20VC BoxGroup's David Tisch on Whether Concentrated Investing At Seed Works, Do Founders Really Want Direct Feedback and Is It Good For Them & Why Consumer Social Is Interesting Again

In this episode, Harry Stebbings welcomes back David Tish, founder and managing partner at Box Group, to discuss the evolution of venture capital and startup ecosystems. David shares insights from his experience, including the impact of taking on external capital, the importance of aligning with founders' visions, and the current challenges in building relationships in a fast-paced market. They also touch on the dynamics of customer acquisition, the resurgence of interest in consumer social, and the role of VCs in company building. Additionally, David reflects on the feedback loops that validate investment strategies and the emotional toll when startups fail. The conversation highlights the delicate balance of staying true to a VC firm's roots while scaling and adapting to market changes.

• Harry Stebbings introduces the episode and the return of guest David Tish.
• David Tish is the founder and managing partner at Box Group, an early-stage firm.
• Box Group's portfolio includes notable companies and has recently raised significant external capital.
• David Tish also holds a position at Cornell Tech and has a history with Techstars New York.

"And so with that, I'm very, very happy to welcome back to the show David. David Tish, founder and managing partner at Box Group, one of the leading early stage firms in New York with a portfolio that includes the likes of Flexport, Rig Up Row, Glossier, Clearbit, Pillpack and Plaid, just to name a few."

The quote introduces David Tish and highlights his role at Box Group, his academic position, and his previous work experiences, framing the significance of his expertise in venture capital and entrepreneurship.

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• David Tish discusses his accidental entry into venture capital through his love for the internet.
• His career path included being a lawyer, starting a company, and joining Techstars New York.
• Box Group was initially a side project to invest in non-Techstars opportunities but became a full-time venture.

"So I a lawyer for a minute and then I left there to just start a company, joined this bigger company and left there in New York in 2009." "Box Group became the vehicle to invest in non techstars opportunities."

The quotes detail David Tish's career trajectory, his initial legal profession, his entrepreneurial ventures, and the inception of Box Group as a side project that evolved into a significant venture capital firm.

• Box Group took its time before accepting external capital to ensure credibility and a proven investment model.
• The decision to take on external capital was to capitalize on opportunities and support portfolio companies more significantly.
• David Tish emphasizes the importance of maintaining investment philosophy and improving the investment process.

"Only ten years in did I get comfortable that we might have a clue what we're doing." "I think what we've done is sort of right size our ship, if you will, by going out and taking some outside money."

The quotes explain the cautious approach Box Group took before accepting external capital and the strategic reasons behind the decision, focusing on growth and maintaining core investment strategies.

• David Tish acknowledges the potential mindset change with institutional capital but hopes to avoid it.
• He stresses the importance of alignment with investors and staying true to Box Group's model.
• The goal is continuous improvement rather than becoming more conservative with investments.

"I hope not. I think that the more you are investing on tilt or the more you're not able to see deals in a clean way, the worse you will be as an investor."

This quote reflects David Tish's awareness of the potential mindset shift when handling institutional capital and his commitment to maintaining an objective and effective investment approach.

• Box Group is a collaborative seed investor that does not compete for deals but for allocation.
• Their check size ranges from $200,000 to $500,000, and they focus on collaborative seed experiences.
• The firm makes about 40 investments a year, aiming to be part of founders' dreams without overemphasizing ownership or board seats.

"Our view is that we can find 40 amazing, interesting founders with awesome dreams that we want to be part of."

The quote encapsulates Box Group's investment philosophy of collaboration and support for founders, highlighting their approach to making numerous investments annually without the traditional focus on ownership stakes.

• David Tish acknowledges the importance of a venture capital fund's ability to generate returns.
• He emphasizes the power law dynamics in venture capital, suggesting that being early investors in exceptional companies can make the math work out, regardless of check size or entry point.
• David Tish believes that a venture capital business model works if it is centered around investing in potential high-return companies and fails otherwise.
• The strategy is to be adept at identifying and securing investments in the best opportunities.

"And so I don't want to overstate our lack of focus on our business. I just don't think pushing that to the founder is ever something that's relevant in terms of returns."

This quote underlines that while the business aspect is critical, founders should not be burdened with the pressures of fund returns.

"The best companies will make all the math work, no matter what your check size, no matter what your entry point."

David Tish is explaining that success in venture capital often comes from investing in a few breakout companies that can deliver outsized returns, making other investment factors less critical.

• David Tish discusses the challenge of increasing ownership stakes after the initial investment, especially for seed investors.
• He notes that it is often unrealistic to expect to gain more ownership in competitive later-stage funding rounds.
• Building and maintaining relationships with entrepreneurs and other investors is crucial for maintaining ownership stakes.
• The focus should not be on ownership optimization but on funding the right companies.

"Actually, I think building ownership after your first check is probably hard as a seed investor because series a, series b is just so competitive."

David Tish explains that increasing ownership in later funding rounds is challenging due to competition, and it is not a reliable strategy for seed investors.

"I do believe that you can maintain ownership by building great relationships with both founders and other investors."

