John Fein and Chris Marks of Firebrand Ventures // why two venture firms merged to become one [CC065]

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Jay Clouse 0:02
I’m here again with Casey Allen, the founder of the Enterprise Rising conference. Casey, what is your favorite piece of feedback that you’ve heard over the years about Enterprise Rising?

Casey Allen 0:10
One thing founders give me a ton of feedback on every single year. Now that we’ve done this five years, is the talk in which I bring up founder up on stage, who startup crashed and burned. And they deconstruct why they think of crashed and burned, what went wrong and what they might have done differently. And these are often very high profile founders who had everything going for themselves, but they still couldn’t quite turn the corner. And so those are the kind of talks that quite honestly, founders give me a ton of feedback on. They loved it. They want to hear more about that, because it’s really educational.

Jay Clouse 0:43
How is Enterprise Rising different this year?

Casey Allen 0:46
If you’ve ever attended an online event, you know, networking sucks, slack and discord really just don’t cut it. So we have custom built for Enterprise Rising 2020 an online platform that’s like startup masterclass, meets the Sims, where every attendee has an avatar, you’re in a building, you’re sitting in chairs, you’re sitting in couches, you’re having real video chats with people next to you. So what we’ve done is we’ve recreated an actual virtual environment where networking happens, just like it does in real life.

Jay Clouse 1:11
Casey, when is Enterprise Rising? And how can people get involved?

Casey Allen 1:15
Enterprise Rising is the end of October 20 and 21st is two full days is all online. So you can dip in and out for as much or as little as you want. Go to enterpriserising.co that’s enterpriserising.co. And you can use discount code Upside to score 20% off as many tickets as you want. So discount code upside at enterpriserising.co. All the details are there, the entire conference is online, it’s going to be a great time.

John Fein 1:43
I don’t know that. I was really specific before the call. But during the call, I was like, hey, look, here’s the deal. You’re in the middle of raising your second fund, we’re doing the same thing. We seem to be on exactly the same track.

Jay Clouse 1:55
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, and welcome to the Upside podcast, the first podcast finding outside outside Silicon Valley. I’m Jay Clouse, and I’m accompanied by my co host, Mr. smoke them if you got him himself, Eric Hornung.

Eric Hornung 2:35
If you’ll notice, my voice is a little bit Bob Dylan today. Jay. Why is that Eric? There’s a little rasp. There’s a little a little grit on this voice. A little grit on these vocal cords. Well, last night, I had a couple of adult beverages you might say.

Jay Clouse 2:49
As as you’re right,

Eric Hornung 2:50
Right, because I’m an adult, and I can have adult beverages. I had a couple couple glasses of Vino. And we polish those off and maybe maybe we didn’t polish off. Maybe we did it simultaneously with a nice, hear smoke cigars. Jay ever heard of a cigar?

Jay Clouse 3:07
Yes. I’ve heard of a cigar. Almost never have smoked a cigar.

Eric Hornung 3:10
Hmm. Since I got into golfing. I’ve also gotten a cigar. So there’s been like a one to one correlation there.

Jay Clouse 3:16
I’ve never experienced like a good cigar. I feel like you smoke your first cigar in high school. And it’s like, not even a real cigar. And then you’re like, you know what, maybe that’s not for me. But what’s really not for you is just like black and miles.

Eric Hornung 3:31
Apple black and milds. We had a we had a thing in high school when we graduated and called seniors smoke day where every senior brought us cigar to school. Do you guys have that? Or is that just?

Jay Clouse 3:41
I think so. I think I think we definitely did like the aviators. graduation gown cigar thing that I’m most graduating seniors do.

Eric Hornung 3:51
Okay, I didn’t know if that was just a thing we did or not. But yeah, so last night, if you guys are feeling a little raspy on this voice, a little bit of foci on the road grit. That’s That’s why.

Jay Clouse 4:04
Well Eric, where there’s smoke, there’s Firebrand ventures. And today we are speaking with John Fein and Chris Marks the managing partners of Firebrand ventures. And if you’ll remember, we spoke with Firebrand ventures and John Fein, specifically, back in September of 2018 as our second ever coffee chat on the show.

Eric Hornung 4:25
One of those people early on took a risk on us when we were just a little fledgling budding podcast, Jay. And it’s awesome that we’re having some of these people back on the podcast.

Jay Clouse 4:36
Great to bring John back in specifically or bringing him back talk about something that we’ve never heard of before. Because as I mentioned, we’re talking with John and Chris marks the managing partners of Firebrand ventures. And this happened in a unique way. But before we touch on that, let me introduce the two of them. Prior to founding Firebrand ventures, john served as a managing director for TechStars, which is a leading startup accelerator with more than 40 programs around the world. And while at TechStars, he ran three accelerator programs in Kansas City investing in 30 startups. Chris, on the other hand, was the Founder and Managing Partner of Blue Note ventures, an early stage venture fund investing in great technology companies and entrepreneurs committed to authentic leadership. Now, here’s where this gets interesting, Eric, it’s something we’ve never heard before. After co investing for a few years in several companies together, out of their respective funds. Chris and john realized that they not only shared a similar investment strategy, but also an underlying set of values around there around how they partnered with entrepreneurs. So in late 2019, they joined forces and merge Firebrand and Blue Note .

Eric Hornung 5:44
They did, they pushed them together. So one way when I heard about this, I immediately sent John a note on the Twitter, DMs and said Congratulations, obviously, I think this would be a really interesting topic to talk about on the podcast. So diving into this interview. For the listeners, it is very, very, very uncommon that two financial services firms specifically venture capital firms merge. And I’m, I’m excited to see like what that looks like.

