Making Billions: The Private Equity Podcast for Fund Managers, Alternative Asset Managers, and Venture Capital Investors
Thanks for listening to another episode of Making Billions with Ryan Miller: The Private Equity Podcast for Fund Managers, Startup Founders, and Venture Capital Investors. This show covers topics connecting you to some of the best investment funds that won in their industry—from making money and motivation to alternative investments, fund managers, entrepreneurs, investors, innovators, capital raisers, money mavericks, and industry titans. If you want to start a business, understand investment funds that won the game, and how the top 0.01% made it, then this show will give you the answers!
Making Billions: The Private Equity Podcast for Fund Managers, Alternative Asset Managers, and Venture Capital Investors
Pattern Matching vs Founder Psychology: What Actually Wins
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How do you spot billion-dollar founders?
Ryan Miller (Angel Investor) and Kristina Simmons (Overwater Ventures) identify the "Answer-First" framework—evaluating founder psychology and commercialization potential over traditional pitch decks—as the key to elite early-stage investing on this episode of Making Billions.
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[THE HOST]: Ryan Miller is a recovering CFO turned angel investor in technology and energy.
[THE GUEST]: Kristina Simmons is founder and Managing Partner at Overwater Ventures.
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If you rely on pattern matching to pick managers or founders, you're going to want to watch this. In this episode, Kristina Simmons and I unpacked how focusing on founder psychology, instead of just pitch decks and data, can change which deals you say yes to, while keeping you safe from the dangerous deals hiding in plain sight. All this and more coming right now. Let's get into it.
Kristina, welcome to the show.
Thank you, Ryan. It's great to be here. What a great community, and excited to share some tips.
It's great to have you. We've been fortunate to be in the top 2% of all podcasts in the world. It's all because of amazing guests just like you. So I'd love to just let's jump right in. You know, the first time we spoke, you mentioned something that I found intriguing, which is called pattern matching. So I'm wondering if you can walk us through your exact framework for spotting opportunities that other VCs systematically miss.
Sure. So first of all, at Overwater, we focus on commercializing breakthrough technology, but we like to solve really big problems, and so we look at how big of a problem is this founder tackling and how ambitious are they? Because I think you have to think big, think bigger, and then scale back. And then how unique is the technology? Is there some sort of secret sauce there? Is there a founder, product market fit? Is the founder the best person to be doing this? And then, do I believe that they can make a lot of money? Can it be a billion dollar company? And so we really like to spot the unusual, the under-represented, the ones that I think about it, like going to a flea market and finding the gem. And so we really like to find unusual ideas and people. And we typically look for, I'll kind of go back, but it's more than it's not a science, it's an art. And we really look for the founder, their tenacity. Are they self aware? Do they have written determination? And do they have a network where we feel like, through our own network, that they're the best person in the world to be solving the problem?
Brilliant. And so when it comes to finding that and helping these people, what are some of those other steps that you look for, especially when it comes to say, personality like, you know, it's easy with late stage guys like myself, where we're like and it's your last three years of historical financials, and we'll try to extrapolate value. You don't have that. So it's really like you said, it's art. So are there personality things that matter to you? Do you look for that, or is it pure business model, revenue growth models? How do you assess that?
It starts with a founder. That's the most important element. You can't build a billion dollar business without having an amazing team and people are behind every business that you build. We look for first of all, can they articulate the story? Are they able to get people excited? Do they have the charisma and the energy and the passion behind what they're doing? And do they do it? Do they tell the story in a convincing way? So I actually think the deck is under, under focused on sometimes it's really important. Can they communicate it and that you can tell can they hire people as a result? Can they raise, follow on capital as a result? Can they get big BD deals done? I also look for grit and determination. So what have they been through adversity? Have they fought, you know, have they fought through something? Have they come out on the other side? Do they, building a startup is hard. Can they do it? Can they attract amazing talent? How do they do that? Are they going to be good at building a culture? And so our interview, you know, our diligence process is non linear, and we ask a lot of questions to understand the psychology behind how a founder thinks and how they operate. And I feel like oftentimes VCs miss this, they're focusing too much on the technology or business and not enough on the person and their values and ethics? Are they a good person to do business with? And we spend a lot of time doing that. We ask them what their values are. We ask what their company values are, and if they can't answer it or go there with us, we know that there's not that self awareness that it takes to build a big business.
