CC039: Catharine Dockery of Vice Ventures // investing in good companies operating in “bad” industries

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Catharine Dockery 0:00
One of the goals of Vice Ventures is to help people remove vice causes and really think about what vice is and what vice isn’t. So getting the word out there about the movement that we’re starting is extremely helpful, both for deal flow and also just for changing modern culture.

Jay Clouse 0:15
The startup investment landscape is changing, and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.

Jay Clouse 0:43
Hello, hello, hello, and welcome to the Upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse, and I’m accompanied by my co-host, Mr. Hello Hello Hello himself, Eric Hornung.

Eric Hornung 0:54
Do you remember how that came up, how we created that?

Jay Clouse 0:57
I think we ripped it off from John Oliver.

Eric Hornung 0:58
We did. We stole it completely from John Oliver. I think he says, Welcome, welcome, welcome. And I like that intro. So we just said, we’ll just do something similar, but instead of welcome, we’ll just say, Hello. Do you watch a lot of John Oliver? Or did I’ve come up with that?

Jay Clouse 1:13
You came up with that for sure. I watch some. I used to watch more. But I don’t know, it’s interesting how patterns of behavior just kind of come and go.

Eric Hornung 1:24
Like you’re really into something for a while and then all of a sudden you’re not?

Jay Clouse 1:27
Yeah, you missed like a couple of weeks in a row and it falls out of your behavior and you forget. Like I’m often thinking was that music that I was really stuck on like a month ago that I just stopped listening to that would probably enjoy now that like a month has passed?

Eric Hornung 1:39
Billie Ellish, you were really into Billy Ellish.

Jay Clouse 1:41
Billie Eyelash?

Eric Hornung 1:43
I don’t know. I’ve only seen it written.

Jay Clouse 1:45
Eilish. Eilish is the pronunciation.

Eric Hornung 1:47
Okay, well, there goes the boomer and me just escaping into the microphone. Yeah, I think I was really addicted to a few programs on HBO. What was the one that was directed by Scorsese that was about like the rum runners and the bootleggers?

Jay Clouse 2:01
I don’t know.

Eric Hornung 2:01
Boardwalk Empire. You don’t know Boardwalk Empire?

Jay Clouse 2:04
Never heard of it.

Eric Hornung 2:05
I was addicted to that. I got through like, all eight seasons just non stop. It might have been less than eight. Not really sure. Yeah, man. You don’t, you don’t have any like TV shows you get really into?

Jay Clouse 2:14
Of course I’ve TV shows I get into. I just don’t know all of this bootlegger, rum, empire sorta CD stuff that you’re talking about.

Eric Hornung 2:23
Oh, well, you know what’s a good one, though that isn’t like as much of a show like a news, like Vice News. You ever watch that?

Jay Clouse 2:29
No.

Eric Hornung 2:31
All right. Well, you are just not playing along well with my intro right now, but that’s okay. Because today we are talking with someone who probably has watched Vice News.

Jay Clouse 2:39
That’s right. We’re talking with Catharine Dockery, the founding partner of Vice Ventures, an early stage venture fund investing in the nuance of vice specializing and growing good companies in bad industries such as cannabis, sex tech, alcohol, e-gambling, harm reducing nicotine, and more. Interesting thesis here, Eric. I learned Quite a bit about the existence of vice clauses in preparing for this interview. We have been told by an investor once before that they would pass on a company because of their vice clause. But hadn’t thought about in a while. And you brought this company to table and here we are.

Eric Hornung 3:15
It’s very rare nowadays, given the amount of introductions we get, cold emails, that get sent into us that we do outreach. But I saw back in June or July that Vice Ventures had raised around and I thought, wow, this seems something that’s on the fringe. And you know, Jay, we like to explore the fringes of entrepreneurship and entrepreneurial funding here on upside. So we reached out, and really excited to have Catharine on the podcast.

Jay Clouse 3:42
We’re here to scratch your itches, Eric. Vice Ventures was founded in 2019. It’s based in New York City. They’ve raised their first fund, a $25 million fund, with investors including Marc Andreessen, Bradley Tusk, and more.

Eric Hornung 3:55
The classic Marc Andreessen as an LP move.

Jay Clouse 3:59
We’d love to hear your thoughts on the episode as we go through, you can tweet at us @upsidefm, or if you would prefer to operate a little bit in the dark, you can email us hello@upside.fm. And we’ll get to that interview with Catharine right after this.

Eric Hornung 4:12
Jay, would you say you’re more of an operator or an allocator?

Jay Clouse 4:15
Operator, for sure.

Eric Hornung 4:16
You’re definitely an operator? Well, if you were going to hire someone to hire for you, would you want to hire an operator or an allocator?

Jay Clouse 4:27
Eric, I’ll be honest with you, I don’t know what the term allocator really means in this context.

Eric Hornung 4:31
All right, well, let’s pretend it means capital allocator.

Jay Clouse 4:33
Ah, I would want to hire an operator.

Eric Hornung 4:36
Alright, well, that’s great, because our friends over at Integrity Power Search are a team comprised of ex operators, of successful high growth startups, and tech companies, which allows them to be a true strategic partner. See, Integrity Power search is the number one full stack, high growth startup recruiting firm between the coasts. They partner with venture capitalists, private equity groups and CEOs to build amazing teams for the world most disruptive companies, like upside, Jay. Since 2012, they’ve successfully executed 600 plus searches and are on track for 200 more in 2019. Their clients have successfully raised over 2.5 billion in venture funding, and that is still counting.