Jay Clouse 6:11
Yeah, I’ve never heard of it before. I’m excited to ask them a lot of questions about it and how it worked. Because it seems like there’s a lot of stakeholders that are actually involved in something like this. So you’d have to get onboard and do this. But you know, it seems like John and Chris realized, we only have one life to live, we might as well live that the best way that we can.

Eric Hornung 6:29
Just like our friends at Ethos Wealth Management. And if you want to learn more about Ethos Wealth Management, you can go to upside.fm/ethos.

Jay Clouse 6:37
We’ll jump in here and talk with John and Chris right after this.

Eric Hornung 6:42
Let’s bring in Meredith Sugar, a partner at Taft Stettinius and Hollister to teach us about preparing for an exit. Taft is a full service law firm known for assisting entrepreneurs across the Heartland. As a reminder, the following remarks by Taft attorneys are for informational purposes only and are not legal advice. This information is not intended to create and receive it does not constitute an attorney client relationship. No person or organization should act upon this information without first seeking professional counsel. Meredith, thanks for coming in today. How’s your day?

Meredith Sugar 7:15
Good.

Jay Clouse 7:16
Meredith, I wanted to give you a hypothetical situation here. Let’s say I’m a founder and there’s an acquisition offer on the table. It’s starting to feel very real that there will soon be a lot of money in my bank account. So how might I as a founder think about estate planning services?

Meredith Sugar 7:32
Well, although an acquisition certainly encourages business owners to execute estate plans, the time that I’m engaged in planning is yesterday, if not now, whether or not an acquisition is imminent, avoiding the time and cost of probate is generally very easy to do by having a trust, especially for business owners, the trust to hold all that person’s assets, including their business. Many other good reasons exist to have a trust for one a trust and keep children from inheriting at the age of 18. holding their funds in trust, even though the funds are always there for their support ages later than 18. Tax planning is another good reason to have a trust. We currently have a very high federal estate tax exemption of over $11 million per person. But this exemption likely won’t stay that high and in the past few years have been as low as 1 million passing away with more than that the mouse objective version to a 40% tax credit for able to make the Tax Scenario as favorable as possible. And more creative types of prep and help with wealth transfer to lessen the tax burden even more.

Eric Hornung 8:35
Something that no one thinks about. But everyone should be thinking about taxes. I appreciate you coming on. And if people want to learn more about Taft or yourself, where should they go?

Meredith Sugar 8:44
Our law firm website is Taftlaw.com and I can be found on the site.

Jay Clouse 8:54
John, great to have you back. Chris, great to have you here.

John Fein 8:57
Great to be back.

Chris Marks 8:58
Yeah, good to be here. Thanks.

Eric Hornung 9:00
We have had the John Fein experience on the podcast before but Chris, you’re new to the podcast. We’d love to start with you and Blue Note can you tell us about a history of Chris?

Chris Marks 9:11
Sure. Happy to do that. So I’m in Boulder, Colorado, and I’ve been doing early stage venture investing here for going on almost 20 years now. You know, it was about five years ago that I got a little bit disillusioned with with what I was doing and venture and decided to set out and start my own fund that became Blue Note Ventures. Blue Note Ventures was a seed stage capital fund that focused heavily on the type of entrepreneur we backed. We were looking for what we deemed authentic leaders, which were people who were trying to create cultures of real transparency. And we were trying to model that in our own behavior as we interacted with these companies. So that was Blue Note Ventures. We invested in 13 portfolio companies all early stage. We were coming of tech generalist looking to invest in the Rocky Mountain region, but also just anywhere between the coasts and still manage that portfolio and was just, you know, it’s kind of starting that fund is really when I cross paths with john, and when we got to know each other.

Eric Hornung 10:16
Usually when I get disenchanted with something, I don’t go and then do that thing. Again, what were you like disenchanted with in the venture space, but not disenchanted enough that you went and started your own?

Chris Marks 10:29
Yeah, that’s a good question. You know, it was kind of a series of events that, you know, I’ve been doing it for a while and had invested, you know, venture capital has has a bit of a reputation for being having some not so great elements to it, in terms of, you know, I guess competition for deals, competition among venture capitalists, and I’ve just had a couple bad experiences, you know, just in terms of investing in people that long put it this way, it was a bit of a pattern, we find a company would get to know them, we’d invest in them, everything would be great, the world would be great, they’d be crushing it. And then one day, the bottom would fall out. And I’d get the call of, Oh, my gosh, we have, you know, 30 days until we hit a wall or Oh, my gosh, this this has been going on internally, we haven’t talked about it and, and what I came to realize what it was, it was really the dynamic between investor and entrepreneur that is kind of inevitable in the venture world. So I just took a step back and said, you know, is this something I want to do? Or could I do it differently. And that’s really, that was the impetus behind Blue Note Ventures was just an attempt to kind of do it differently both in the type of people I invested in, and the way I communicated with them. And and I kind of figured the best way to do it was on the very front of any relationship to say, Hey, this is gonna be a little different, I’m going to be really authentic with you and really open with you and, and that’s the way this relationship needs to be for it to work. And, you know, some some entrepreneurs were excited about that some found it refreshing, and some kind of ran the other way. So we self selected in terms of who we invested in, we self selected in terms of the LPs that kind of backed that strategy, and we self selected in terms of the, you know, other funds that we co invested with. And so it was a bit of an experiment, not only from an investment strategy, but also just Hey, how to make life better as a venture capitalist. And I think it’s worked on both fronts.

Jay Clouse 12:27
So it sounds like what you’re describing, Chris, is that in a lot of the venture space, you’re experiencing founders who didn’t feel comfortable expressing the challenges they’re facing, or the things that weren’t going so well to their Capital Partners in real time, it was waiting until it was really an issue that they couldn’t ignore anymore.