Oh my gosh, I love that so much. It's almost like hiring as well. You know, in my young journey is I started to get leadership roles and all that. So, like, you're an individual contributor, is, like, the technical term that they're using in corporate world. But one thing that I've learned as I scale up in leadership, and I'd love to get your opinion on this, if this is the same thing that you're seeing. But what I found, like we hear about, you know, you have your A player employees, and your B and then your C's, right? So a lot of people break it up like that, just to drive conversation. But if we hold true to that, A players are like these people, you get 10 to 1 return on investment into these types of employees, but they look for different things. And I think you would want an A person who can recruit other A players. And they need to be one themselves. And one of the things that I've found that is really good, that A players like to join companies with big visions, right, B players are looking for a job. C players or take anything you give them. But a players are like, I know I'm really good at what I do, and I work really hard to be good at doesn't mean, you know, like, not a all A players are jerks. Some of them are just like, I'm really good at what I do, and I work really hard to get here. And so I want to apply it to a company that I don't want a job like I want to build. And so is that part of your due diligence process is when you're interviewing founders, can they, do they have a big enough vision? Can they articulate, you mentioned, I think charisma, I think it was one of those things. Can they articulate a big vision, because to me, if I found a founder like that, I'd be like, they've got the company and they've got the founder who can attract a players. Or are you like an ops guy that just gets nothing wrong with that, that just gets a smooth operations and all that? Of course, we love that too, but you're creating jobs versus creating an impact or a vision. Have you found that to find these like dynamic founders who play big visions are then the follow on or second or third order effects is because of that type of founder. You already know, hey, I believe this guy or this girl is going to be really good at attracting the A players in this sector. Have you found similar things?
Exactly. So I think the best founders, if I look back in time over the last 15 years, they come into, they come in with a big, giant vision. You're like, wow, that is much bigger when I compared to what I looked at the website like, wow, I didn't even think you were going to go there. Because I think you have to first follow where the market is. What are the non government components of the GDP? Where is there the most, you know, money to be made? And then what are the problems to solve? And then they have a mission to solve it, and they have a really exciting way to think about it. I think you have to have that in order to attract the right talent and have a really meaningful, long term company. So we absolutely look at, look at that in the process, we ask, and I think, of course, we want outsized returns. That's what we're in the business for. But we ask, you know, what kind of impact will you make? You plan to make over the next 10 years? And what, you know, not only what are you, what is the business that you're solving, but like, what are they going to be the ripple effects of that? And I really like to see thoughtfulness in that answer, and then mapping back from okay, what will it take to get there in five years, in one year? How do they really think about this because I think if you're focused, I think if a founder comes in and is like, I want to, I want to sell this company in two years, and that's the route that I want to go. That's not the kind of business that we're excited about. We want founders who are ambitious. We want to take the public who really are in it for the long term and in it for the long term mission, not taking shortcuts to make money.
Brilliant. So, so it sounds like these long term thinking, big vision guys, big vision girls. These are the ones that can really start pulling in a lot of those things that like they're gonna have to do. They're going to have to recruit, they're going to have to get people to say, I'd rather work for you and not the job that I'm at now. So really pulling that forward, and I think sounds like what you're saying is it's actually a critical part that has nothing to do with finance, yet it has everything to do with finance, as far as driving returns and building a company. Is that what I'm hearing?
It's so important. And I think founders make mistakes here often, and I think you have to, it's nuanced here, because not all founders are great at storytelling. I can't tell you the amount of founders I help with their deck, and so I think they have to be in the right environment to tell the story. Which is, you know, at Overwater, we designed our websites, it feels like you're going on vacation and not a VC board meeting. So you can kind of pull out like, you know, a technical founder who is likes to code on the weekends might not be the, you know, might be a little bit, you know, less familiar with public speaking. And so getting them into the right environment so that they can shine is really important. And so I think you have to kind of figure out, how do you have the, how do you have the real conversation? What's the right environment? What are the right questions to ask to be able to get there?