Jay Clouse 5:17
Sounds like they know how to operate a recruiting firm.

Eric Hornung 5:20
And they know how to identify great operators for your startup.

Jay Clouse 5:25
Smooth operators. So if you guys want to meet Integrity Power Search and learn what they can do for your high growth startup, go to upside.fm/integrity and get started.

Jay Clouse 5:40
Catharine, welcome to the show.

Catharine Dockery 5:42
Thank you so much for having me. This is awesome.

Eric Hornung 5:44
On Upside, we like to start with a background of the guests. So can you tell us about the history of Catharine?

Catharine Dockery 5:49
Yes. So Catharine was born in the West Village. My dad was a bartender working at the Corner Bistro. My mom was a flight attendant at United Airlines. I went to NYU, studied a combination neuroscience and finance at the Gallatin school there. My first job out of college was trading high yield debt in the sales and trading program, which I hated, and quitted after my second bonus. Then I did a lot of contracting for like random places for a PR firm for a few hedge funds. And then met the founder of the Bonobos, Andy Dunn, and worked for him ever since.

Jay Clouse 6:22
That was a quick rocket ship there. When you say you met the founder of Bonobos, and then started working with him, how does that all happen so quickly?

Catharine Dockery 6:29
Yeah, so I was contracting for a PR firm called Small Girls PR. And I was doing a research project and I presented research, and he loved it, and we got along really well. And we figured that it would make a lot of sense of I worked for him directly. So I did a lot of side projects for him in the beginning, and then within a few months, took over his venture portfolio. And Andy’s an incredible investor. So I met like really incredible founders through that position.

Eric Hornung 6:55
Within a couple of months you took over his venture portfolio. That’s quite a sentence. Can you, like, dissect that a little bit more?

Catharine Dockery 7:01
Yeah, so I was doing a lot of projects for him like long term projects, and one of that was organizing his portfolio of private investments. Then kind of meeting all the founders understanding what was happening in the portfolio, vetting deal flow. And it, I mean, before that I had no experience in venture capital. So I really dove right in and learned as much as I could.

Jay Clouse 7:21
How did that start? You know, you’re doing, you’re doing PR and doing some of these personal projects. At what point did you or he say like, maybe it makes sense to look at some of the private investments I’m making?

Catharine Dockery 7:31
Yeah, so it kind of, one of the projects was to kind of learn how some of the companies were doing. And then having a finance background and really understanding valuations and how to value a business from my trading days, we kind of thought it made sense for me to take that over.

Jay Clouse 7:44
You said that you were doing high yield debt, and you you hated it, and you quit after your second bonus. What did you hate about high yield debt? And actually, maybe for the, the less financially inclined folks like me, what is trading high yield debt even mean?

Catharine Dockery 7:57
Yeah, so trading high yeild debt is trading risky debt for companies, like J Crew who has outstanding debt, and that pays a very high dividend. So that’s trading high yield debt. The reason why I hated it is I was the only woman on the desk, and everybody’s normal mode was just scream. Like if they wanted lunch, like what’s for lunch?! And it was like the most stressful thing I’ve ever been in, like, I could not handle it at all. So I mean, my now husband, at the time, I would come home, I would cry, I would complain to him how much I hated it. He was like, you should just quit without a job. Like you’re smart enough. You’ll find something to do. It’ll be fine.

Jay Clouse 8:32
Dad was a bartender, mom was a flight attendant. How’d you get into high yield debt and the world of finance in the first place?

Catharine Dockery 8:38
Yeah, so in college, I went to NYU, as I said, which is a Manhattan. I interned on the floor of the New York Stock Exchange for two years. And when I was down there, I wrote a blog called Docker’s Daily Docket that actually explained why the equity market was moving based off of human behavior instead of like, Walmart came out with earnings over that return higher than people thought and that’s why the stock is about 10%, or something. And that blog ended up having over 800 readers from a ton of banks, from a ton of hedge funds. And Citigroup actually reached out to me because they were all subscribers, and were like, we’d love it if you would join our program.

Jay Clouse 9:11
How long did you run that blog?

Catharine Dockery 9:13
Two very long years. I would wake up at four in the morning in college and write it, which is clinically insane now that I’m looking back on it.

Eric Hornung 9:20
Where did you get the inspiration to do that, like from a behavioral standpoint?

Catharine Dockery 9:25
Yeah, so it originally started when I was working at this brokerage firm that kept making a lot of mistakes just because all the brokers were independent contractors, and they weren’t talking to each other. So I figured one way to kind of unite the desk would be to write a morning newsletter, and it kind of grew from there. And I kind of realized that the equity market moved in terms of human behavior. When I took this one class at school that basically talked about finance and…human behavior and finance. And I realized that people trade based off of fear, based off of emotions, and rarely trade based off of data.

Eric Hornung 9:56
Alright, so you’re working for Andy Dun. Let’s get back to the story. You’re working for Andy Dunn. And the next thing, just kind of like scanning your LinkedIn here, all of a sudden you’re working for Walmart. Is that because of the Bonobos acquisition, or what happened there?