Chris Marks 12:46
Absolutely. I mean, I think the traditional venture relationship is one that says, you know, as an entrepreneur, and many of these people are first time CEOs or first time founders, and they’re thinking, well, well, geez, if these people have enough confidence in me to give me their money, then I’m should probably have all the answers to all the questions in it right out of the gate, it creates this bad dynamic in terms of relationship, where you’re maybe not getting the truth. And if you don’t know, the problems, as an investor, you you can’t help obviously. So yeah, that was that’s absolutely the kind of fundamental disconnect we were trying to solve for.

Jay Clouse 13:23
You also mentioned that when you started socializing that to founders, some of them ran the other direction. Why do you think some founders would not want that?

Chris Marks 13:31
Well, you know, the truth can always be a little bit scary, right. And, and different people are, are looking for different things in their investors, I think some people would rather just take the capital and and say, we’ll check in with you on a quarterly basis and let you know how it’s going. And others are really looking for partners in the trenches, who are willing to roll up their sleeves and help and, and get into the nitty gritty and, and, you know, kind of help them solve the day to day problems. That’s the partner we want it to be, and we’re very open about it. So if it wasn’t a good fit up front, then we really appreciate companies, companies, you know, opting out and maybe run the other way is a bit of a strong statement. But you know, it’s it’s all about finding the right match and venture, you know, between investor and entrepreneur. So we were just trying to be a little bit more open and selective on that front.

Jay Clouse 14:18
John, obviously, we know a little bit about this, the story of the two of you coming together. We’ll get into it here in a second. But I know a big part of that was because you guys shared similar values. So what were you seeing John or, what kind of brought you to the same realization that you wanted to operate Firebrand in the same way?

John Fein 14:37
So, you know, a lot of what I learned as a professional investor, or I guess, that sort of started to serve as the foundation for my approach, as a professional investor was where my experiences running the TechStars program in Kansas City over three years. And because one of the wonderful things about being a managing director for a TechStars program is the void You have founders that you get to interact with. So at any given year, you’re probably interacting with, you know, upwards of 1000 startups, just to get to the selection process for your program. And so those learnings that I had selecting founders for those programs and interacting with those founders and sort of checking to check myself and also leveraging my own mentors, to sort of just figure out, are these founders the right fit, you know, or do they have the things that we’re looking for? You know, going back to a couple things that Chris said, like, are they authentic, right? Is he is there a high level of integrity to their values match, you know, what, what we’re going for, with these programs. And so I think that’s where it started, for me is when I add or at least, that’s when I really started thinking about it, and sort of my journey through TechStars. And all the learnings that I had, through those three years sort of formed that the basis of that investment approach with Firebrand.

Jay Clouse 15:58
So, John, you were starting Firebrand, about the same time in 2016. I’m actually gonna turn this around to both of you, whoever wants to go first, when when did you first meet one another?

John Fein 16:08
It was in 2016. And I’m sure it was on one of my trips to Boulder, you know, may have been like a lunch of the st. Julian, like I forget exactly where it was somewhere in downtown boulder in 2016. And I do remember, the reason we met was because I had reached out to the TechStars boulder program. And I was like, Hey, give me a list of your top boulder VCs, like, who were just not just invested. But like, Who were the good people, I need to meet in the investment community because even though I had a decent network there, I wasn’t as a as a fund manager. And so I think that’s, that’s where Chris’s name sort of bubbled to the top. And I think that’s when we first met.

Chris Marks 16:47
Yeah, I think that’s right. And I remember that lunch pretty clearly, because we were both in the process of raising our respective first funds. I think I was a little further down the road, but you were just getting underway. And we I was struck at that lunch, I’d certainly heard about John through the TechStars network and had been a mentor through the boulder program for a long time. But I just remember at that lunch, I mean, oftentimes, when went to VCs meet for the first time and have lunch, it can, you know, it can be a little bit guarded. But I do recall at that lunch, we, we both kind of commiserated over the process had some good laughs over some of the some of the people were pitching and how it had gone. And so yeah, I do remember leaving that lunch thinking got to keep in touch with John, this is gonna be be helpful.

Eric Hornung 17:34
I like to fast forward a bit, because you guys obviously did keep in touch. And now you’re merged to venture capital firms. But as you’re going through that process of deciding, we have a lot in common, we launched our funds around the same time, we both asked different questions. John, you might not know this, but we had Johann on from inKind. And he said, the thing that really stuck out to him about you was your first question wasn’t like about the fund. It was about how many hours of sleep he got at night, and you were hoping that he was exercising, and I feel you guys come adventure from a different way from that first question that first conversation. But how did you think about? And it’s easy to find similarities between people? How did you think about the differences between you and how those would work together in a potential partnership or merger?

John Fein 18:17
The great part about, you know, this process of sort of Chris and I come together in the same fund is that we had four companies that we co invested in together Firebrand and Blue Note, and I think it was, you know, through those co investment experiences where, you know, just naturally, because we already had a relationship, or we had a building relationship, you know, we would compare notes who would talk every so often, you know, there were, there were one or two companies where we were like, right on the same track, it seemed like in terms of our decision making process, from a timing standpoint. And so, I think that really helped, you know, define in my own mind, like, hey, like, at first it was like, wow, we have a lot in common, like, just as far as far as our outlook towards what we look forward to founders, how we work with companies in sort of the investment decision making process, but also, I think, what you said is the differences are, are really important as well, you know, we, I should say, like, you know, I would say our overall style is very similar, but we come from different backgrounds, right, like, Chris has more years of experience as an investor than I do. And he has in a variety of different types of funds. And he is a legal background. So I don’t have any of that. You know, I I was a founder, I was a startup person and operator, and then, you know, I eventually made my way to TechStars. And then Firebrand. And so, I think those those different types of backgrounds really help just bring, you know, different different perspectives to the table. I don’t think either either one of us would want to have done this. You know, we felt like we were exactly the same and, and always brought the same thing to the table, because that’s really not, you know, that’s not too helpful in a team environment.