This quote suggests that relationships are key to maintaining ownership stakes rather than aggressively trying to increase them in subsequent funding rounds.

• David Tish expresses skepticism about the idea that venture capitalists can consistently act as company builders.
• He believes that the success of a company is primarily due to the founding team's vision and execution.
• While some investors may significantly impact a company's trajectory, this is not the norm.
• The role of a venture capitalist should be to support founders, providing them with what they need to succeed.

"The idea that an investor can come along and promise time after time, the ability to build a company feels very hard for me to believe."

David Tish is critical of the notion that investors can always play a pivotal role in building a company, emphasizing the importance of the founding team's efforts.

"They have one dream, they have one portfolio company. They're all in on that."

This quote highlights the founder's commitment and focus on their single venture, contrasting with venture capitalists' diversified portfolios.

• David Tish discusses the difficulty founders face in being open about negative experiences with venture capitalists.
• He points out that founders rely on private networks to learn about investors due to the risks associated with public criticism.
• The fast pace of fundraising makes it hard for founders and investors to build genuine relationships.
• David Tish suggests that more transparency in sharing experiences would benefit the founder community.

"I think it's incredibly hard to be public about bad experiences because as an entrepreneur, as a founder, you at some point will need to go back to market."

David Tish explains why founders are reluctant to share negative experiences with VCs publicly, as it may affect their future fundraising efforts.

"The best way in today's market to get to know the investor, if you don't know them before you're sort of raising money, is through whatever public Persona is out there."

This quote emphasizes the importance of an investor's public persona in the absence of a pre-existing relationship, highlighting the reliance on social media and other public platforms for insights into potential partners.

• David Tish recognizes the challenge of building trust with founders within the accelerated timelines of modern fundraising.
• He describes the balancing act of being authentic, transparent, and quick in decision-making.
• The importance of a venture capitalist's public reputation is underscored, as it can attract founders.
• David Tish advises either full awareness of market dynamics or strict discipline in investment strategy, cautioning against a middle-ground approach.

"It's hard, and I think it's becoming harder."

This quote acknowledges the increasing difficulty of building meaningful relationships in the fast-paced venture capital landscape.

"Whether that's Harrison metal or an IA ventures, it feels like they don't change their playbook."

David Tish points out that some firms maintain a consistent investment strategy regardless of market conditions, suggesting this as a potential approach to relationship building.

• David Tish shares his personal perspective on using social media, particularly Twitter.
• He expresses discomfort with the confrontational nature of interactions on Twitter.
• David Tish's motivation for being a venture capitalist is to support founders in achieving their dreams and making an impact.

"I'm scared of getting yelled at, and there's a lot of people that yell at you on Twitter."

This quote reveals David Tish's personal reason for reducing his activity on Twitter, which is the negative aspect of social interactions on the platform.

"I feel like we are so lucky to be able to work with people who want to go build something and build something to a scale that has such a wide impact."

David Tish explains his passion for venture capital, which is rooted in the desire to contribute to founders' ambitious goals and the broader impact of their companies.

• The romanticism surrounding startups faded after 2014 as the term "unicorn" became popular.
• A "unicorn hunter" mentality emerged, where people try to take down companies that achieve unicorn status.
• There is a negative connotation associated with being part of the echo chamber that promotes startups.
• David Tish expresses a desire to avoid being a "unicorn killer" due to the hard work founders put into their companies.

"And then I think the tone changed. So as the sort of word unicorn got spread, what to me has happened is we've seen the development of the unicorn hunter. And so as somebody gets deemed a unicorn, out come the claws and the people trying to kill that unicorn."

This quote illustrates the shift in how startups are perceived once they reach a high valuation, and the subsequent scrutiny they face from critics looking to bring them down.

• The market has seen a significant increase in available capital, leading to discussions about an oversupply of money.
• David Tish controversially suggests that there isn't too much money in the market, but rather too many companies.
• The dilution of talent in the industry is a concern, with too many startups making it hard to build depth of talent.
• David Tish believes that venture capital should be used for rapid and significant growth, not just for any startup.

"I think there are too many companies. So I think the idea that every company is going to succeed and every company deserves to be funded through a series c, that's a risk to me."

This quote emphasizes the issue of having too many startups, which can lead to a dilution of talent and resources, potentially hindering the success of truly innovative companies.

• In the current market, there are no free customer acquisition channels, making it difficult for startups to grow without significant capital.
• Technology has shifted from being a vertical to a horizontal, attacking established industries and competing with well-capitalized giants.
• Being undercapitalized is seen as a disadvantage, and capital is necessary to scale once product-market fit is achieved.

"Because I think in order to win in this market, where there is no free customer acquisition channel, there's no arbitrageable channel on the Internet, probably for the first time since the Internet was born, you need capital to attack whatever opportunity you're going after."

This quote highlights the necessity of having sufficient capital to compete in a market where free customer acquisition is no longer available.

