CC017: building a world class venture firm in Chicago // a Coffee Chat with Ezra Galston (Starting Line)

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Ezra Galston 0:00
When I was first exploring the industry, I met with a partner from called Sutter Hill ventures. And, you know, kind of looked at me, “why do you want a good venture?” You know, “you’re never going to make it.” You know, I said, Well, you know, doing some it like I’m thinking of staying in Chicago, this person kind of laughed and said, you’ll never be able to do world class venture in Chicago. And ever since then, you know, probably a week doesn’t go by, not everyday. Life is too busy. And I’ve got three kids. So not every day, but not a week doesn’t go by. I don’t think of that conversation with a bit of a chip on my shoulder and think to myself, am I getting closer to proving that individual wrong?

Jay Clouse 0:37
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.

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. Country music fan himself, Eric Hornung.

Eric Hornung 1:17
I am a country music fan. first concert I ever went to Rascal Flatts. I also really like really hardcore hip hop, like bad hip hop, good hip hop, rap. Give me delete the old school, Eric B, and Rakim, all of that. So when you mix those two together Jay you get something that is very unique. And I’m a fan of that’s, that’s, that’s what it is. I’m just going to call it out. Have you heard this song that I’m talking about this song I’m referencing,

Jay Clouse 1:46
I heard about 10 seconds before we started this call. I heard it enough to come up with a nickname around this song. But that’s all I’ve got.

Eric Hornung 1:53
Right all you had…all you had to do is say no there and you know the listeners could have been in the shadows and not known that you plan this whole thing. Anyway, the song is called Old Towne Road and it’s by little NAS x and it had been posted to the Billboard Country section and Rose the billboard rose up the billboards very quickly. I think after being inspired by like a tick tock meme or something.

Jay Clouse 2:18
Oh, amazing. Before we got on this call, I got a text from my girlfriend with a YouTube link for something called Old Town Road.

Eric Hornung 2:24
Oh, that’s what it is. There you go. Me and Mal always on the same page. Anyway, they kicked it off the Billboard Country list because it didn’t have country like attributes. Now it doesn’t have country like attributes because it has 808 and trap beats. But the guy does sing about horses and belt buckles and bull riding and there was some there was some pushback on Twitter. Definitely.

Jay Clouse 2:48
I know there 808s…any Kanye West crispy claps?

Eric Hornung 2:53
Yeah, yeah, I would say I don’t know that they have crispy claps but they have like, like some aggressive snare, you know?

Jay Clouse 2:59
Yeah. Country music being impacted by Kanye. Speaking of our friend Kanye from Chicago, Illinois. We have a guest on the podcast today from Chicago, Illinois,

Eric Hornung 3:09
Kanye, it’s Kanye. Kanye is coming on.

Jay Clouse 3:12
His name is Ezra Galston. He’s the founding partner of Starting Line VC. Starting Line is a somatic early stage venture capital fund focused on investing and consumer services and products that are both cheaper and better. They want to be the number one stop for any entrepreneur building a consumer brand outside of the coasts.

Eric Hornung 3:29
We got introduced to Ezra a few times, or we’ve been suggested to talk to Ezra a few times. And finally, we got them on. So we keep on asking about, okay, who’s interesting, unique in the Midwest? What are some interesting or unique VC? So listeners, if you have anyone who is thinks differently, who’s doing things in the early stage, investing space outside of Silicon Valley, New York and Boston, we’d love to talk to them. And you know it, maybe it’ll take us three introductions, but we will finally get them on the podcast.

Jay Clouse 4:01
I think the first time that Ezra came into my sphere of someone that I came across, the first time I came across this work, I should say, was that analysis that you sent me that he did have people getting into VC? Does that seem right?

Eric Hornung 4:13
That would be following a conversation with Joanna Arras of Baird ventures. She said if you want to learn about cryptocurrencies or eSports, or anything consumer facing you gotta go talk to Ezra. That’s how I first heard about him. I found that article I sent it to you. And I saw Blake from Ludlow ventures corresponding with Ezra on Twitter. I think that was the second time. And finally, we got introduced through our friends over at origin ventures to Ezra. So it was a long and windy road, but we found it and I think this is going to be a unique venture capital interview.

Jay Clouse 4:48
Yep, I’m excited about it. I get excited about learning more about consumer brands, as well as involved with a company called cameo that I’ve been very tempted to buy a $99 video from Andy dick, because I think it would be hilarious. So excited to talk with Ezra here. If you guys have thoughts on this interview, as we go through, be sure to tweet at us at upside, FM or email us Hello, upside.fm. We’ll get to that interview right after this.

David Sherry 5:13
Hey, what’s up everyone? This is David from the new money podcast where we discuss investing opportunities for everyday people. If you’re interested in startups and tech, each episode of new money show explores a different financial product or opportunity that anyone can invest in. These are websites and apps like betterment and wealth front and acorns, the types of companies you’ve heard even advertise on podcasts like these, we break down the pros, cons and trends that we see emerging in this new world of FinTech in bite size shows that you can listen to every week. So just search new money and your podcast player and you can tune in. Thanks.

Jay Clouse 5:51
Ezra, welcome to the show.

Ezra Galston 5:52
Excited to be here. Thank you guys are having

Eric Hornung 5:55
on upside. We like to start with a background of the guests. So can you tell us about the history of Ezra?