Chris Marks 20:10
Yeah. And although we did four deals together in our respective first funds, we looked at several deals that we, you know, one of us would do and the other wouldn’t. So it was it was obvious from the start that we had some some different views on investing and I think, from my perspective, as we’re kicking around the idea of joining forces, you know, one of the things that was attractive to me is that in this business, it’s so easy. I mean, some people call it pattern recognition as a good thing. But it’s also kind of falling in your own biases, as an investor. And one of the things that was attractive to me was having, you know, I guess, a different set of biases, a different set of experiences, it’s just a healthy way to go. And and I think it’s broadened our investment horizon overall, you know, by combining those.

John Fein 20:55
The other thing I would add is that nothing ever goes perfectly. And, you know, we all have our failures, and our lessons that we’ve learned along the way and, and naturally, we’re going to have different types of lessons. And I think that’s, that’s much more important than whatever successes that we’ve had in our past. And so I think just having different types of struggles, and failures, and lessons learned from those things are hugely important.

Jay Clouse 21:22
How important was the overall timing of this? And it seemed like both of you are going into a second fund. Was timing, a big factor here for other venture firms that may want to emerge in the future? Like, is there good timing or bad timing?

Chris Marks 21:39
Well, yeah, ours worked out on a lot of levels. You know, first and foremost, the fact that we got it done before the pandemic hit is, is something we’re thankful for overall, but in terms of where we were as two firms, I think it was really helpful. I don’t know if it’s impossible to merge if you’re at different stages. But, you know, we just happen to be at a point where we had both gone through an initial close, largely with our existing LPs from our first fund, we’d closed but not called any capital. So we’re, it’s a very unique position we had, you know, we’d gotten commitments, people would sign the paperwork, but we hadn’t done we hadn’t called any capital and made any investments. And as a result, we were kind of starting with a clean, clean balance sheet. So it was fortunate, I think, it definitely sped the process up. I mean, we started talking about it around Thanksgiving of last year. And, you know, despite the holidays, and everything else, we closed, right at the end of January. So it was it was a fairly quick process. And it really involved us, you know, first of all, making a decision amongst ourselves, it was something we wanted to do, and then going back to our LPs, and kind of laying out the bigger vision and getting them on board. So it all that, you know, considered it went very quickly.

Eric Hornung 22:51
What was that first around Thanksgiving conversation? Like? Was it a Hey, what if? Or was it a, I have a very formal plan, and let’s do this.

John Fein 23:00
I called Chris, I was on my way to the airport in Kansas City. And I called him from my car. And I was just like, threw it out there. I just like got right to it. Because I think I was like cryptic. I was like, hey, I want to talk to you about something before that. And I don’t know that I was really specific before the call. But during the call, I was like, hey, look, here’s the deal. You’re in the middle of raising your second fund, we’re doing the same thing. We seem to be on exactly the same track. It was always on, on my agenda to have, you know, two partners in our second fund. And that was the first that was the first conversation. And it was like, okay, you know, we It was really just throwing it out there for initial thought. And then and then it just sort of went from there. And we continue to have follow up conversations. And like Chris said, it went pretty quickly. You know, given the fact that it started in late November. And we got it done in I guess, officially in January, but I think really it was done a little bit before that. So yeah, at the timing was, so I still look back and I was like, wow, this is like lightning in a bottle. Like I don’t know if this is ever gonna happen again, just because of how everything lined up.

Eric Hornung 24:08
Chris, when he sent you a text that said, Hey, I want to talk to you about something were you like, are we like, let’s unexcited.

Chris Marks 24:15
No, I was always you know, one of the things I appreciate about John is he’s he’s pretty direct. So I knew when I got the message that he wanted to chat that it was probably something on his mind that was that was timely. So you know, I was not in my cards to have a second partner for my second fund. I was kind of committed to like the model seemed to be working for me as a sole GP I had, you know, certainly had my reservations going into the first fun but by the time second fund rolled around, I was feeling more confident. And you know, having gone through the fundraising process, I was ready to kind of put that behind me but John, as he said he was fairly direct and he basically said, Look, I’m not necessarily looking for a partner. I’m not talking to anyone else. But if you’re interested, I think we should explore this. As much as I wasn’t expecting that conversation, it really didn’t come is that much of a surprise, because it just felt very natural from the start. And I remember getting off the phone with John. I was working from home that day, and I came upstairs. And I told my wife about it. And she’s like, Wow, it sounds like this is something you want to do. And I was like, Yeah, kind of does, huh. You know, just like never, I never really, it just, you know, I mean, we obviously questioned it and went through the process and spent a lot of time together and, and all that. But it really from the start felt very natural,

Jay Clouse 25:37
Something that comes up a lot of times in conversations with investors, they’ll talk about how nice it is to have co investors and kind of Co collaborators. And you guys were obviously that for a period of a couple of years. But sometimes also, they’ll talk about how competitive deal making it. So when you’re going into this arrangement, did this feel like you were potentially losing a co investor or this feel like you were losing a competitor? You know, how did you think about that?

John Fein 26:06
Yeah, I’ve never even thought about that. You know, it didn’t even cross my mind. And there’s so many funds, there’s so many seed funds out there. You know, it’s it’s funny, because it that is true, like, I guess we did lose a great co investor. But, you know, because we’re combining or have already combined, we can put a lot more power behind the investments that we make. So, you know, just bigger funds, you know, largest checks. That’s an interesting question. I hadn’t really thought of it. I’d never thought of us as competitors. That’s for sure. You know, and honestly, I really don’t, in general, I don’t feel like there’s a lot of competition between the coasts, for deals. I might be naive in thinking that way. But I think there’s some I think the biggest competition that that we see between the coasts is from much larger funds, who decided to start doing seed deals between the coasts that are based on the coast. So yeah, I mean, I just looked at is how great this combination could be. And sort of the, you know, the cliche of you know, one plus one equals three artists, you know, two plus one equals five, since there’s two of us already and a Firebrand. But that’s kind of how I was thinking about it. I don’t know, what about you, Chris?