Catharine Dockery 10:10
Yeah. So Walmart acquired Bonobos. And then there was a really interesting opportunity to join the M&A team there. And basically, I realized that my background in kind of evaluating early stage companies that are digitally native brands can then come full circle as we potentially think about acquiring these brands. And like what these early stage businesses would have to look like to get to that point.

Eric Hornung 10:29
So you got Chief of Staff, you got PR, you got high yield. You’re in internal M&A, you’re writing a daily newsletter all throughout your history. When does the idea for Vice Ventures kind of show up?

Catharine Dockery 10:41
Kind of within the first month or two working at Walmart, I realized that some people absolutely love it. But unfortunately, M&A was not something that I was passionate about. So I told Andy I wanted to leave and I was looking for a year. So I started interviewing and a ton of consumer venture firms. And all of these firms had me pitch a business and pitch idea. So I personally invested in the pre seed of a company called Bev, which, which is a direct to consumer rose business based in Los Angeles. So obviously, I would pitch Bev because it was the best way to bring Bev and all the doors of all these funds. And basically all these funds unanimously were like, we love the founder, we love the brand, we love the vision, we think distribution is fantastic. We can’t invest in it because we’re not allowed to invest in alcohol. And that, to me, was totally crazy, because you have such a great company and like our businesses exit every few months, you see huge exits there. So I just didn’t understand why people were passing on it. And I didn’t understand what a vice clause was.

Jay Clouse 11:38
Same. So tell me about not being allowed to invest in something through a vice clause. What is a vice clause?

Catharine Dockery 11:44
Yeah. So base cause is a legal agreement and an LPA, which is a limited partner agreement, basically what investor sign when they invest in a fund. And it precludes a lot of investors from investing in cannabis, alcohol, nicotine, sex tech, psychedelics, online gambling.

Eric Hornung 12:02
How do these companies get funded? Like, Skinny Girl or whatever these brands that kind of blow up, how do they get funded?

Catharine Dockery 12:07
Yeah, so in the very beginning, it’s a lot of family offices and angels. So the cap tables look very choppy with a ton of small jobs.

Jay Clouse 12:15
Why do LPs want a vise clause?

Catharine Dockery 12:18
The LPs that want vice clauses are usually endowments and pensions and religious organizations. And they kind of decide what vice is and what vice isn’t.

Eric Hornung 12:26
And so you looked at this and you said, okay, there’s this little market niche that– well not, maybe not little–there is a niche in the market where this vice clause is inhibiting, and you went out and raised the fund. What was thought on who was going to co invest with you in this fund?

Catharine Dockery 12:43
So before I raise the fund, I actually raised a sidecar for a company called Recess, which is a CBD sparkling water. And at the time, in the very beginning they were having trouble raising because 0.3% of full spectrum CBD has THC in it. So they ran into a ton of vice causes. And l loved what they were doing, and I thought the founder, Ben Witte, was a total genius, and I really wanted to get involved there. So that was the first deal I did before I raised the fund. And Recess has since blown out, they have great distribution, they’re all over New York they’re like launching in other parts of the country. So that really kind of proved the thesis that I felt like this should exist.

Jay Clouse 13:19
I want to dive a little bit deeper on these segments that you say have vice clauses, endowments, pensions, religious organizations. Religious organizations seems pretty straightforward to me as to why they would not want to have any tie to companies like this that are tied to vices. What about pensions and endowments? Why do you think they are also morally or ethically opposed to this stuff?

Catharine Dockery 13:40
Yeah. So I think some endowments have to tie to universities, so they don’t necessarily want to invest in things that they don’t want their students using. And I think some pensions I mean, they’re very risk averse, because you’re handling people’s retirement money. That’s a very serious position that you’re in if you’re managing the money of a pension. So I kind of see, like, innovation happening very slowly there.

Jay Clouse 14:00
What proportion of LPs in, you know, most funds in United States have one of these three segments as part of them?

Catharine Dockery 14:08
I honestly, I don’t know for certain, but I can say that it’s very hard for a lot of my portfolio companies to raise capital from institutional funds.

Eric Hornung 14:17
Have you found that there’s a subset of investors who you’re most likely to co-invest with who don’t have these vice clauses?

Catharine Dockery 14:24
Yeah, so Founders Fund is a great example. They came in for Bev actually. And there’s a few other funds that were…have, like, promise, have great returns and great track records, that they were able to kind of decide who to let in, who not to let in. Another great example is RRE Ventures.

Eric Hornung 14:40
Is what?

Catharine Dockery 14:40
RRE Ventures, based in New York.

Eric Hornung 14:43
So I want to kind of pivot a little bit to when you’re looking at a potential investment and get out of the structure of the vice clause for a second. These kind of industries are known for having–I’m gonna use the word CD because I can’t think of a different word for it, but kind of CD operators, the sex tech industry, the cannabis industry, all these industries that kind of get ruled out by Vice causes. How do you think about doing due diligence, and how does that compare to maybe a more traditional b2b enterprise, tech investment?

Catharine Dockery 15:12
Yeah, so the first thing we look for in a vice company and a vice founder is the level of intellectual honesty they have, just because more so for vices, there’s more compliance, there’s more regulation. And it’s super important that the person understands when they need help and when they need to follow the rules, and kind of understanding all of that. So that’s the first thing we look for. In terms of doing diligence, it’s pretty similar just to other consumer brands, in the sense that distribution is really important, understanding the supply chain, understanding what the unit economics look like, and really diving in there with a founder and helping them build their business while we’re doing diligence.