Ezra Galston 6:01
History of Ezra, it sounds like it could be a fun movie. So look, I’ve been in technology ever since a young age, I bought myself a book on Visual Basic, like how to code Visual Basic when I was eight years old, and used to hang out in the AOL chat rooms where we were, you know, coding random projects, I think was wires or war as every pronounce it back then. And kind of found HTML one in the late 90s, and started coding my own websites. And you know, just kind of had always been interested in in the web. And so when I got to college, actually hooked up with a boutique marketing agency called buzz marketing group. And they were working with a bunch of, you know, cool young clients, you know, musical artists, makeup brands, and it was the early days of the internet. I mean, as I look at it, but 2002, 2003 and stuff like that, and I helped them build out their interactive marketing strategy. I was a freshman in college, sophomore in college. And so I did that for a couple of years. And probably like a lot of college kids, you know, I thought I was more mature than I was at some point kind of burnt out. And after school, I played poker for a living for a couple of years, because I had been playing poker with my free time that you know, junior senior college and doing pretty well. And that seems more interesting traveling the world or, you know, the World Poker Tour at European Poker Tour and women in Vegas for the World Series played a bunch of line that just seemed more interesting than working a marketing job in New York City. So that was kind of the the post College and the way I kind of got to truly to where things are today is I had a few friends in their dorm room at the University of Illinois, I started a business called card runners, it was the first ever poker training site, which if you’re familiar with you, to me, or Coursera, it was that before those existed, but only for poker players, and we built a really nice business, basically selling poker instructional videos to aspiring pros or people who just wanted to get better, did that for a couple of years, and, you know, really fell in love with building digital companies. We ended up building couple other businesses together and found my way to business school. And I started making a couple of angel investments that in business school, I just kind of started discovering what venture capital was one of our businesses at the time was actually raising its first round of venture capital or, or private businesses had all been bootstrapped. So it’s kind of like my first i into the sea was super interesting. I was like, wow, they get that much of the business for that little bit like, Well, you know, anyway, and I had a I had a friend in business school year older than the name john tough, and he was moonlighting on the weekends at Kleiner Perkins, I can’t remember the exact something like I don’t know, Friday, Saturday, Sunday, Monday in the Bay Area, Tuesday, Wednesday, Thursday, Tuesday, Wednesday, Thursday at UFC, Chicago. And he kind of took me under his wing. And I don’t know why, but just said, You know, I think he could do pretty well in this industry. And so I kind of got my start at a bond in Chicago called Chicago ventures, join them as an intern in 2012, the intern to associate senior associate principal thing ended up running our consumer team for a couple of years and in 2018, you know, kind of like a, you know, a kid grows up and just needs to leave the house, it was time to start my own platform. And that’s how I kind of got starting line off the ground middle of last year, middle of 2018.

Eric Hornung 9:00
you said that history of Ezra sounds like an interesting movie. And I would agree with that. Who would play Ezra in that movie? Which actor?

Ezra Galston 9:06
Well, when I was when I was in college, I used to get mistaken for Seth Green a lot. So I’m always like, I’ve always been a Seth Green. And I don’t know I haven’t I haven’t given some thought. I don’t know. He was like a really good character actor, like play the trauma and dark moment and send the insecurities. I’m not quite sure I’d be chill with Seth Green. I wonder what he’s up to these you know that we should investigate that.

Jay Clouse 9:26
Do you know that Seth Green was on pumped and he was pumped in what turned out to be like a fake underground gambling scenario.

Ezra Galston 9:34
You know what? I think someone mentioned that, to me. I can’t recall back to the episode, but it sounds familiar.

Jay Clouse 9:40
Yeah, I love it. I love you from going from placing poker bets to now placing bets on companies. I got to learn more about this.

Ezra Galston 9:47
There’s a lot of similarity.

Jay Clouse 9:48
Yeah, tell me about that. What what was professional poker like?

Ezra Galston 9:52
Well, it was probably different than than people think the truth is, is that, you know, my generation grew up in the online poker world. So you know, we spent most of the time behind computer screens. And when we were playing live poker, it was typically traveling to nice locations to play, you know, fairly high stakes poker tournaments in whether it’s Deauville, Prancer, Monte Carlo, or whatever it might be or, or Vegas, you know, what have you. So it’s probably not like what you it wasn’t like rounders, I’ll put it that way.

So, you know, when I was in school, we used to play underground in New York City, a bunch of clubs at Genoa was a club where I played I spend most my time I can’t think it was on dating myself, I think it’s on house in St. It, there’s no shot, these places exist anymore. And they’ve all been shut down. That’s actually how I met met my roommate right after college was like, I actually met him in a in a forum of the company that I ended up working for, and then whatever, long story, it was a cool world.

Eric Hornung 10:47
What’s the difference between playing poker online and playing poker in person?

Ezra Galston 10:51
There are a lot. So what’s interesting is it’s it actually applies to venture a little bit in taking a step back, one of the things that makes venture hard is that the sample sizes are small, and the feedback loops are so long, so like, you know, over a career, you might make like 50 beds total, right. So one of the things that was interesting about my generation online poker is because a, you know, just did a regular online poker table, you probably play 60 to 80 hands an hour, as opposed to 20 or 15, and a live game. But you can also stack tables, you can play 4, 6, 8, I used to play 12 games at a time. So you’re just increasing your sample size, so quickly. And so assuming that you’re paying attention and studying, the opportunity that you have to like build those reps, just increases incrementally, so much faster. And you get a ton of leverage out of that. So there were, you know, 18 year old kids who had played more hands of poker than some of the 65 year old, you know, old school, you know, road warriors, who were the legends of poker by the time they were 18. It’s hard to hard to conceive, but it’s just something to think about. So today’s generation just had such had so many more opportunities to build reps and game people and improve their skills.

Eric Hornung 12:01
Do you think that there’s something coming like that in venture capital, where you can improve your reps that quickly? Because Jay, and I think about this a lot, we’re obviously doing reps here on the podcast, but people talk about fantasy venture capital, often on on Twitter, do you think that’s something that’s actually going to emerge in any way that’s meaningful? Or do you have to just go at it the traditional way?

Ezra Galston 12:22
Look, there’s certainly you guys are familiar, there’s certainly platforms like Angel list and a few others where you can, where you can build some incremental reps at bat. And the problem is that you’re not really inside, you know, whether you’re playing fantasy or your, you know, a 20, $500, check on Angel list, you’re not really inside the business. What I do think those that there are some observations you can make. So I made an angel investment in 2016. And friends, I’m friendly with the CEO, but I don’t have information rights by any means. But I watched what the investors Did you follow it on to that business, you know, some of the best in the business. And I watched how they manage the valuation how they manage timing, you know, it was one of those situations where this is a business, it’s doing quite well. But I saw how the investors in that business manage valuation from round two round, you know, I thought they were going to raise I don’t, I can’t read the details, but called like, an $8 million series A early and it ended up being, you know, substantially smaller than that. So the evaluation managed accordingly. And then, you know, just the whole process. So that was one where I kind of observed from the outside of Hmm, that’s how the best in the business, you know, build a 25 or 30%, ownership stake in a business, good target, do it if you’re always chasing, right. So there’s small insights like that, and I think you can get from the periphery. But I’ve learned a lot more on the inside and from the periphery.