Chris Marks 27:25
Yeah, I mean, I definitely thought of us as much more collaborators than competitors. You know, when you’re a sole GPU, you have kind of a very small group of CO investors that you trust, and you lean on for their opinions for their diligence. They try and bring into deals. And you know, John was at the top of that list. So for me, I thought, immediately, while the opportunity to have that partnership, you know, I saw much more benefit than, than anything else.

Eric Hornung 27:55
When you were collaborators. And you both invested in those four deals, you both kind of got credit for those four deals publicly. How do you think about assigning, like, who’s a lead partner? Or is it just when you find a deal, it’s firebrand invests. It’s not led by Chris or Led by John

Chris Marks 28:15
Yeah, you know, I think, when it comes to Firebrand, and it’s, you know, as John mentioned, there’s three of us, me and John and Miranda, you know, we really just work as a team. So we view it a little bit differently, you know, our dynamic internally is that every deal that we consider, we talk about, we hash through we compare notes, you know, it really is more of a group thinK than it is one person championing a deal and trying to win over the rest of the partnership. And I know that’s very common in the venture world, I’ve lived that dynamic before. And I think that leads to some really bad dynamics within a firm and within a partnership. So we’ve really, I just think it’s more our personalities and the way we work and the kind of foundation of our relationship, that that’s not the way we operate. So really, we just, you know, any deal we do as a Firebrand deal, we all stay in contact with the founders, we all serve as resources for the CEO. You know, if we’re on the board, oftentimes more than one of us will, will try and attend any board meeting. It’s just, it’s just another way that we try and kind of help the companies we work with is to have more than one person kind of familiar with what’s going on and available as a resource.

Jay Clouse 29:28
John, did you sell Miranda on this idea before you talk to Chris?

John Fein 29:32
So I, you know, we’re we we coat we’ve always had a team mentality. And so she she was looped in from the start. She had met Chris before, and had a really positive interaction with him, but didn’t didn’t know him as well as I did. And so it was just a matter of me. She she was she thought it was a great idea from the start. And then we had a really accelerated process like we talked about once we really got serious about it. And one of the steps that we took was I forget who visit who for I think I may have come to Boulder first. And then Chris, later you came to Kansas City. That’s right. But so so Chris came to KC, you know, he met with both of us. And we continue to have Miranda as a key member of that process, of course. So, no, I didn’t have to do any selling. It was a pretty easy organic, you know, process. And at the end of that process, we were all going to either decide, like, does this make sense? Or? No, does it make sense to stay, you know, independent from one another?

Chris Marks 30:39
Yeah. And I actually remember that, that trip to Kansas City. So I flew out there, we got barbecue that night, the three of us, which is mandatory when you go to Kansas City, and then the next day, I actually spent the entire day with Miranda, just the two of us, and, and, you know, just with the idea of getting to know one another, understanding, you know, for me for my benefit, understanding where she was headed, what she was thinking, and vice versa, and it was a great day. And, you know, we ended up spending a lot of time talking about venture, but we also spent a lot of time kind of walking around Kansas City and touring the city and just hanging out. And at the end of the day, when we got together with john, I think, you know, we’re both feeling feeling really good about it. And you know, I love the idea of, you know, like John said, we we have different backgrounds, but we’re also there’s a lot that’s similar about the two of us and and you know, having the benefit of a young woman’s perspective on the team is really something I was excited about. So it was I think it’s a great team dynamic. And that was something that was really attractive to me about the merger.

John Fein 31:41
If you guys don’t mind, I’ll take this opportunity to do a quick plug for Miranda’s background for for the listeners. So Miranda Manning is our principal. She’s based here in Kansas City with me, Randy and I have known each other for five years she we met when she joined our team at TechStars in 2015. So she had the benefit of I think that was like what she calls like her first real job out of college was working in the tech stars program, which is pretty cool. And so she worked for two two programs were my last two programs there. And then she was obviously the first hire at Firebrand. And she’s been with firebrand, for over two years now.

Jay Clouse 32:18
At what point did you have to bring this to LPs in what that look like.

Chris Marks 32:24
That’s obviously a big piece of the equation and making this work. And, you know, as I mentioned, I adjust close to the fundraising process. So I, you know, with an initial quote, so I just been out talking to all my LPs, selling them on the vision for bluno ventures to, you know, convincing them to that as a sole GP, this was the path that that was right for us to go and everything else. So it was an interesting conversation, but so that we got them involved very early. I think as soon as John and i were committed to this, you know, that was the next round of conversations. And, you know, from my perspective, it went remarkably well, you know, people knew of firebrand because they’d been a co investor with us. And, you know, once I laid out, you know, the benefits of the combined entity, the ability to write bigger checks, the ability to expand our geographic footprint, the ability to create, you know, partnership dynamics that would from a decision making standpoint, and the fact that neither of us have given up any control, you know, any decision we make as a partnership is like I said groupthink. So it’s not, you know, and that was something we committed to from the very beginning. So I think it was, it was relatively easy to get them on board, but I was a big piece of equation and something that we gave a lot of thought to and, you know, a little bit anxious about wading into it.

John Fein 33:44
Yeah, that was on my side. It was it was pretty easy. You know, it was I think, once they learned about, about Chris’s background, and what he was bringing to the table, it was a fairly smooth process. Again, I think a lot of it had to do with the timing. We didn’t have to do any, any extra work. As far as you know, we hadn’t made any investments. We hadn’t called any capital out of the second fund yet. And so I think it was relatively, it was real, painless process for the LPS, they’ll, you know, we definitely had some good questions from them. We have, you know, a great base of LPs that are very engaged, which I’m grateful for. So they’re very supportive.