Jay Clouse 15:48
How do you gauge intellectual honesty? Like what’s a what’s a good sign? What’s a bad sign?

Catharine Dockery 15:53
Yeah, so one example is a low ABV alcohol, which is alcohol by volume, that’s direct to consumer. That is a very seedy, gray area, like even though the law states something, like, they’re probably going to change it, like, it’s very dicey. They’ll most likely need the help of a lobbyist at some point to kind of step in there. So we’re talking to the founder about the regulations of it. He was like, yeah, we’ll never need a lobbyist, like it’s totally legal. Everything is fine. That to me is not intellectually honest. Like you’re building something in a gray space, like you’re going to need help.

Eric Hornung 16:25
These kind of loopholes and regulations and laws, and when you get to the middle of the country, specifically, we have like old blue laws that are statewide or city wide or whatever. How did you get kind of up to speed on those to the point that you could determine whether or not someone’s being intellectually honest?

Catharine Dockery 16:43
Yeah, so I’m extremely lucky. One of the advisors of Vice Ventures is a man, a brilliant man, called Bradley Tusk who has a fund called Tusk Ventures and also Tusk Strategies, which is where he acts as a lobbyist basically to help these startups succeed. So he is the regulatory master mind behind Vice Ventures.

Eric Hornung 17:00
Are his services offered to portfolio companies?

Catharine Dockery 17:03
He helps. I mean, I mean, the portfolio companies would, of course, have to pay for his help. But he does help in the beginning in kind of steering clear of investments that don’t make regulatory sounds.

Jay Clouse 17:13
Probably the most culturally prominent vice company that comes to mind for me right now is Juul. So if you look at Juul, and a lot of people are talking like, I can’t believe anybody would invest in Juul, what is your perspective and take on that as a business as someone who is on the finance side of a deal like that?

Catharine Dockery 17:31
Yeah, I think Juul did a fantastic job bringing return to their investors. And I think it’s really hard to build an e-cigarette company in America. And I think they’re doing their best to kind of stay above board and make sure everything is fine.

Jay Clouse 17:43
So the website says, “focusing in companies doing good in bad industries.” I’m interested in the word “good.” Is “good” a moral judgment or a positive return for investors like doing well?

Catharine Dockery 17:57
So I think those go hand in hand a lot of the time. But in terms of good companies, what I mean, is companies that are bringing harm reduction products to the market. So I think part of the reason why Juul expanded so much is because it’s a harm reduction for people who are smoking cigarettes.

Eric Hornung 18:12
What are some products that either exist or don’t exist that you’re excited about in this harm reduction space?

Catharine Dockery 18:18
So a company called Lucy, which was founded by the Soylent founders, if you remember Soylent. They created, they basically were heavy smokers didn’t want to be smokers, we’re trying to find an alternative, realized that 90% of people who tried to stop smoking fail completely. And one way to do that would be to create actually a harm reduction gum that tastes better, that’s more flavorful than Nicorette, that’s discreet, that you can use on the go, and you can use indoors, and just transfer your nicotine addiction to something that’s less harmful. And they also just came out with lozenges, which I think are delicious and a brilliant concept.

Eric Hornung 18:51
Is that kind of product typically prohibited from a vise close?

Catharine Dockery 18:54
Yes. Yeah it is prohibited. So because it’s nicotine, they definitely…I mean I have lots of people sending me the deal who are like, we can’t do this because it’s like a nicotine issue. But like, you would definitely love to do this. I’m like, I love this company, it’s amazing, it’s fantastic. They’re like, we wish we can be involved. So yeah, for sure.

Eric Hornung 19:11
What is harm reduction look like in sex tech?

Catharine Dockery 19:13
That’s a fantastic question. So I think, the first thing I can think of is porn companies. So a lot of porn artists don’t get paid as much as they should. It’s like a very seedy issue. Then there’s one business that’s actually creating porn for good, which I think is a brilliant concept. And that’s a great example of harm reduction,

Jay Clouse 19:32
You have a background in PR. This is a very unique PR opportunity as a company. So how do you think about PR for Vice Ventures and the companies that you invest in?

Catharine Dockery 19:43
So we have a fantastic PR team that’s really kind of helped us shape our voice and shape our brand. And it’s in saying that we do grow good companies that are operating in bad industries. So that’s been very helpful.

Jay Clouse 19:55
And helpful in what way? Is PR useful for you simply for deal flow, or, like how, how necessary is PR for this type of firm

Catharine Dockery 20:05
So one of the goals of Vice Ventures is to help people remove vice causes and really think about what vice is and what vice isn’t. And so getting the word out there about the movement that we’re starting is extremely helpful, both for deal flow and also just for changing modern culture.

Eric Hornung 20:20
I think you kind of mentioned a few of them earlier, but what’s the exhaustive list of bad industries?

Catharine Dockery 20:26
So cannabis, alcohol, sex techs, CBD, hemp, psychedelics, online gambling, eSports.

Eric Hornung 20:33
Have you made any investments or seen anything in the psychedelics space? I’d like to hear just kind of what’s going on there, something we have not talked about at all on this podcast.