Eric Hornung 13:36
So you’re at University of Chicago, which is like the home of efficient markets. It’s, you’re a poker player, I feel like there’s so many poker players that have gone on to be great public market investors, what was it about private markets that was more interesting to you, then kind of going, where I’m guessing some of your classmates were going,

Ezra Galston 13:52
But the truth is this, this is just been my world. I didn’t love the idea of working at a, let’s take a step back. I think, with the benefit of few years, part of me wishes that I’d built that public markets experience. There’s, there’s no one that I look up to more in the venture world, and then bill girly, and you see the insights that he gleaned from his public market days, and they are so beneficial to the way that he’s able to predict the future. You know, Mark Twain says that history doesn’t repeat itself, that rhymes. It’s one of my favorite quotes. And you see over and over the cyclicality of markets I’ve just been reading Howard Marks his new book on market cycles. I mean, these things like the same formations and the same structures, and the same incentives, and the same human error tend to occur time and time again. And so if you have the benefit of public markets, and you’ve been inside those companies, and you’ve seen a 5, 10, 20year evolution of that business, that’s massively value additive, to your ability on the private market side on the early stage side to start to get at least a guest or a educated guess of what the future will hold on that said, I don’t think I had the material when I was graduating business school that to think that way. I also thought that business school is a is a time, you know, it’s not for everybody. But if you do go down that path, it’s an opportunity to kind of switch careers. And I felt that, that if I didn’t take that opportunity to move towards venture, it would be very hard to predict whether that opportunity would exist again in the future. And I think you certainly see some bias today towards you know, tech operators in a way from Wall Street vets as it comes to kind of real estate structure. Whether or not that’s fair, which I think is an interesting question.

Jay Clouse 15:31
Getting into venture is not something anyone can just like decide they want to do, and then successfully do easily. What was your path to venture like?

Ezra Galston 15:39
I agree, and that it is not to me can do easily. I think that it’s a lot easier to do today, then even when I got in five or six years ago, I think that, you know, again, these things go through cycles. I think that venture before it was cool, right? In the I don’t know, late 90s, mid 90s, I should say early 2000s, certainly after the.com dump right there were there were up a fair amount you can walk in, right. But there were openings. If you went to a Top Tier Business School, you kind of network your way. And I do think that the period, like the 20…2007 to 2013-14 kind of cohort of entry level VC was probably tough to get into. But what you’re seeing now, and I’ve actually been working on a piece about this, and some of my thoughts on apprenticeship and the industry, is you’re seeing a massive rise and micro VCs, right, there’s 1000 Plus, according to smear at First Republic bank, right? Who kind of tracks these things. That’s 1000 Plus, and they need people to help support them. And not everybody can do it alone, right? So you may not be getting paid $250,000 a year. But if you will, in a work in order to learn there are plenty of micro VC springing up there for help. Every enterprise in the world has a corporate venture arm and those are typically overstaffed. Many hedge funds now have venture arms, every family office in the world is doing venture investing. So in my mind, there are more, there are more opportunities than ever to get into venture if you’re willing to kind of put in the time, what I was taught about how to get into venture is that you need to be cognizant of the following paradox. And the following paradox is that most venture investors are allergic to management. It’s one of the reasons why they got into venture they don’t want to manage anybody. And so they expect you to be fully ramped and able to add value from day one. The problem is how can you be fully ramped, unable to add value from day one, if you don’t have any experience? Right? So that’s the paradox. They are looking for people who can come in, they want to add value, you cannot credibly claim to add value unless you’ve been in the game. So the way that I was trained to think about it was to think about what secrets you know the same thing you think about any entrepreneur, kind of what secret Do you know that other people don’t. And the secret that I had is a world where there’s our stars for time, I had spent five to 10 years really on and off in the online gaming industry. And this was 2012, Zynga had just gone public at a $10 billion market valuation gapped up to I think 20, social gaming was hot, but none of this stuff monetized. And I was basically able to say to a whole bunch of venture firms, I cold reached out to about 100, at a 30 or 40% response rate was, hey, you’re making all these investments in gaming, nobody really has any idea how to you know, suffer going to monetize, except there is a precedent, you know, that precedent is, that precedent is real money gambling. And you know what’s interesting, everybody who knows, as much as I do about real money gambling, is living in Gibraltar, but the Isle of Man, I’m probably one of a dozen people, this side of the Atlantic, who can come into one of your port PCOS, and help them understand what it will take to get this spun up. And to prove that in lieu of a resume, what I’m going to send you is this little market map that I put together, that every single person I know in the industry, the company, they work out their seniority, right? So that I can come in day one to your, you know, your firm, a certain company and basically create value from day one. And of course, there was a bunch of, you know, betting on the air, right? I hadn’t done that. Or I may not make known those people could I’ve gotten them to do a business. Who knows. But that was the kind of message and it resonated pretty well, because there were a lot of investors, you know, on boards, they get themselves like, Well, we’ve raised 40 million bucks, like, what are we going to do, right? And here comes along this kid who’s like, Hey, I can add value for you. So it opened up a lot of conversations, ultimately, for a variety of reasons. I ended up staying in Chicago, and have been fighting ever since to build kind of world class opportunities here.

Eric Hornung 19:27
Talk to me about that decision to one stay in Chicago. But first you were in New York, and then you made the decision to go to Chicago to go to University of Chicago, you could have went, if you’re thinking and you’re leaning private market, you’re leaning venture already, why not go out west?