Eric Hornung 34:22
How do fund economics change, when you go from solo GP and the size Firebrand was to writing larger checks and like, what changes there that might not be apparent right off the bat?

Chris Marks 34:36
Well, you know, part of it is just having a larger fund so fund economics are always about you know, returning the fund first and and getting your LPs whole first and then obviously, you you kind of share in the in the profits and that’s that’s fun economics. And so, you know, we’re able to a lot of benefits come with a bigger fund. As John was mentioning, we can write bigger checks. We have the ability To lead more rounds and kind of set the terms, we have a little bit more say, presumably in the syndicates that that form in those rounds. So who we’re co investing with and in or maybe a little bit more attractive if we do is competitive because we not only write bigger checks, but we reserve more capital for future rounds. So I think there’s some, there’s some benefits to having a larger fund. from an economic standpoint, internally, it’s just everything gets a little bigger, right, the hurdle to return into funding gets a little bit bigger, you know, but the economics get a little bit more powerful. And, and of course, you know, we, we now have two general partners, and and so, you know, really, the economics aren’t that much different. For us, it’s more about all the kind of benefits that come along with with having a partnership, and being a little bit more of a lead investor and having our kind of combined experience.

Eric Hornung 35:53
What happens to the fund one assets like the portfolio’s you had individually, are those just legacy assets that didn’t come over in this merger? Or are they now kind of rolled up under this new entity?

John Fein 36:07
So they are, I guess, you could call them legacy in the fact that we were basically done, you know, Chris Blue Note was already fully fully deployed, as far as you know, not making any more new investments, or the first one, we were just completing that process, when Chris joined, and so yeah, they’re just, you know, existing portfolios that we continue to manage individually, for our respective first funds. And so that’s, you know, that’ll that’ll continue until the end of those those fun terms. And then, of course, you know, the second fund is still pretty new that we’re managing together.

Jay Clouse 36:48
This is something that we’ve never heard of before, and didn’t find a lot of comparable experiences happening. So, Chris, especially with your depth of history, and investing, what do your peers in the venture world think of this?

Chris Marks 37:02
Yeah, I’m not sure anyone knows what to think of this, because I think, you know, the idea of two two venture firms merging is new to the industry. And what you see more often is a partner from one firm will move to another firm, or, you know, one firm will maybe acquire the assets of another firm, but rarely do you see this type of of merger? And I think it’s, you know, so I’m not sure people know what to make of it, but I think they get that the most important part is that, that the partnership between myself and John is is is what it’s going to be going forward. And, and I think, you know, using using the word merger has allowed us to kind of explain it and explain how it came together. So organically, and I just think, you know, one of the reasons it doesn’t happen in ventures, what we’ve talked about is that the timing just really has to be perfect. Otherwise, it can get pretty complicated.

John Fein 37:54
Yeah. And, you know, I think, for me that, you know, the greatest part about this merger was that it was done from a position of strength for both of us, because I think sometimes, you know, when any two entities merge, that’s always going to be the question is why? And, you know, for us, it’s like, Look, you know, we’re both in a really strong position, our first funds, were doing really well. And, you know, our fundraising for our second funds was going really well on both sides. So that was the best part for me, it’s like, we didn’t have to do this, things would have been fine. You know, for us individually. We just felt like it would be so much more impactful for the founders for LPs. If, if we can bind forces. And so to me, that was always the best part is that it was done from that position of strength.

Jay Clouse 38:43
How did you think about the creation of this new entity? You guys are operating under Firebrand fund, too. Did you guys arm wrestle for who kept the brand name as you consider creating something entirely new? How’d you work through that?

Chris Marks 38:57
Yes, all the above. Now, we didn’t really arm wrestle. But we, we, we did consider, you know, becoming something totally new. We considered both the existing names. You know, at the end of the day, it was a little more practical than that Firebrand ventures to we had formed both right Blue Note Ventures two and Firebrand Ventures, two were both operating entities, firebrand ventures to was set up to be larger, it allowed a higher level of commitment, which made it a natural selection. We like both names, you know, and there’s something from my perspective that, you know, Blue Note was, you know, it was something that I was very intentional about setting up and establishing, and it was really my, my personal vision at that point in time for me. So there was also something that was comfortable from my perspective about leaving Blue Note Ventures is what it was and what it continues to be going forward, which was kind of my incarnation of of really intentional shift and how I approached venture and how I wanted to be seen adventure and how I wanted to do my investing. So I’m really proud of What Blue Note Ventures was, and I’m really excited to be part of Firebrand ventures too. So that that decision, it really it moved pretty quickly. And I was very comfortable with it from from the start.

John Fein 40:11
Yeah. And I would add that, you know, we, we did treat it like a true merger. I mean, and I think it’s the best type of merger, which is, you incorporate the key elements from both entities. And so, you know, in this case, we brought over a lot of sort of the messaging, the approach the values, from what Chris had been doing a Blue Note, and sort of melded them, you know, with, with what we’re doing at firebrand we hadn’t, you know, we talked about values, you know, somewhat at firebrand, but I never felt like, I articulated that very well. And so I think, you know, bringing Chris, on board, sort of, you know, defined all of that really well, and again, you know, adding to what we had already been sort of working on really helped a lot.

Jay Clouse 40:57
What are we not asking about this that we probably should have asked?

Chris Marks 41:01
It’s a good question. I know, we’ve gotten a lot of questions about this.

Jay Clouse 41:05
This is called the Jay covers is asked question.

