in the early-stage: from the ideation (and sure, hopefully, to exit), the first 10 million dollars of revenue are incredibly gratifying to create, and yes the first hundred million dollars are also incredibly gratifying to create, but at some point we become less inclined to spend our time on marginal improvements. Once a company reaches a certain size, it has to pay more attention to making the widest possible array of small improvements, but in the beginning, when the world is your oyster and the value graph is shooting steeply up and to the right, I think that’s what gets us out of bed in the morning.
Michael and I, and everybody here at Loeb.nyc is wired to make companies as big as they can be. We are a growth-focused shop, a growth factory, and we don’t tend to think much about the eventual disposition of an asset as we’re building. Ninety percent of the time our default brain power goes to making the company bigger, bigger, bigger, over time.
EM: What is your take on shared services – what do they do, why, and how?
RV: Shared services exist to benefit portfolio companies, it exists to accelerate their development. We bring expertise to portfolio companies that they either don’t have themselves (because they’re young and not fully built out) or because there is a higher and better use for their own employees. Generally, portfolio companies come in with a solid idea about their product and a vision about how they’ll build their tech. We can fill out – with world-class talent – those things that they’re not staffed to do in the early stages. Everything from marketing verticals to production to finance and accounting.
Michael likes to say that there has never been a good entrepreneur that is good at paying bills. Entrepreneurs are good at thinking about their businesses and building their businesses, they’re not so good at coding invoices and producing financial reports on a monthly close schedule. There’s no early-stage entrepreneur who puts those things at the top of their list. We can do all of that for them.
We also have deep talent in marketing verticals that they aren’t focussed on in the early stages. Maybe we have a world class UI/UX team that they can tap into; offline marketing channels that most of our portfolio companies don’t think about first we do very, very well. We are built to accelerate the development of our portfolio companies and we only win when the portfolio company wins. So our primary reason for being is in creating better, faster, larger outcomes for our companies.
EM: If there is a title for a 101 course that Loeb.nyc gave, what do you think that would be called?
RV: Grow. We are growth focused, we are growth enablers, we are growth – that’s what we’re about…month over month acceleration. It’s kind of cliché to say about early-stage businesses – but this is a growth focused ecosystem, it really is. It’s growth-centric. Come in early and all we care about is making you bigger.
EM: What advice do you have for new founders and talent?
There are things you are naturally better at than the people sitting next to you. Don’t spend your time on those things that you’re not as naturally gifted in. Focus on your strengths…leverage them… that will be a career accelerator. It’s very similar to the thought process we’ve gone through since 2006, me and Michael and the broader Loeb.nyc. What are we naturally gifted in, what shouldn’t we try to be good at? We’ve learned a lot about ourselves over these last twelve years. And we’ve tried very hard to build Loeb.nyc to leverage our strengths…I believe we’re succeeding in that quest.
The observation that eighty to ninety percent of new companies fail is fascinating to us and the operative question is why they fail. We’re built to mitigate as many of the failure drivers as possible. So, do they fail because eighty to ninety percent are bad ideas? No way. No way! Because you watch a company fail and then that idea gets started up by somebody else who executes it beautifully and now there are four of those companies out in the world and yours failed. So why did yours fail? Maybe it’s capital. Maybe it’s because when CEOs are running around trying to raise $50,000 at a time from 100 different people they are not focused on their product and they are not focused on their tech and they are not focused on their business. We provide capital so they don’t have to think about that. That’s just one example…but attacking the eighty to ninety percent failure rate by providing answers and solutions to the causes – that’s how we bend the success curve here. That’s how we have more successes than failures. Right now, what do we do? We eliminate, to the extent possible, the reasons that contribute to the astronomical failure rate. Maybe the idea needs to pivot 15°, maybe the business needs a key person that it can’t recruit, maybe it needs just the right UI person. Maybe we happen to have someone who’s really good at thinking in a particular way at just the right time. Whatever it is, we try to add it to the mix.