Ezra Galston 19:43
Well, two reasons. One, University Chicago is the only school that accepted me out, right, I applied to six or eight, I got wait listed it to and rejected outright at six, which is very humbling. By the way. It’s just like, you know, venture is a game where you’re going to get rejected above, you’re going to lose a lot. I think that you know, I did a lot of acting as a kid. I think that rejection is important. It helps you build just reps of like, what does that feel like? And are you just gonna, you know, fall over? Anyway, fine. So that is, it was the only school that except for one, California was going to be very hard for my family and my wife. I was married by then I got married in 2010. My wife and I, her family’s in New York, my family’s in Washington, DC. And that’s very important to us. I have three children. And I didn’t then I do now I have three children. And we just always wanted to be closer to family. Chicago is far enough, frankly. But we’ve made that commit.

Jay Clouse 20:39
What were your expectations of venture as you’re sending these 100 pitches out and trying to get a position? And did having the position live up to those expectations?

Ezra Galston 20:49
It’s It’s so interesting. I actually, I spoke at a conference called the marketplace conference last weekend in San Francisco, and actually ran into an investor that in Bryan O’Malley Brown, and when I first met him, was it battery. And then he went to excel now either GP it for runner, and he was one of the people who responded to my email, he did it his response was, you know, I, I wrote, hey, here’s three companies you’ve invested in that I find interesting. I think they’re on the social gaming side. He just wrote back, what do you like about? What do I like them? I kind of just wrote you an email so that you’d respond, but let me take. And so I kind of, you know, thought through my head a little bit about well, you know, I think Groupon might buy this one. And this one could maybe carve out to market from Zynga. And I kind of trip back to paragraph like super clean. He just wrote back great. Like, when are you free for back for breakfast? My gosh, general partner battery wants have breakfast with me. And so when I when I ran into my kind of said, like, you know, I’ve been sending all these cold email to calls. You’re the only person who would like me to breakfast. And we went out to breakfast. And it was just like, I was like, Oh my gosh,this guy is so cool. And on top of the world, right?

So that was that was kind of my early perceptions of like, you know, these guys are our heroes, on pedestals. And thankfully, now it’s guys and gals. But you know, that was my early impression. What I have learned being in the industry is that everybody is just a real person. Everybody has the same insecurities. Everybody’s fighting the same things. One of my investors is a is a great fund in San Francisco called Bluebird data. And they put these things together called the complexities tour. And I was on we basically go to different cities, and we meet with entrepreneurs and cities outside of San Francisco. I’m one of the few people from the Midwest that they invited on. Anyway. So I’m sitting next to kind of a legendary investor on the bus. I mean, he isn’t he has sourced one of the two greatest venture deals of all time at the seed and did like 750 k of the million right, which is now worth billions of billions of dollars. I’m just asking about his insecurities. He’s like, trust me, I’m more insecure than you are. Like, you’re more insecure than I am not going to be you sourced one the greatest venture deals of all time, like you’ve created more market value than almost anybody else. Yeah, but I’m insecure about where’s the next one coming from? You know, and it’s unclear to me if that is, you know, if we’re all everybody who’s attracted to venture is just the Type A whatever, or if it’s just systemic about the industry that the trends change so quickly, and you want to the next thing so quickly. And so the point of all this, is that what I’ve learned, I don’t know if this is where exactly where you going to the question. But what I have learned is that this industry is made up of real people who have real liabilities, and real concerns. And in general, they’re trying their best, but they are not gods, maybe girl, maybe girl is like the one Michael Moritz in the class in their own like everybody else is fighting the same game on a, you know, same hand to hand combat on a daily basis. And it’s just it was it was eye opening for me. And it’s allowed me to be more confident, as you know, really a kid from Chicago trying to build firm, you get into a boardroom with someone, quote, unquote, lead dairy, up in my heart always palpitating. But you know, at the end of the day, they’re real people, and they’re trying to build a track record and return capital to their investors, they still have something to prove. And that’s been a big learning for me in this industry.

Eric Hornung 24:12
You’ve mentioned this idea of insecurities twice. Now, first, when you said that Seth Green is an actor who can definitely display those dark days and insecurities. I’m curious what you’re insecure about currently.

Ezra Galston 24:25
It’s been a good couple of weeks, so it’s probably not the right time to catch me on that question. But in general, I think the, you know, I’ve had a chip on my shoulder, certainly about this industry, almost from day one. When I was first exploring the industry, I met with a partner from called Sutter Hill ventures, and, you know, kind of looked at me, why do you want a good venture, you know, you’re ever going to make it? You know, I said, Well, you know, doing something like I’m thinking of staying in Chicago, first kind of laughed and said, you’ll never be able to do world class mentor in Chicago. And ever since then, you know, probably a week doesn’t go by and I have day, life was too busy. I’ve got three kids. So not every day, but not a week doesn’t go by, I don’t think of that conversation with a bit of ship with a bit of a chip on my shoulder and think to myself, am I getting closer to proving that individual wrong? and building a world class venture fund in Chicago? And I felt that way at my old firm as well. I asked myself that question all the time, you know, am I taking steps towards being world class? And so I don’t know, you’ve asked a very, very loaded question. You’ve caught me on a good week. And it’s like, it’s a good start to a Monday. And like, I don’t think I can fully get there right at the second. But what I think is that a lot of people in this industry, and I did say it’s before tend to be very, very driven towards something. And you can always look up and find people who are going to be more successful, better than you I, my wife looked at me the other night in bed, and I was on my phone. And I don’t recommend that people bring cell phones into bed. But I’m just as guilty of it as everybody else. And kind of said, What do you do? And I said, I’m looking at all the people who are further along than I am. And she kind of like, Look me, like concern that I was about to like launch into one of my soliloquy is I was like, You know what, like, I’m working on my happiness every single day. And I feel pretty good, pretty good. I can’t, I can’t, there’s nothing I can do to manufacture that level of success. But there are things I can do to manufacture improvements in my happiness on a day to day basis. And we just had like a really good movement from that.

Eric Hornung 26:24
I’m going to pivot a bit, I’m going to pull us out of that depth. How do you think about in mechanically say no to a founder, and say no to investing in a founder?