Chris Marks 41:11
Well, one of the things we get a lot is, you know, now that you’re in a partnership, how is the decision making going? Right, we both were in a situation, I mean, John, John worked with Miranda, but but really, we both started our funds, his sole GPS with kind of this, you know, sole decision making authority, essentially, and when you’re investing, you know, that’s, that’s no small thing. So, I get that question a lot, like, well, how is it now that you, you know, you guys have to agree on everything, and you have someone else? And and, you know, the answer is not that exciting, which is it’s really been, you know, I’m not sure if there’s even the way like I said, the way that we’ve been making our decisions in terms of more of a groupthink mentality, we tend to even though, you know, we have different opinions and different feelings, we’ve we’ve consistently gotten to the same, you know, decisions, since this thing is kicked off, which has been great. And and, you know, they might be slightly different decisions than we would have made on our own and individually, but, but the decisions feel good, and they seem very well thought out. And I think it’s, it’s been all a net positive, from my perspective.

Eric Hornung 42:16
Do you have a, like, preset framework for when there is conflict?

John Fein 42:23
Yeah, we’ve talked about this quite a bit. You know, I think the basis of that framework that we use, is, like Chris mentioned before, this is not a scenario, nor do I think it will ever be a scenario where one partner or one member of the investment team is selling the other members on a on an investment, I realized that happens a lot. In bigger funds, I realized that happens a lot in Silicon Valley, that’s not our style. You know, there’s, there’s this, you know, well known list called the Midas list, that is a list of the individual partners at VC firms that have had a lot of success for that given year. And I kind of see it as a badge of honor to never have any of us on that list. Because that means we’re doing deal attribution. And like we mentioned before, that’s just not part of our style. So our style starts with, you know, how do we approach this as a team? How do we let each individual come to their own conclusion by being part of the evaluation process. So for example, you know, we might have, you know, one of us individually might have a first meeting with a startup. And then if that’s, that’s looking good, they’ll bring in maybe another member, and then maybe if it’s continues to look great, all three of us will meet. And so first of all, we’re all highly engaged with the startup pretty much from the start. So it’s not a situation where someone is bringing a deal to the table, and all of a sudden, the other two have to like, catch up on what this deal even means. And what this team looks like, that I think is probably the most important basis for our decision making process. Because from the start, we’re all fully informed. And then, you know, we lead with, you know, respect for each other, to respect each other’s opinions, knowing that we’re not always going to agree, but we do have a framework for Okay, you know, what happens when one disagrees? Or two disagrees? You know, how are we going to handle that? And, you know, it’s worked well. And I, you know, again, I think we’re, we all have similar enough approaches to evaluating founders. So as long as our true north continues to be investing in the team first, making sure that we don’t get we don’t fall in love with traction, and we don’t fall in love with Marcus, you know, before we fall in love with the team, when it always comes back to that. And to me, there’s going to be very few times where there’s like, a fundamental disagreement about an investment.

Chris Marks 44:51
Yeah, and, and along those lines, you know, one of the things we talk about a lot is investing in teams that, like I’ve mentioned, are transparent and kind of create these environments of trust and trust. The best people and communicate well internally. And, you know, one of the best ways we’ve we’ve found to do that is really to model that in our own behavior internally. So we talk a lot about that. And and like John said, we try and operate with respect and trust and very open communication. And so you know, there’s not, you know, so far, and I would never foresee it, nor do I think we tolerate it. But there’s none of the gamesmanship that John’s referring to. It’s more just, how can we make the right decision here as a group?

Jay Clouse 45:31
This has been awesome, guys. Great to meet you, Chris. John, thanks for coming back. If people want to learn more about you, or get involved with Firebrand after the show, where should they go?

John Fein 45:40
You can find both of us on Twitter. Our website is is FirebrandVC.com. So those are the best places to go.

Chris Marks 45:47
Yeah, thank you guys. I appreciate the time. And it’s nice to meet both of you.

Eric Hornung 45:54
All right, Jay. We just spoke with John and Chris from the new, the rejuvenated Firebrand adventures, what, uh, what sparked your interest?

Jay Clouse 46:03
Ooh well, what was interesting to me was that everything just felt like it was easier than we expected. Everything just felt like, we we never heard this before. We thought it was going to be something crazy that there were a lot of hoops to jump through. And, you know, of course, there were some hoops to jump through. But all said it just seemed like they realized they were in a unique period of time where they had an opportunity to do some has never been done before. And they were just interested in doing it. So they did. And it wasn’t a lot more complicated than that.

Eric Hornung 46:31
Yeah, I like that. Um, I mean, it really came down to timing, almost, they kept coming back to this idea of timing. And, I mean, you can’t time a merger, I guess. But it just happened to work out. I don’t know if it’s like serendipity. Or they’re pushing too much on a, you know, we got lucky. But yeah, it really did feel like it was a little we were asking all these technical questions, right? Like, what would you do with your LPs and like what we just told them?

Jay Clouse 46:59
I like that a lot of this started with basically john just picking up the phone and calling him and saying, I have an idea. You know, I like I like moments that stem from just, you know what, I’m going to call this person, I’m going to ask him about this. And we’re going to go from there. And not like, Hey, can I set up a time to talk with you a week from now for 30 minutes over zoom? And

Eric Hornung 47:17
That’s something that comes with just great rapport, though, you know, like, when you and I started this podcast, I think we were in a similar position where you just kind of called me and said, Hey, what about this thing. And I love that, because it’s that moment, which is really interesting. But it’s the entire relationship before then that doesn’t really get talked about as much.

Jay Clouse 47:37
I think it probably took a lot of humility on Chris’s part to take on the Firebrand brand. It’s no small thing to do a merger, which is, you know, a merger of equals, and then basically sunset, the name of a thing that you’ve been building, and it’s probably been your baby for years. So I think that speaks to his commitment and his humility and his authenticity that he invests in with his founders. I imagine that that was probably an interesting conversation. But you know, at the end of the day, they have more funds now to write bigger checks to lead more rounds to hold more reserve capital. It seems like they’ve become an even stronger partner for founders here in the whole country.