Catharine Dockery 20:42
Yeah, so I’ve seen a ton of companies that are coming out with medical psychedelics, hoping that it gets approved in the next few years.

Eric Hornung 20:49
Who’s it has to get approved by?

Catharine Dockery 20:50
The FDA.

Eric Hornung 20:51
And this is like micro dosing for some medical condition, or can you just explain a little bit more about what the thesis would be?

Catharine Dockery 20:58
Yeah, so I’ve seen a few companies that are looking to start psychedelic clinics for people with severe medical issues, with people who have cancer or who are dying who have to kind of understand what it looks like or what it means to die, and it kind of mends minds and helps people think differently.

Jay Clouse 21:15
Talk to me about portfolio theory for this, given that there may be regulation changes or cultural changes, like are you still looking at a 10 year time horizon? Is the math kind of the same? How does that work for this industry?

Catharine Dockery 21:28
Yeah, so I think there’s a lot of exits in vice companies in general, especially in like our nicotine or any of the other products. So we kind of hope that they’ll be exits for these companies before 10 years because the ultimate goal of Vice ventures of course is to return to investors. But there is a 10 year horizon for sure.

Jay Clouse 21:45
Are exits more difficult to make happen in this industry, too? Like you corporations have vice clauses about the type of companies that they buy?

Catharine Dockery 21:52
No. So there’s a whole list of public companies that only do vice products. So ABV and Bev or Jiajia or Constellation or Canopy or PornHub, for example, which is a huge company, there’s tons of exit potential in the industry.

Eric Hornung 22:06
So it’s really easy to start like an e-commerce company now with Shopify and whatever else. And it sounds like it’s really hard to start a vice-esque company. Does that mean that there are premiums on vice companies when they, when they do exit? Or how do exit multiples work for the space?

Catharine Dockery 22:25
So it is all based on revenue, of course, and distribution, kind of like any other space. So a great example would be Juul who exited at a crazy valuation, or a partial exit at a crazy valuation based on their amazing distribution and the products that they’ve built.

Jay Clouse 22:39
What’s an example of what you would call unfair PR or public perception of a vice company?

Catharine Dockery 22:47
Yeah, I mean, I think the vaping crisis is a great example. It’s pretty clear that a lot of the vaping deaths are because of counterfeit cartridges and not vitamin E-acetate in THC products. And I It’s kind of unfair to have a blanket that just says that vaping is bad in general, because there’s a lot of really incredible vaping products out there. And I think the kind of moral of that story is really about regulation, and if cannabis was legalized federally, they’d be able to come in and legalize what should be in a vape and what shouldn’t be a vape, and these issues want to be happening.

Eric Hornung 23:22
Why is eSports a vice industry?

Catharine Dockery 23:24
It’s neurologically crazy addictive. So we definitely consider it to be a vice.

Eric Hornung 23:29
Shifting back into the portfolio theory that Jay brought up earlier, you raised a $25 million fund. You’ve, I think, five or six investments at this point, how many investments are you going to make over the course of this fund? And are you leading these investments are following on? What’s, what’s the fund dynamics look like?

Catharine Dockery 23:46
So we’re definitely looking to lead deals and companies that we have a lot of conviction around. And we’re looking to make between 30 and 40 investments total over five year time horizon.

Jay Clouse 23:56
How much headwinds do you face as a contrarian voice in the world of, like, Juuls. You know, how much do you have to be out front saying you guys are thinking about it wrong? And how difficult is that?

Catharine Dockery 24:08
I mean, it’s always difficult to kind of be somebody with a different idea. I think it is definitely not an easy thing to do. But I think it’s important to stand up for kind of facts and actual knowledge around the space.

Eric Hornung 24:19
Do people ever make you feel like a bad person?

Catharine Dockery 24:21
No. I mean, actually, my uncle did. When I told my uncle about what I was doing, he was like, this is terrible, who’s gonna give you money? And I was like, What? That’s the last thing I want to hear as I’m starting this.

Jay Clouse 24:33
I was gonna ask the very Midwestern child question of, what did your parents think when you told them that this is what you’re going to do?

Catharine Dockery 24:41
Yeah, I mean, my dad loved it. My dad was like, this is amazing, I love this, like, this makes total sense, you should do it. The rest of my family was like, Who’s going to give you money? Like I just don’t understand, like, why you’re starting this business at all. This is crazy.

Eric Hornung 24:52
Classic bartender.

Catharine Dockery 24:54
Yeah. I like to pretend my dad’s a visionary.

Jay Clouse 24:58
I’m sure you find yourself in sort of this minority in crowd in this movement or trend. How often are you surprised by other people that you’re finding out are in this space, maybe not even publicly?

Catharine Dockery 25:11
So the people who are in the space tend to be very proud of what they’re building and definitely want to share. I mean, I’ve seen the craziest pitches from sex dolls to, like, really naughty, naughty stuff. And everybody is just really proud of what they’re building, which I think is incredible and really inspiring.

Eric Hornung 25:28
Do you have a team?

Catharine Dockery 25:29
It’s just me right now doing this.

Eric Hornung 25:31
So you’re going into pitches with sex dolls, just you, just evaluating this on like its face value.

Catharine Dockery 25:36
Yep.

Eric Hornung 25:37
Okay, so this is your first fund. What has been like the biggest shock or difference or surprise from launching a fund?