Ezra Galston 26:33
I say no, all the time, I try to do it by showing that I care. And I hope I am known for whether rightly or wrongly writing far too verbose of passing notes, anybody that had spent, at least called two and a half to three meetings with which is like two meetings, plus some back and forth, gets three paragraphs for me. So I am able, at least two emotionally justified in my head of saying, like, treated this individual respect. And it’s not like, Hey, sorry, it’s a little bit early, let’s chat in the year. It’s like, hey, it’s maybe a little bit early, but like, here’s some concerns I have about the business or less. So when the reasons why I didn’t have conviction. So that’s number one. Number two is I’m generally pretty transparent with people that like, I just didn’t have the conviction. And that’s not what you want. In a partner, the single biggest mistakes I’ve made in my investment, investment career, time in and time out are where I did not have sufficient conviction. But I talked myself into it because I like the market, or because I was excited, excited to work with an investor or because of this because of that. And so again, like I get that it hurts, I get rejected all the time, for my own fun, I had to raise money, and I got rejected non stop, right? And it’s a tough process. And it hurts, but I always respected the most people who gave me closure. And I respect that even more the people who spent some time with me, and told me what they liked or didn’t like, that’s the only way I improved. I actually have I have slides in my own kind of pitch deck. And I hope I can keep the slides forever called anatomy of a deal. It’s like how a deal came together because I had an investor from a really rural classes, like doing some great stuff, but I can’t for the life of me figure out how you in Chicago are getting these deals done. And I tried to explain it, he’s like, I just, it’s just not resonating. So it’s like, okay, I should probably build a map about all the different things, whether it’s serendipity or whether it was strategy that went into this getting done. So, you know, that was one of the most impactful things for me as a fundraiser. And so if I’m able to deliver that anyone else, I feel pretty good about that. I can’t do every deal. So that’s the way I think of things.

Jay Clouse 28:38
I would love to come back to that and hear how that anatomy works. But it seems like a good time to talk about what starting line is, you know, on your website, you have a line that says here’s the vulnerable truth, this fund shouldn’t exist. So tell us why starting line exists.

Ezra Galston 28:55
It exists because it was because I was crazy enough to believe that can build a venture fund, even though I had very few wealthy friends. Not a ton of my own capital enough enough to get off the ground. Don’t get me wrong. I I not everybody will, will be able to get off the ground and the way that I was but it’s not like I was, you know, of the zillionaire I had enough where I was comfortable taking the risk. And the rest was like at one year to year rainy day insurance policy for my family. So that’s why I wrote that, that it shouldn’t exist, it shouldn’t exist, because I’ll put it this way. I’m one of two GPS, let alone started their own fun, but like one of two GPUs in Chicago, who are under the age of 35. And I’ve mentioned a couple times, I don’t think that that matters a ton. But I use that because it’s illustrative of a broader theme, which is that I think that part of what the Midwest suffers from historically is, you know, a bit of kind of status quo. And I think that there is a lot of innovation that doesn’t necessarily make it sweeter to the forefront because people think the path I’m supposed to go down is x, I’m supposed to go, you know, if I’m an engineer, I’m supposed to go work at all state, I’m not supposed to go work at a start up and take equity that could one day be worth millions of dollars. And I can become an angel investor, or I’m supposed to go work at a fund and do introduce the associated senior associate principal, Vice President, partner, senior partner, you know, partner Emeritus, because that’s what everybody else does locally. And that’s what you see all your friends doing. So it shouldn’t exist, because the path that I was on did not suggest that that was what I was supposed to do. And breaking leaving, you know, the path that I was on with professionally, the single hardest thing I’ve ever done,

Jay Clouse 30:40
Because this path was moving towards an even higher role with Chicago Ventures?

Ezra Galston 30:45
Yeah, look, it’s a great firm with great people. And it’s the type of place where, you know, myself could have spent an entire career and some of my friends are likely to spend an entire career, I wanted to do you know, some things differently. But almost all of my friends, friends, whether they’re in Texas, or you know, anywhere else in Midwest, you know, that’s kind of the path that they’re on right now. And I completely respected but I was just kind of curious of what would happen. If I took the risk. And like, you know, again, like, at the end of the day, I was in a position that a lot of other people aren’t I had enough disposable income to get off the ground, I had an MBA, so like worse came to worse I can support my three children is presumably presumably someone would, you know, my wife is very successful therapist and like, presumably, there would be you know, enough from a dual income like so I wasn’t hearing from an existential perspective. But I was just, I was just curious, like, what will happen, I take this risk, I’m pretty pleased with the results of.

Eric Hornung 31:45
How do you define conviction?

Ezra Galston 31:47
So I’ve tried to define it different ways. And I’ve tried checklist stuff, none of that it’s failed. What I’ve ended up defining it as is where I’m losing sleep. And I am like, whenever I’m driving in my car, and I love driving, no radio, no music, just thoughts in my head, or walking down the street, no headphones, just thoughts in my head, whenever I’m in kind of thought in my head mode, and I am paranoid is hell that someone else will scoop a deal for me. That’s, that’s conviction.

Jay Clouse 32:19
How did you learn things like term sheets? So when I learned how to structure a deal, I guess I should say.