Brilliant. Now, so founder and original investment selection is one thing, but as we dive deeper, we're looking for some product market fit signals. And so before product market fit, what specific signals tell you a team can actually commercialize a breakthrough and not just build it?
Yeah, so you can have an idea, but there's a vision and there's reality, and you have to have the reality. We spend a lot of time looking at the founder quality and so many of our founders, we have known in our community, they have you know through our community, they've either worked for a startup in the past, or someone else in our network can vouch for them. Or they've built a company before, or they come out of an academic institution, and we have been communicated that they're one of the top 1% who's working on that. So we spend a lot of time understanding like the quality of the founder and the quality of the founding team. So that's one, it actually is a huge signal before product market fit. The second one is the technology. Is the technology unique and differentiated? Do they have some sort of IP or some sort of breakthrough that no one else has had. Or the third is, is there a specific business tailwind that makes it so this business can be successful where it maybe couldn't have been five years ago, whether it's a regulatory change or whether there's something in the market. And then the last thing, which is really hard to do, but looking at culture, what do people want? What are they excited about? So I'll give you a great example, one of our companies, Gameto, really cool, amazing company. They are the first phase three stem cell trials. They're rethinking egg freezing and IVF so it's much shorter, no injections and product market fit. They've had amazing success recruiting people for their trials because people want, they love the idea of egg freezing an IVF in three days without having to have needles. And so it's before they're live we can already see the amount of interest. And so we do look at those early signs of alpha testing, or beta testing as well.
Brilliant. So finding that it's, it's a lot of layers that we have to go through is not just tech, but founder, culture, and as far as the use case of it as well, is to say, is there, like, a recurring revenue target that you like to see these companies get to that says, yeah, I think they can hit it. Is there a number that you guys like?
I mean, we have to be convinced that this can be a one, 1 to $5 billion plus company like, we have to have that conviction. And then we work back to say, what would it take, what are the assumptions to get to 100 million in revenue? And I say that not because I think you don't want to push a founder to say, how can you get to 100 million in revenue the fastest possible? That's not usually the best route, but what are the assumptions behind that? And then we really have to believe it. We do our work to understand the pricing and the margins and what it would take to get there, but we normally like to see that it's like, yes, big idea, yes, amazing technology. But like, can you really build a big business from this?
Brilliant, you know, when it comes to the psychology of founders in long horizon categories? I'm just curious, how do you evaluate founder psychology because we mentioned that earlier, like decision making under uncertainty. You mentioned grit and resilience. Integrity is a big one, I think you and I, we spoke about that before on that, how do you evaluate founder psychology without romanticizing the grit?
So I think you learn a lot about the vision in the first and second meeting with the founder. It's kind of like dating before you get married. I think VCs make mistakes when they move too quickly and they view, you know, a well known investor coming in or signal without actually diving into the diligence. And so we look for we ask somewhat nonlinear questions. Like, I'll be like, what keeps you up at night? Like, just understand the founder, who do you need to hire? What kind of people like, send me LinkedIn profiles of your dream CTO candidates that you want to hire. Or I'll ask, you know, what are their values and ethics? And then, of course, we do a lot of references, so we'll ask people, was there ever a time that you question their integrity or ethics? Would you invest in this company yourself? Would you work with them? You can learn a lot and I think people don't ask the right questions in those references. And then lastly, I think you learn a lot from working together, I view this as not just writing a check, like we're working and building this with founders to the extent that they want us to. And so oftentimes, in the process, we'll do a product a product workshop, like, let's actually talk about product strategy, or let's talk about your go to market strategy. And you learn a lot from them and how they interact with their team members, how they think, what is it like to work with them? Do they follow up? How quickly do they follow up? Do they add on to it? And so there's a lot of the nuances in the process versus the actual questions that you're asking that you learn a lot from.