Catharine Dockery 25:45
Yeah, so the most surprising thing is definitely the sheer amount of how many times I’ve had to say no to people. I mean, I love…Having built something myself and fundraised for something, I know firsthand how difficult it is. And I know how badly no’s can hurt us, especially if you’re excited to talk to someone. So it’s really hard to say no to so many people all the time.

Eric Hornung 26:04
How hard was raising the fund?

Catharine Dockery 26:06
It was very difficult. I sent over 500 cold emails in order to raise it. And every time I took a meeting, I asked if they could make two introductions to someone that would be interested in an investor.

Eric Hornung 26:15
How many total meetings did you do? Because you left Walmart in, according to your LinkedIn, August 2018. And I think vice was announced in like July of this year.

Catharine Dockery 26:25
Yep.

Eric Hornung 26:26
So that’s a pretty quick turn.

Catharine Dockery 26:27
So I started fundraising in January. So that’s when things really kicked off for me. I couldn’t even tell you how many meetings I took. My calendar was a nightmare. My husband was like, I’m so worried. He was like, you need a time to breathe. Like what are you doing? I’m like, No, I’m gonna raise the fund, I can do that.

Eric Hornung 26:42
Was it all in New York?

Catharine Dockery 26:43
No, I flew all over the country. There was one period where I was gone for almost a month, just through California, Canada, Arizona, parts of the Midwest, just like preaching the gospel of Vice Ventures.

Jay Clouse 26:54
One thing that you didn’t mention on this list is gambling. Is that inherent as part of some mean like eSports, or is gambling not in play here?

Catharine Dockery 27:03
Yeah, so we definitely invest in online gambling only. One company, it’s not a gambling company, but it’s an esports betting, skill based betting business. It’s called Players Lounge. We made that investment over the summer and invested alongside Drake, which is awesome. And then they’re doing a fantastic job building that business.

Eric Hornung 27:20
Have you met Drake?

Catharine Dockery 27:21
No, but I’ve met a lot of people who work for Drake.

Eric Hornung 27:23
And then I think we’ve gone through most of your portfolio. So I kinda want to talk about the last one here. Ten To One Rum, what’s going on there?

Catharine Dockery 27:29
Yeah, so that’s a rum business built by a brilliant man, Mark Farrell, who was an executive at Starbucks. And he basically realized that there’s a huge gap in the market for premium rums. And we have Captain Morgan, and you have a lot of that kind of screams pirates, and nothing that actually screamed sophistication sipping rum. So he created that business, and it’s doing extremely well, and it’s absolutely delicious.

Eric Hornung 27:52
The largest rum bar in the entire country is actually right down the street from where I live, so I’m gonna have to check out if it’s there.

Eric Hornung 27:58
Yes, you have to It’s not there, it should definitely be put in there.

Eric Hornung 28:02
You can travel on out to Cincinnati and we can bring them a bottle.

Catharine Dockery 28:07
Count me in.

Jay Clouse 28:08
Is there a type of company right now that you’re really trying to find and just haven’t been able to find you?

Catharine Dockery 28:12
So we’re super excited about cannabis brands, but we haven’t found anything that’s interesting. Or it just is it like a copycat business of something else.

Eric Hornung 28:20
When you’re thinking about investments, how often is it? I have a thesis around cannabis brands, and I’m looking for one, versus something came in the door and I’m excited about it?

Catharine Dockery 28:32
I find it to be almost impossible to kind of invest on thesis alone, just because there’s so many brilliant founders who come up with ideas that you didn’t even know was possible. So we try to keep a really open mind when talking to people on evaluating investments.

Jay Clouse 28:47
What kind of pitches are you seeing at the intersection of virtual or augmented reality and vices?

Catharine Dockery 28:52
So I’ve seen a lot of virtual reality porn businesses that have come up, which I think is really interesting. But besides that, we tend to be brand ambassadors specifically, so we haven’t seen a ton of VR, AR businesses.

Jay Clouse 29:05
Why do you focus on brand businesses?

Catharine Dockery 29:07
Just because I think it’s something that I know how to build and I know how to grow, and I can really add a lot of value to my founders in that space.

Eric Hornung 29:14
Where does brand end? You could say that b2b companies have a brand, or direct to consumer is a type of brand. Like, how do you define brand?

Catharine Dockery 29:24
So, branded consumer products, whether they’re born on the internet or they’re born in real life. So again, a great example of that would be Recess, who’s built a fantastic brand, both through their social media channel, which is super interesting, but also canning a feeling, canning what it feels like to take a recess itself.

Jay Clouse 29:41
What was like the moment where you were like, in any of your investments, what was the moment where you’re like, yes, hell yes, I’m in. Is it financially driven? Or like, what, what really…I mean, part of this financial driven for sure. But is that like the hardest hurdle for you to get through when somebody comes to you and you say, like, yep, I’m writing a check.

Catharine Dockery 29:59
I mean, we, of course, look at financial projections, but we kind of have a thesis around, like a lot of financial models are just built the way people want them to see it. So it’s not necessarily the most helpful when you’re investing in a product, or the company that barely has a product yet to look at a financial projection, like you have no idea what distribution is going to look like. It’s crazy. So for us, it’s very, very much about, like, the founder’s vision, the founder’s drive, the founder’s understanding of this market, then kind of how he plans to grow and distribute that product.