Ezra Galston 32:25
Well, look, in business school, you know, they do sample term sheets. And by the way, I make mistakes and term sheets all the time, actually learned this, you know, whenever a company I invested in, you know, get the term sheet from like a bulge bracket on in the valley. I’m always like, even if I don’t have information, right, so Okay, can I just see it just to see like, what current market like best practices, and they started doing some like, so for instance, like me, I need to kind of get screwed with like, convertible notes, you were like, and probably going to convert right around here. Like you make some errors with the math and you think you’re on a 10%, you know, 9.2% and like, you know, it’s not the end of the world. So, the best in the business do now they just have it in a bracket. You know, like, from the avoidance of all doubt, you know, starting line will own no less than 10% the clothes are all right. It’s like, okay, we think we got this right. But in the event, like we messed up, like really avoidance of all down, right. And so there are things you learn by watching, for instance, I just feel better about that. Now, right? There was one recently where I was worried like, someone made a mistake when they sent me the cap table, and I’m looking at the Catholic I’m like, Oh, god, did I like did I did I mess up the mess up the term sheet? Like, I was supposed to own this, and I’m going, Oh, wait, I have for the avoidance of all doubt in there. Like, I have a hedge, right? It ended up being that someone myself the term sheet, I actually got it right, but neither here nor there. So you can do stuff, some stuff in business school, I tried to learn a lot from watching what the best funds in the world do with their term sheets. And it’s actually evolved over time. And there was a period where it was just like, you know, page and a half or single page, you know, series seed term sheets from like, the series seed docs that are these open source and Fenwick docs, things have increased since then, I think that average like market term sheet, or a good early stage fund, it’s probably two and a half pages I’m seeing about to chatter that should probably be seven. Because what I’m experiencing what I’m experiencing in the legal process is like, you know, you do shorter term sheets, you can move faster in the term sheet process, choose a partner properly, but then a whole bunch of stuff comes out in the legal process. So how did I How did I learn I learned a little bit of business school, I learned a little bit from observing. But I have a lot of appreciation to when I was hired as an internet at other ventures they are there was a delay we’re working on and they sent me the term sheet from a deal, they done a month prior and said, Hey, can you go use this as a as a as a default? Or use this as a template? Can you go build out a term sheet, I was like, okay, so you know, and then send it over and got some feedback up, hey, this is pretty good. Here are three areas that you just didn’t even think of those, right. And so you kind of start learning that way. Now, because I am not working for other people. And I have a fiduciary responsibility to my own LPs, I typically run my term sheets by a legal counsel, just so that there is you know, some defense ability there. But even then we still make mistakes.

Jay Clouse 35:09
So you’re you have this chip on your shoulder that you want to build a word world class venture organization in Chicago, in the Midwest, what makes you think that you can do that?

Ezra Galston 35:19
I’m not sure that I can’t, I’m going to try. What makes me think I can do that is that people have built fantastic funds in half a dozen other cities in the country, the entrepreneurs that call kind of magnet funds, right? Even if you’re an entrepreneur in San Francisco, you’re still want to fly out and visit that. I mean, frankly, I think investors should be the ones that are getting on planes. But the point remains right, whether it’s you know, Matt Brown in Seattle, or country in Boulder, Colorado, of all places, or us the and in New York, or upfront in LA. So you have a precedent for people building, read amazing funds outside of San Francisco. So I know that it’s, I know that it’s possible. And then the question is, do I have the right strategy? And I think that I do so. So one thing that I did is I said, Well, if I’m going to go for this, the first thing I need to do is surround myself with world class people. And so for instance, I went out to the entrepreneur who’s created the single most liquid market value in the city of Chicago, who’s the CEO grub hub, and said, like, how can I get you involved with me, because if you created more value than anybody else, and furthermore, you’re in the benchmark network, which is arguably like the best venture funded history, Sequoia and benchmark or got to be the leading to, like, that’s just so much world class knowledge that hopefully can filter down to me and, you know, did whatever kind of did whatever it took to get it done. I went out to friends of mine, who were very established and esteemed investor within said, I also want you on my board, what will it take to get that dying, because what I value even more than money, is knowledge, I care a lot more about getting good and being best than I do about economics. And so I don’t, that’s kind of the way I’ve always built my career, like I think, historically operated in the red and almost every job I’ve done, because I was willing to sacrifice economics for the future. And again, that is a that is an opportunity that not everybody has. But my hope is that at some point, like a startup that goes from, like, you know, burn mode into profitability, like that certain payoff at some point, hopefully before, like my kids get to college. But that is how I’m thinking about things. And that’s why I am hopeful that I’ll be one of the few that gets there.

Jay Clouse 37:42
How did you land on consumer brand and consumer products as the thesis for Starting Line?

Ezra Galston 37:49
Well, my background was in consumer card runners was the direct to consumer business hold a manager with a direct to consumer business, and draft day was a direct to consumer business. And so I run marketing for kind of card runners as a parent organization. And I love that, and I thought that I was the most credible there, because I’ve seen a couple of businesses basically go from, you know, zero to five, zero to 10 million in revenue. And, you know, when I would speak to entrepreneurs about that experience, I had a lot more credibility than if I’d been, you know, waiting an enterprise sales team. In fact, I was far less credible, when it came to like just straight software, enterprise sales deals, that was number one. And number two, is that I’m very passionate about those deals, I just find them more fun, you know, I love kind of like, you know, just messing around on Twitter and engaging with people. And I’ve found that I’m at my best as an investor, when there’s a product that I just love to evangelize and screen, you know, scream from a rooftop about how great it is, or how it’s changed my life, or how much fun it is or how much I use it. I just feel like I’m very authentic, incredible there. The last thing, and this was a bit strategic is that when I looked at a lot of the funds, that one that I looked up, and I looked at how they built their brands, one of the main common commonalities, not the only one, but one of the main commonalities was a string of big consumer outcomes early on that were very public, very brand building, I’ve spoken to some people have sent us to a few people. And there’s some who’ve told me, like, you know, that was just that was just the web era, you know, that was just the era of, you know, the early outcomes were consumer. And now the big outcomes are, you know, slack in enterprise, you know, like every, you know, SAS businesses growing and going public, and like, you can’t, you know, draw anything from that. And it’s like, well, maybe, but maybe not, especially things like you, then furthermore, I should be thinking this way, going after consumer. So that’s how I’m thinking about it. I certainly have some fears about kind of like a Peter teal gave a quote, like six months ago, I like the consumer era of the internet is ended, there can be no more big consumer outcomes like Oh, crap, well, he’s pretty smart. But you know, again, this is a look at my on very much I think an entrepreneur should look at their startup, which is how do I incrementally achieve milestones incrementally, incrementally de risk, the vision de risk thesis. And that’s just what I’m trying to do on a day in and day out basis.

Jay Clouse 40:16
Right now we have the IPOs of Lyft. And Uber and I believe Pinterest in these these are consumer plays. What does that mean for you? Or what are you learning from those IPOs right now?