Eric Hornung 48:14
Do you think if someone came to you who was a equal, and said, Hey, I want to merge podcasts with you for your podcast, Creative Elements, but we had to scrap your name, we’re gonna take mine. How would that conversation go?

Jay Clouse 48:28
I don’t know. I’ve never met anyone that was my equal.

Eric Hornung 48:32
What a pompous statement.

Jay Clouse 48:34
I’m just kidding. Just kidding. I know, I don’t know, I feel like we would ever feel like we’d have to have more conversations. I mean, ultimately, I care about branding. And I care about the power of branding and marketing. So I would probably do what is best from the standpoint of what marketing and branding is meant to do. Would it be a hard pill to swallow? If the brand that I came in with went away? Of course, yeah.

Eric Hornung 48:57
What a, I don’t have the right term for it. And power couple keeps popping up into my head. But like, what a great it’s not right? It’s not right. I know, it’s not right. What a great like, pairing, I found that whenever you have someone with like a lawyer background and someone with like an operator background, and you put them together if they can work together, because a lot of times there is just like, it’s like putting two of the same sides of a magnet together, they just jump apart from each other. But when you can find two people that work together like that, it’s just like a superpower as a as a duo. I feel like so I imagine that they’re gonna have some pretty great success here.

Jay Clouse 49:30
Totally agree. We’ll be interested to see if we see any other venture firms following this model. You know, I feel like we’ve seen a lot of micro VCs start up over the last five years. So it doesn’t seem impossible that some other groups may emerge to give themselves more, you know, financial power, but we’ll see it’s still seems unique, and it seems like it might be dependent on timing.

Eric Hornung 49:55
You know what I would have pulled on that thread a little bit before we close out here. There are a lot of money Micro VCs and popping up there are a lot of single GP, maybe three person teams popping up. And when you make that commitment as a venture capitalist, you’re making like a 10 year commitment from your most recent fundraise. I wonder how many people aren’t fully thinking through what that 10 years looks like. And maybe have a look a little burnout have a little, okay, I don’t really want to do this anymore. I want to go on to my next thing. I wonder if we see an acquisition spree in the venture capital space, maybe that’s something people aren’t really talking about or thinking about?

Jay Clouse 50:31
I could see it. I mean, if you go back to John’s blog, when he was talking about starting firebrand and his first fund, he talks about how challenging it was any credits, another venture capitalist who I forget her name, but she had a blog writing about the same thing. And the economics of it were like, he has a 10 year commitment. And at the size fund that you’re raising, you are really setting up to not make a lot of money personally for the duration of that fund. So I think a lot of people are probably in that boat. And maybe it wouldn’t make sense for some of them to join forces to give themselves a little bit more breathing room to do this thing for 10 years.

Eric Hornung 51:07
In which case maybe there’s a really interesting financial company that will pop out of this that just goes around and buys venture capital portfolios,

Jay Clouse 51:15
Upside Financial.

Eric Hornung 51:17
What a terrible name.

Jay Clouse 51:20
Well, if one of my equals comes and tries to give me a different name, then maybe I will.

Eric Hornung 51:23
Oh, it could be an upside SPAC that could be us. The upside SPAC

Jay Clouse 51:27
I’ve seen SPAC all over Twitter, I don’t know what it means.

Eric Hornung 51:29
Hmm. You don’t know what the acronym means, or you don’t know what it is?

Jay Clouse 51:32
Both.

Eric Hornung 51:33
special purpose acquisition company. It is a company that takes public investment and invests in and buys out private companies, essentially.

Jay Clouse 51:44
Super interesting. We’ll save that for another episode.

Eric Hornung 51:46
All right. Well, this episode has been super interesting, Jay, I learned a ton. And listeners, if you want to hit up Jay or I can reach me on twitter @ekhornung or Jay @JayClouse, c l o u s e or you could reach out to us at upside FM. If you have something a little longer, send us a note at hello@upside.fm. And we will talk to you next week.

Jay Clouse 52:13
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 @upsideFM. 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 guess 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 parties 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 Duffin Phelps LLC and its affiliates under a collective LLC and its affiliates or any entity which employ us. 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 this show. Thanks for listening and we’ll talk to you next week.

Interview begins: 8:54
Debrief: 45:54

John Fein and Chris Marks are the managing partners of Firebrand Ventures.

John started Firebrand Ventures in 2016, and we interviewed him in 2018.

Prior to founding Firebrand, John served as Managing Director for Techstars, a leading startup accelerator with over 40 programs around the world. While at Techstars he ran three accelerator programs in Kansas City and invested in 30 startups. Companies that have gone through Techstars programs have raised a total of over $9 billion in funding and have a collective market cap of over $25 billion.

Prior to Firebrand, Chris was the Founder and Managing Partner of Blue Note Ventures, an early-stage venture fund investing in great technology companies and serving entrepreneurs committed to authentic leadership.

After co-investing in several companies together out of their respective funds, it became obvious that Chris and John not only shared a similar investment strategy, but also an underlying set of values around how they partnered with entrepreneurs. In late 2019 they decided to join forces and merged Firebrand and Blue Note.

Key points:

  • Disenchanted in the venture space 10:16
  • Firebrand and Blue Note starting together 14:19
  • Similar Values and investment approach 16:08
  • Merging ventures 17:34
  • Is there such a thing as good and bad timing? 21:22
  • Fund economics change 34:22
  • Preset framework for conflict 42:16

Follow John Fein and Chris Marks:

https://www.firebrandvc.com/team-members/john-fein
https://www.firebrandvc.com/team-members/chris-marks

Know about Firebrand Ventures: https://www.firebrandvc.com/

Follow upside on Twitter: https://twitter.com/upsidefm

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