Brilliant, so when it comes, so we have product market fit, we have investor psychology, things are looking good. But the one area that I think all VCs, one of the many areas that you look at is, how do we commercialize this? I remember earlier we were talking to say, how do we make sure that, yeah, you can build it, but can you actually build it in a way that the market wants to pay you for it? That's a different thing, because we as investors and fund managers, we have to talk to our LPs about returns and all that. So we got to make sure the commercialization is there. So how do you help deeply technical founders who are good at building but may not know commercializing? How do you help them translate that science into a commercialization pathway?
It's a great question, and it's one of the reasons we started. I started Overwater Ventures to help commercialize breakthrough tech. I noticed so many amazing founders coming into us, coming into the pitch meeting at Khosla. And they had awesome ideas, deeply technical, but they were failing at commercialization. And, you know, it starts with very early, pre-seed. I'll work with the founder to say, let's work on the foundation. What are you building? Why are you building it? What are your vision, mission and values? How do you start there? And then, and then from there, who is your customer? What do you believe that they want because you can, you can't just build something without knowing that. And how can you start testing whatever it is faster? And so what I like to do is say, how do we help you to ride bigger waves? How do you help, how do we help you to get to your destination faster? I can't help myself with the water puns, with Overwater. But you know, we'll, we'll say, like, who would be your dream partner? And then no part of our job is to say, okay, let's let me cold email on LinkedIn, the CEO of this, you know, top four pharma companies, because they should know about what you're doing. And so we, of course, have to believe in their technology, but we try to get them in the right rooms, whether it's corporate partners or enterprise or consumers or government, early to learn what would it take for them to buy?
And so when you're getting that pass, so then, after that conversation, and this honestly, is not that surprising to me, that you provide that value in that way, given your time at Andreessen and your time at Lululemon and your time at Khosla and now your time at Overwater, so you've got really good resumes, super impressive. But I could tell that these people are like, I know how to build it, I don't know how to commercialize it. I'm assuming that is a big common thing that you deal with is that right?
All the time. And I think you know this, it's often misunderstood. It's like, okay, I'm going to put a little line item of a marketing budget, and they will come once, I will launch my website, and the doors will flood open and that's not the reality. And it's also not the reality that you can just put it into advertising. And so I spend a lot of time to say, you know, who is your customer, where are they going, and spending time online and offline. How do you reach them in creative ways? How do you build a brand that inspires, educates, or provokes thinking and and thinking creatively around what that could look like, whether it's partnerships or create, you know, creative campaigns, or the way that you're messaging, or being a little bit more provocative. Because I think if we could merge brand and technology together, it's so powerful, and you can build a much bigger company faster.
You know, I, I don't know if I'm right or wrong, but I, I have the belief, speaking of branding, is that marketing tells people what to buy, but branding helps them to understand who to be. And so often, when they have a brand, it's saying, I want that, like, maybe it's a Ferrari. They're not talking about their engines and all that, they're showing you how great your life could be with a Ferrari or a Rolex or, you know, I'm dipping into the luxury messaging. And so it's just showing you look, like what's possible in your life with this, and can you trust that to bring it up? So I love branding, and marketing is a big love of what I do, even today. But you know that building profitability and technology and branding is a really good frontier, and one you know very well. What I'm curious of Kristina is some, maybe some categories or underfunded frontiers that maybe you have come across. So what category or even wedges are underfunded today because it breaks that VC pattern matching but yet your still belief, your belief is this is actually going to be huge.
Yeah? I mean, so part of where I think those opportunities are is when you look at it from a problem first lens. Think there's a lot of funds today, that are, I'm a bio fund or an AI fund, and like, to me, like, that's like me having an internet fund, like AI will be a part of everything in the future. And so we look at, how are they actually solving it, versus just a technology? And so I think that the most niche companies are ones that are building real businesses, like they are integrating AI into the physical world, or they found a way to really solve the problem. And I also think we also look at what problem are they solving, but then what can be built that couldn't have been built five or 10 years ago? So neuro, for instance, I think there's a lot, there's a lot of interesting things happening in neuro tech, where you couldn't build a big business there 10 years ago because it was too expensive. The technology wasn't there. It's a massive problem that we don't really understand quite yet but I believe that there will be a big company in that space. Another one is women's health. You know, I think I actually don't like the word women's health, because I think health is just women, percent of the world, and the, you know, the largest buyer of health care. But I think, you know, it's been, it's been really ignored in clinical trials, in drug discovery women and so I think that there's going to be a huge opportunity to use women's physiology in the development of drugs in health from a different, different lens that we've seen before.