Ezra Galston 40:28
It means absolutely nothing for me, I don’t think. Unless one of those people wants to who cashes out wants to write me a check at some point, I guess, in terms of learning, it’s really exciting, because there is so much information in those last ones. And you know, I’ve written at length, yeah, I love I love this one. It’s one of the one of the one of the few things and one of the best things that I got out of business school is just how to learn how to read a balance sheet. Like there is so much depth in a prospectus in a balance sheet in an s one about what a company’s history look like, what it looks like to be a giant data corner, unicorn sized outcome. And these are things that I was actually thinking about this last night. These are things that I think have given certain investors, like the you know, people would say public market experience a massive edge over the past few years, they knew how to use it, because they knew how to look at the evolution of public market businesses, right? And draw insights from that back to the tech world. But I’m kind of excited for what this means to the entire kind of institutional investing class. Because what it’s doing is it’s taking insights in a language that everybody in today’s technology world is familiar with. And basically saying, like, these are the you don’t need to translate this from like a, you know, from an old school manufacturer of cars, you can see like, this is a digital marketplace, you can just pull these insights directly out. So I’m kind of excited to see what happens there. So again, does it mean anything for me personally, I don’t think so on a learning or growth basis, I’m hoping that accelerates both my learning and a lot of others. I I’ve gone deep in the NCS one I’ve gone deep in the Stitch Fix as one very publicly Farfetch. f1 was a foreign company filing and written extensively about them. Each one I do, I learned incrementally more about how about how great companies think about their business and lift. I learned just as much it was fascinating.

Jay Clouse 42:22
As there you guys have this awesome transparency, thread two storylines, existence, you had this public GitHub have a lot of resources, one of them being a mental health policy. Can you talk about what pushed you to create that and put that out into the world?

Ezra Galston 42:38
Yeah, and it’s a little bit personal. My wife is a marriage and family therapist, and she has been for some time now, I think five plus years. And a couple of years ago, maybe two years ago, she would she started commenting that, you know, she she’s a bit of a, an early sleep early, not crazy at 930 10. But she’d sometimes you know, be be woken, I think that’s the right word risen by by me, you know, at 1130 or midnight, you know, I’d be in the, in the bathroom, so that I wouldn’t wake her chatting with an entrepreneur talking someone off the ledge, you know, whatever it might be. And she started asking, like, why are they calling you. And it took me a while to come to kind of come to terms with the reality that they had no one else. And so she actually started a practice called Amity Chicago that focuses on co founder relationships, co founder counseling, they call it I think co founder counseling with a therapeutic twist. I mean, you can go check out their humble, humble plug for my life, but you can go check out their website. And what I mean, again, there’s HIPAA, so I don’t know who she’s worked with, I don’t know any of that stuff. But she tells me about the effect that she’s having on people like, Hey, you know, these, you know, there was a group of co founders, they were really struggling, like, I think this is working. Like we’re, you know, now over over many, many clients, you know, I know that it works. And me personally, I’m someone who engaged in therapy regularly as a as actually a child and kind of took a few years off, but when I did in college, and then it took two years off. And when I started my own fund, it was one of the first things I did, because I was like, this is one of the most emotionally volatile experiences building something from scratch all the rejection. And I’ve seen the effect that having a therapist has had on my own performance in my own outcomes. So for me, I’m not a huge fun, right? We’re giving a total of $800 of subsidy, which doesn’t sound like a lot of money, by the way, but that’s per founder per company, hands up, I mean, I would bet that it’s going to be 10 to 20% of like my annual operating budget. But that’s because and that comes out of my money, not my LPs money, right. But I’m doing that, because I really believe that will drive performance materially. And I just think it’s the right thing to do. I am hopeful that funds much bigger than the will continue to offer will will increasingly offer the subsidies that don’t have to do it up a mic and a meager balance sheet. But you know, the response I’ve gotten has only been positive and I’m doing it not because I’m an altruist. Hopefully, that’s part of it a little bit, but because I believe there is a clear economic benefit to people having a health, your mental health. So it’s as simple as that I’m really. So the goals or goals are twofold. There’s a subsidy for basically dipping your toe in the water of like, I’m not really trying to get started like, okay, we’ll make it totally free. And then there is a subsidy for actually committing to a longer term treatment or a longer engagement, whatever have you want to think about it. Those are my two goals here. And I hope I can report back to you in a couple of years. It’s been wildly successful, it’s a new policy for us. But we’re really excited.

Eric Hornung 45:33
I’m going to wrap up this interview with a question that maybe is a little self centered. I have a thesis that learning and whether that’s, you know, learning through therapy, learning through and vesting learning in general is all about asking great questions. How can we ask better questions on this podcast?

Ezra Galston 45:50
I think you’ve asked pretty good questions. You’ve asked a lot of really deep questions, and I hope that they’ve been insightful. I don’t know how much you’ve learned from them. So for instance, you know, questions that you could have asked me that didn’t are, what do you do differently than everybody else? Or what do you view is your edge that nobody else has? One of the things I think about a lot about kind of investing in the Midwest? Is that because there isn’t this decades long history of just outperformance I feel like there tends to be a bit more like whoa, humbleness would would many entrepreneurs, there’s a huge amount of aggression and urgency. But I would, I would wager to say that on average, there is less aggressiveness and less urgency on average, in the Midwest than in kind of San Francisco or coastal markets, because the cultures are just different. And so one of the things that I like to think about is, you know, being is nice a person that I can and always treating people fairly and with respect is what can I do to win? What can I do to be the best? And so, you know, questions you guys could have asked me are along those lines, potentially a little bit more. I thought the questions that you asked me are some of the most interesting in deep like, this is a conversation that I think I that? I don’t know, it’s probably like on par with like a second or third date so to speak. So kudos to you guys for going a little bit deeper than than the norm of like, what do you like doing Boston? And, you know, why did you call your phone starting line, stuff like that, but so I was super impressed overall, but I think that there are some kind of strategic elements that you know, for the feature guys can touch on more. Love that. Well, we will have to cover those over beers in Chicago sometime. How about that? Absolutely. I would love that from Columbus to Chicago.

Jay Clouse 47:36
Awesome as well. Thanks so much for taking the time if people want to learn more about you or about Starting Line, where should they go?