• It is increasingly difficult to acquire customers, especially for consumer brands, due to competition with large, established brands.
• The majority of VC dollars are spent on customer acquisition through platforms like Facebook and Google, raising concerns about the sustainability of this approach.
• Building an authentic community is seen as a more sustainable way to grow a brand, as exemplified by Glossier.

"And Peter Fenton said on the show that there's a lack of free and open distribution. So for me, it's like a massive concern that actually deters me from investing in many consumer brands even because I'm just concerned that we're competing against massive, massive brands on Facebook and Google, and that's where the majority of VC dollars go."

This quote conveys the difficulty of acquiring customers in a market where free distribution channels are no longer available, leading to a reliance on paid acquisition strategies.

• Early customer acquisition cost (CAC) is not given much importance due to the inevitable volatility and increase in costs over time.
• Understanding the foundation of a startup's pitch is considered more important than early data on CAC.
• Founders must be able to articulate a long-term strategic vision to overcome inevitable obstacles.

"I think at some point you will run into a wall, and if the founding team is not able to see around the wall or get over it, you're probably dead."

This quote underscores the critical importance of a founding team's ability to anticipate and navigate challenges that will arise as the startup grows.

• Technology and social media have become stale, with people seeking new experiences.
• Products that tap into human desires, such as fun, happiness, or opportunity, have the potential to scale quickly.
• There is a gap in the market for products created by the younger generation for their peers.
• The success of platforms like TikTok and Tinder indicates a market demand for fresh and engaging social experiences.

"People are bored with technology. People are bored on their phone. Go look at what people do on their phone. It's the same thing they've been doing for years."

This quote reflects the current sentiment that consumers are seeking new and innovative experiences, as existing technology and social platforms have become routine and unexciting.

• David Tish discusses the importance of learning from missed opportunities but without formalizing the process excessively.
• The focus is on understanding what was overlooked in opportunities that succeeded elsewhere.
• Internal discussions are held to analyze missed behaviors or aspects of founding teams that could have been indicators of success.

"We keep a list of everything that we've either looked at or didn't have an opportunity to see that gets funded by a firm that we have respect for because we assume that somebody sees something in it."

This quote highlights the practice of tracking investments that were either considered or missed, acknowledging that other respected firms may see potential where they did not.

• David Tish emphasizes the complexity of giving feedback to founders, especially when the reason for passing on an investment is related to the founders themselves.
• The importance of founders betting on themselves and not being swayed by investors' opinions is underscored.
• There is a careful balance between providing honest feedback and not discouraging or misguiding founders.

"I think very few founders want the radical transparency of why somebody passed. And at the end of the day, a lot of the early passes are around the team."

This quote explains the sensitivity required when giving feedback to founders, especially when the decision not to invest is based on the team itself.

• David Tish shares his preference for mainstream entertainment, specifically network television, to stay connected with the general audience.
• His commitment to watching "Survivor" is mentioned as an example of his viewing habits.

"I'm in the middle of season 39 of Survivor without missing an episode."

This quote provides insight into David Tish's personal entertainment choices and his interest in staying aligned with the mainstream cultural zeitgeist.

• David Tish discusses the venture capital industry's attitude towards large companies like Amazon.
• He suggests that while there are criticisms, consumers generally appreciate the services provided by such companies.
• The venture capital industry often overlooks the positive impact big companies have on the market.

"I think that the big companies get punished and shit on by our industry just to sort of feel good."

This quote reflects David Tish's view on the venture capital industry's tendency to criticize large companies, despite the value they provide to consumers.

• David Tish talks about the importance of recognizing the limitations of predicting the future of investments.
• He notes the significance of the first feedback loop where a company rises and then falls, which helps in developing a rational perspective.
• The first successful exit is also mentioned as a milestone that validates investment decisions.

"I think the first feedback loop you get is actually something that goes all the way up and then all the way back down."

This quote emphasizes the learning experience derived from witnessing the full cycle of a company's growth and subsequent challenges, which is crucial for developing a balanced approach to investing.

• David Tish describes the core challenge of his role as ensuring that potential investment opportunities are aware of and can connect with his firm.
• He also talks about the emotional and psychological challenges of dealing with the failure of investments and the impact on the founders.

"I think the job is about seeing the deals you want to see. And so every day we wake up and say, there's somebody out there starting a company that we would love to back."

This quote captures the proactive nature of venture capital work, which involves seeking out and connecting with promising startups.

• David Tish expresses the desire for continuity and consistency in the operations of Box Group.
• He highlights the long feedback loop in the venture capital industry and the need to maintain a constant approach to achieve results.

"Hopefully business as usual. I think we just raised our first outside capital fund and the key to me is not changing what we do every day."

This quote signifies David Tish's commitment to maintaining the established strategies and practices of Box Group, despite the introduction of new external capital.

• Harry Stebbings expresses gratitude to David Tish for being a supportive mentor.
• David Tish's accessibility and influence are acknowledged.

"David being an incredible guest. I do also want to say huge thank you to David. He's also always been there for me, always been a great supporter and mentor."

This quote is a personal acknowledgment of David Tish's role as a mentor and supporter, highlighting the value of relationships within the venture capital community.