Brilliant, you know, in neuro and I think you're more talking about hardware, but I'm assuming one that I find fascinating, take it for what it's worth you and everyone listening, and all the 190 countries we are in but I find it very fascinating and this is something I'm interested in exploring, is the rise of psychedelics for PTSD, very interesting, very choppy waters. There's a lot of regulation you got to dance with. But there I saw a TED Talk by this young lady, she was a PhD student at the time, and kind of like, almost like penicillin moment, where she stumbled upon this, where it was in rats, they were giving them ketamine, and they found that there was, like, these positive markers. Three days later, the drugs completely out of their system, and they were acting fine. And she was like, wait a minute. And so published it. It got replicated, and now you see ketamine clinics that are out there. And I was like, holy crap. Like, the thing most people don't know is my father was a police officer and served three tours and and you know that comes with similar first responder type of life. And what a fascinating sector and I'm glad you brought up neuro, obviously you struck a chord with me on that one, but what an exciting time. And I think this touches exactly what you're talking about. And this is a saying, the riches are in the niches. And so having like that, I know you're joking, but having an internet fund, you're like, not the most niche area, but finding these key things and solving a problem so key. So I love what you talked about. There anything else you can add to that?
Yeah, and I'll give you an example. I'll actually give you a few examples, which is, you know, I really believe the shift similar to what you're saying about mental health, like, where there's this whole shift happening from reactive to preventive healthcare. We don't even know what's happening in our bodies, but now, because of these sensors, because of AI, can ingest and make sense of all that data, we're going to be able to unlock so much more. And I think that there are these areas, like neuro, like microbiome, like multi omics, that we have only just begun, or the environment around us, how it's affecting our health. And I'll give you an example of a category. It was about 10 years ago I made this investment and I am really excited about this space. But, you know, I believe fertility is only increasing, one in six couples have trouble transceiving. It's only growing, you know, there's a lot of conversation around pesticides and fertilizers contributing to that. And if you look at right now, the numbers, there are only somewhat 300 REs in the US. There's way more demand. But people are doing IVF versus egg freezing. And to me, the growth it was a really small market, but the growth rate was really interesting of it. And so I said, like, how could you take those costs down? How could you make it so it's way more accessible and easy? And we've invested a number of companies in those spaces, because we really believe in that undercurrent of cultural change, and that's a very niche area that we don't think we'll be niche in 5-10 years.
Brilliant. So, you know, raising a debut fund, there's a lot of people that follow shows that are interested in this. So I'm curious, from your experience, we can think way back in the day, what was your strategy for raising a debut fund in a difficult market, and specifically around narrative proof points, and how you handled LP objections in the early days.
Great question, and hopefully I can provide some tips, and this is helpful to your viewers.
Yeah, yeah.
You know, I think there's a lot of people starting funds, but they're not doing the work to say, not all of them, some of them are amazing, but they're not always doing the work to say, like, why am I really doing this? Is it what I think I should be doing, and why am I best in the world to do this? Like, what is it and I spend a lot of time thinking on my own, you know, you think about, what do you want to learn, what do you want to contribute? And I had this whole sort of map for how I thought about it. So, like, what did I, what do I want to impact in the world? Like, you know, it's a little corny about, like, what do I want to impact? How do I think I can impact that and then, what are my real strings? Like, where, does one plus one equals 10, if I'm directing my energy towards it, it was really clear on what that looks like. And to me, building a firm was the way to do that. It's not about just investing in these companies, it's, I want to help these companies get to their vision, and that can make a massive difference in the innovation in these industries. And so when I think the best advice was, I said okay, I want to, I feel like there's a gap here, and I want to build Overwater. And it combines the best of what I learned so Lululemon how to build a billion dollar brand, how to scale it, how to they had a very specific leadership development style, and how to help founders be Overwater versus underwater. That mental health side of it that I wanted to bring into venture. And Andreessen, they were modeled after CAA, Michael Ovitz was their advisor. And I thought, instead of hiring 600 people internally, could we create a more dynamic way that we leverage our network? So, for instance, we bring in three to nine technical experts for everything that we're looking at. We think that those experts are best in their field. And then at Khosla taking big, bold, transformational bets. At Khosla, you know, Vinod, we were first investors in open AI institutional investors, Square, Stripe. And so I wanted to bring that, taking big bets into the picture. And look, it was not the easy route. Raising your own fund when you're at a larger firm is not the easier route. But to me, it was the best route and I had a number of founders coming to me to say, Kristina, we want, we want you to start your own firm and do things your own way, and choose the types of founders that you wanted to look at and these overlooks founders and helping to commercialize. And so that's really where I started, Overwater.