Jay Clouse 30:29
Being a team of one, how much do you do diligence to try and substantiate what these founders are saying? Because at some point, you know, you run out of time to take meetings and hear these pitches and then also do this diligence.

Catharine Dockery 30:40
Yeah, so I take, every meeting I take is a phone call screen, that’s the first thing I do. And you can kind of tell like once you are in the industry, and you kind of deal with a lot of these categories, you kind of can gut track a lot of what people are saying if something makes sense or not. But then once we are serious on making an investment, diligence because the number one priority and everything else gets put on hold.

Eric Hornung 30:59
Are these types of companies clustered? Like you get a ton of inbound, you take a ton of meetings, is it like, there’s a ton in LA and a ton in New York and then not a lot elsewhere? Or are there random clusters you weren’t expecting?

Catharine Dockery 31:12
Yeah. So I’ve seen actually a lot of really interesting businesses come out of the Midwest, most recently a sex tech business that’s launching in ton of hotels, in Midwestern hotels, which is like amazing and super interesting, that type of distribution. But besides that, I think the majority of cannabis businesses specifically are based in LA and a lot in New York.

Eric Hornung 31:31
Is there anything we’re not asking that we should be asking about Vice Ventures or this space?

Catharine Dockery 31:37
You guys are the first people to ask–not asked how I got Marc Andreessen to invest, which is very funny.

Eric Hornung 31:42
Well, we’d love to hear the story.

Catharine Dockery 31:43
Yeah. So I found his email, wrote him a cold email, met with him three weeks later, I flew out to San Francisco, could not believe it, was on the phone with my lawyer for like 20 minutes like freaking out because I was so excited. And then he invested and I cried because I literally, like, could not beleive that something like that would happened.

Jay Clouse 32:02
What did he tell you as far as why he invested,

Catharine Dockery 32:05
He’s super excited about the thesis and believes in my ability to execute on it.

Eric Hornung 32:09
What was his biggest point of caution or area where he was most uncertain?

Catharine Dockery 32:13
He asked a lot of questions about brands and like consumer brands.

Jay Clouse 32:17
Well, we rifled off a lot of questions here over the course of 33 minutes. So thanks for taking the time. If people want to learn more about you or Vice Ventures after the show, where should they go

Catharine Dockery 32:25
Info@viceventures.com.

Eric Hornung 32:31
Alright, Jay, we just spoke with Catharine from Vice Ventures. Where you want to start? We covered a lot of ground in that one.

Jay Clouse 32:38
One of these interviews that covered a lot of ground, asked a lot of questions, got a lot of answers in a short amount of time. I want to start with this Dockery’s Daily Docket newsletter, which should not come up in my research and is fascinating and is part of a trend from Catharine’s background, it sounds, of making her own way, taking our own interests and obvious intellect and putting it to work. I mean, this is a classic example of showing up, putting your voice out into the world, and attracting opportunity to you. Ran this thing for two years, had 800 readers, was waking up at 4am before trading to write this and put it out. And that led to, you know, kind of her first big post internship opportunity with Citigroup. But I mean, if you look at just the list of, of opportunities Catharine ran down, went to NYU, interned at the New York Stock Exchange, did this Daily Docket, worked at Citigroup, hated trading high yield debt, got connected with the founder of Bonobos, Andy Dunn, because of a PR opportunity. She’s clearly opportunistic in that when she sees something that’s interesting to her, she makes a pivot and she goes down that path.

Eric Hornung 33:50
I agree. And as we pivot into Vice Ventures, it seemed to not only resonate with her but to resonate with LPs as well, because, I mean, starting January and announcing in July, that’s a pretty quick close, Jay.

Jay Clouse 34:04
I just didn’t know that vice clauses were so prevalent. And I also guess I didn’t really know or I underestimated how big of a player endowments, pensions, and religious organizations were as LPs in funds that kind of necessitate or precipitate these vice clauses. It doesn’t surprise me that there are wealthy individuals like Marc Andreessen, who are just like, well, this is an interesting business opportunity, I see I can make money, and I don’t require a vice clause. The interesting thing, you know, this whole opportunity, this whole firm is kind of centered around the gray areas, you know. And even in the interview, I was getting great areas of what does doing good mean. Harm reduction is doing good. But there are nuances, as, you know, the Vice Ventures pitch shows, there are nuances to all of these vices where it’s not being perfect, it’s not eradicating bad, it’s incremental improvements in harmful activities.

Eric Hornung 35:08
Do you think that’s a good thing?

Jay Clouse 35:10
Net good? Yes. You know, it kind of depends on–I mean, if we want to get real existential, we kind of get to a point of, or question of free will. I don’t know much about things like addiction, you know, and I don’t know the mental realities or struggles of addiction and what is or isn’t possible in terms of changing behavior. And that’s why we have nuance. But you know, part of there’s, there’s one part of me that would say, why settle for harm reduction, or like incremental harm reduction, versus striving for harm eradication. You know, is is supporting harm reduction actually just elongating the cycle of creating harm at all? Is it possible to go straight to harm eradication, or is that naive? And I think it’s probably naive.

Eric Hornung 36:00
Yeah, I think it’s like, there’s a practical world that’s existed and there have been vices in that world for forever. So if you can whittle down the harm of those vices, that’s good. Harm eradication likely means that there’s some sort of cobra effect, where there’s more harm created by eradicating a previously previous harm.