Ezra Galston 47:42
On my website is starting line. The see my Twitter is Ezra mo g was my high school route name. You can reach me as a starting line. Bc there’s a lot of ways it’s the internet. It’s open and free to democratize. That’s the beauty.

Eric Hornung 47:59
Alright Jay we just spoke with Ezra Galston from starting line, kind of a deep interview, little bit more Farnham street than How I Built This.

Jay Clouse 48:09
Yeah, I mean, I’ll, I’ll put that on you. You were you’re going right at it saying what are you insecure about right now? Which I love is a question by the way. Love that as a question. But…

Eric Hornung 48:19
it’s a little more awkward have a question if someone hasn’t brought up the the word insecurity yet in the interview, it’s a little bit more of a hard question. If people are like, Oh, yeah, my my cat has been decreasing over the last 18 months. You’re like, well, what are you insecure about right now? I think it’s a if it’s a question that you use an appropriate time.

Jay Clouse 48:39
Yeah, yeah. And hat tip to Ezra for kind of inviting that level of depth and being open to talking to a couple of guys from Ohio that it hasn’t met before, so I…

Eric Hornung 48:48
second or third level date, though, you know, it’s tough to do a first date over the internet and over Skype. So second or third date over the internet. So that’s new level for us Jay.

Jay Clouse 49:00
Something we didn’t say specifically in the interview, but that is on the starting line website that resonated with me, I should have a chance to bring it up. Ezra has said that he used his role as a venture capitalist as someone who works for the entrepreneur. And I got that feeling from talking to him that he is somebody who is definitely in your corner will roll up his sleeves, dig into something that seems like he is very interested in doing research. You talked about diving into s ones which I don’t do frequently seems like something you would do though, Eric. And I liked I just like the feeling that I got from Ezra as an investor seemed like somebody that if I was a consumer brand, and I was raising money outside of the coast, starting line is definitely someone I would go talk to. Because Yeah, just seemed like an investor that would be aligned with the founder.

Eric Hornung 49:45
Fun fact, I’ve been toying with the idea of starting a blog that just reviews and summarizes S1s.

Jay Clouse 49:54
You should do that.

Eric Hornung 49:54
I can’t think of a good name. Right now. I have e-s-o-n-e.co. Which is s one, but I hate it. I hate it so much.

Jay Clouse 50:03
Tate that. Really don’t like that.

Eric Hornung 50:05
Great. Good feedback. Listen, I’m excited. Let’s say you have a good name. That would be awesome. Because I think that reviewing an s one, you know, 300 pages. I have nothing better to do with my time. That’s for sure.

Jay Clouse 50:17
It’s like an S1 book club.

Eric Hornung 50:19
That sounds like the lamest book club at the library. Like how wide you name it s one book club? Because we needed the section of fiction. Like…I’m not a fan.

Jay Clouse 50:31
Alright, well, we’ll keep will keep workshopping no bad ideas here. This is just how ideas come to fruition.

Eric Hornung 50:35
No bad ideas, just ideas we hate. Great.

Jay Clouse 50:38
Also really liked Ezra as stance on having a mental health policy. It’s a story that is not often told and not really supported. And I think is super, super important. founders of all levels of scale and experience suffer from that. I mean, freelancers suffer from that you have the trap is calyx the world I suffer from that all the way down to the earliest stage founders that suffer from so it’s something that I think is important. And I like that they are taking a stand on it. I really liked their GitHub open source ideology. So I’m here written for starting line as a beacon of consumer in Chicago.

Eric Hornung 51:12
It feels like we’re kind of getting Ezra on the podcast before he blows up. To me, this interview was indicative of the type of interviews that I hear I’m like, invest like the best or Farnham Street, or some of the bigger podcasts. And maybe he hasn’t just been discovered yet. But I’ve read through most of the blog baton starting line, followed him on Twitter for a few months now. And it feels like this is the type of guests that’s going to show up on one of those shows someday and I’m happy that we had him on here first.

Jay Clouse 51:40
He also seems like the type of guy who’s not chasing that type of pudding it seems like type of guy who’s happy doing good work and working for the people that he serves, and keeping his head down and making a dent in the universe and not necessarily being known for doing that. Granted those there are a lot of people who have that mindset who then become known because can’t really help it people see they’re working like you’re doing really great work. So that could I could certainly be him the future.

Eric Hornung 52:05
I thinkthat you just like nailed something I’ve been trying to conceptualize for months now. Which is why the guests on invest like the best are so much better than the guests on other business shows. And it’s because I think they are more in line with what you just said. Then most business podcasts which are Hey, I wrote a book. Damn Jay That was good.

Jay Clouse 52:29
It’s a lot easier to find guests when you just look at what other guests are already appearing on shows. It’s true. There’s a very cyclical incestuous process.

Eric Hornung 52:36
Well, now that as has been on our show, it’s easier to find them.

Jay Clouse 52:39
That’s right. Alright guys, well, we’d love to hear your thoughts on this episode. We didn’t touch on the poker story here in this this debrief. But that was certainly an interesting aspect of this interview. If you guys have any thoughts on the entire interview, you can tweet us at upside FM or email us Hello at upside down FM. If there are other individuals that you know that would make good guests for our show who may be hard working undiscovered talent, we’d love to talk to them, you can email us hello@upside.fm. And we’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at hello@upside.fm. or find us on Twitter at upside FM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there are a couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding partners of the upside podcast. At the time of this recording, we do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duff & Phelps LLC and its affiliates, unreal collective LLC and its affiliates, or any entity which employs This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on the show. Thanks for listening and we’ll talk to you next week.

Interview begins: 05:47
Debrief begins: 47:55

Ezra Galston is the Founding Partner at Starting Line. Starting Line is a thematic early stage venture capital fund focused on investing in consumer services and products that are both cheaper and better. They want to be the number one stop for any entrepreneur building a consumer brand outside of the coast.

Starting Line was founded in 2018 and based in Chicago, Illinois.

Learn more about Starting Line: https://www.startingline.vc/
Follow Ezra on Twitter: https://twitter.com/EzraMoGee
Follow upside on Twitter: https://twitter.com/upsidefm