Jay Clouse 36:18
I also go back sometimes to, a good friend of mine gave up drinking pretty much cold turkey a few years ago, and we went to Florida for New Year’s, and he wanted to go to this bar called Bula. And Bula serves a drink called Kaaba, which is basically mud water. It’s like this tree root put into water. And when you drink it, it isn’t hallucinogenic, but it is supposed to give you kind of a body relaxation, almost like some types of THC. And I didn’t know why he wanted to go drink mud water, but his response was basically, Well, I don’t drink anymore, and I need some type of vice. That was his thing. He’s like, I need a vice, kind of like this release, you know, because things are stressful. And that made me really realize, you know, even people who are making large sweeping behavioral changes, there’s something about just having a vice that we seem to be drawn to as this little bit of outlet or this little bit of rebellion against being on and doing everything perfectly all the time. I think it’s probably a little bit innate to human nature.

Eric Hornung 37:25
Yeah, humans can’t just be good, I guess.

Jay Clouse 37:28
I’m really interested in some of these verticals also, because they’re at the edges, at the fringes. Psychedelic, CBD, sex tech. ESports was an interesting one to pull in here because I hadn’t thought about that being a vice. And yeah, these things are crazy addictive by design, like they’re engineered to be crazy addictive. I’ll definitely be following Vice Ventures and looking to see what, what they’re following. Can’t help but think that regulation is a very difficult challenge for a firm with this type of thesis.

Eric Hornung 37:59
Yeah, there has to be a, it’s almost like FinTech, to be honest, in terms of the business model, because in FinTech, you have to get so much compliance out of the way and so much, kind of just like, work has to be done up front until you can actually provide a service. And I think it’s similar in these kind of vice industries. And we heard about it from our friends at Kush.com. He said, we said, What is the biggest thing holding you back? And he said, our ability to onboard, and the reason that it takes so long to onboard is because all the compliance state-by-state regulations that they have to deal with, the federal regulations, every, the KYC, the AML. So I think if you are a brand in this space, there is a large cost associated with getting into the space. And that was kind of going to the question I was asking about e-commerce which is if you want to sell a pair of shoes, you don’t have to ask anyone’s permission, unless you’re like our friends Insino Workswear, where they have to get it tested. But generally, a pair of shoes, like a pair of Allbirds, doesn’t need any testing, it just needs a Shopify site and a really good distribution strategy, whereas in these vice businesses, there’s a little bit more friction to getting in and getting scale.

Jay Clouse 39:12
It does strike me that it’s better timing now than ever before, which is maybe an obvious statement. But, you know, we’ve had CBD and cannabis legalization happening the last few years. It strikes me I think all the time about, because everything is recorded and tracked and measured now with the internet and social media, our culture is going to have to become so much more tolerant. We’re living kind of a cancel culture age right now. But we’re going to become so much more tolerant if we want to elect a president in 10 years or 20 years, you know, because there’s going to be some childish crap that they did when they were young that is documented. And that’s just going to be true for everybody. You know, nearly everybody. So I think as a culture, we’re going to become more tolerant, which may make vices less less stigmatized in a lot of spaces. Psychedelics is kind of at the at the edges of that. And so maybe this is the perfect time.

Eric Hornung 40:10
What do you think, dear listener? Do you think this is the perfect time for something like Vice Ventures? Or do you not think this is the perfect time for something like Vice Ventures? If so, or if not, send us a Tweet @upsidefm or if you have something a little longer, send us an email at hello@upside.fm and we’ll talk to you next week.

Interview starts: 5:40
Debrief starts: 32:25

Catharine Dockery is the founding partner of Vice Ventures, an NY-based early stage venture firm focusing on companies working in “vice” industries such as cannabis, alcohol, sex techs, psychedelics, harm reduction drugs, and online gambling. Founded in 2019, Vice Ventures aims to challenge conventional investing and works specifically with companies normally excluded form investments due to vice clauses.

A neuroscience and finance double major from NYU , Catharine has an impressive finance background, including experience working at the New York stock exchange and Citigroup, contracting at a PR firm for hedge funds, working with Andy Dunn’s investments, and running her own blog.

We discuss:

  • AD: Finding experienced employees for your new business with Integrity Power Search (4:12)
  • Past experience working for Andy Dunn, trading high yield debt, and running her own blog (6:22)
  • Vice clauses in investing: starting with Bev and Recess (10:50)
  • Investment thesis and gauging intellectual honesty (14:43)
  • Juul and harm reduction-like companies (17:13, 20:33)
  • PR for Vice Ventures (19:13)
  • Bad PR for vice companies (22:39)
  • Portfolio theory (23:29, 28:08)
  • Heading a controversial fund (23:56)
  • Investing with Marc Andreessen (31:31)
  • Raising for the fund (25:37)
  • eSports, online gambling, and a sophisticated rum (26:54)

Learn more about Vice Ventures: https://www.viceventures.com/
Follow Vice Ventures on Twitter: https://twitter.com/vice_ventures
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This episode is sponsored by Integrity Power Search, the #1 full stack high growth startup recruiting firm between the coasts. They partner with venture capitalists, private equity groups and CEOs to build amazing teams for the world’s most disrupting companies.

Learn more about or get in touch with Integrity Power Search: https://upside.fm/integrity