Brilliant.
And then tips for think about it, you know, it's not the easy route. It's the hard route. I didn't go into this having the LP connections. I was, you know, because, so we had, we were meeting LPs, but they were the giant sovereign wealth funds who are not investing in small funds, so it took a lot of hustle and grit, and it's not a sprint, it's a marathon. And so you have to know that you're going to have to flip every stone over a million times, and it's a product market fit. And so are you telling your story right, do you show your unique edge? Do you have something that proves that founders will respect you, that you can pick better than other people, that you can win better than the other tier one firms, and that you can really add value.
So add value, great at selection and winning. So I like to say the three most valuable assets in all successful fund managers toolbox are reputation, relationships and results. And when you have those raising capital, tends to be a little bit easier. I would never call it easy, but it tends to go a lot smoother when you can point to a good reputation. By that, I mean integrity, results and great relationships. And so mastering those three, I think, can really help a debut fund in the early days, would you agree?
Absolutely and I think that there's a balance between being a great investor and being a great firm manager, and how you think about building a brand beyond your investments, and how to think about portfolio risk and there's all these nuances that I think are complicated. And so to me, it was like, this is what I'm going to be doing for the rest of my life. It is building a brand. I get to invest in amazing companies and getting to work with them hands on, but it is knowing from an LP community that you're going to repel and retract, I would say attract and repel the right LPs, depending on who you are, and you're going to get, you're going to meet a lot of people, and they're not going to be the right fit, and you have to stay true to yourself because for every feedback I got, I also got the opposite feedback.
Man. Okay, so this is, this is the marathon that you're getting and each mile is different, you're like, I ran the last mile the same way and then someone says, well, absolutely don't do that. And so it's a mixed bag. But you know, no doubt, with your experience, you've been able to really navigate and build Overwater into what it is, man, it's very impressive.
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And you know, I'm curious, because you mentioned a lot of times when you have founders and you do deals and then you make connections. So what does founder support mean in measurable terms to you?
That's a great question. So the way I think about it is it's not just reading an investor update when it comes to your inbox. It's really, we really spend the time, once we make an investment, having a kickoff. We have what we call a reverse pitch. We pitch the founders. They know our values, how we operate, how to work with us. We really get to know every aspect, every aspect of the business, because the more that we know, the more that we can help. And so getting into those sessions that are reoccurring to say, okay, send me all the information that's not we should not be going over, that you should not be present, presenting to me. It is like, what are the three most important topics that are keeping you up at night that we can help solve like or that we can brainstorm through. Let's actually talk about it. Who in the world can help solve that? And so it's much more of a working session. And then we think about, you know, we have a dashboard, green, yellow, red. What are these, you know, what does each company need, what kind of connections do they need to help them to ride bigger waves and to get to where they need to go? And so that's from a business level. We also look at the aggregate challenges in our portfolio when we create on the doc programs. And so based on if we're seeing our companies struggling with negotiating deal key deals, or fundraising or hiring, we have those sessions, but we also have personal sessions because it is the founder. You have to think about the founder holistically, both in what they're doing in their personal life, because they're sacrificing so much to build a big company. So we also spend time helping to think about that. We did a session on their own personal finance. We did a dog pound workout, which is this gym that's awesome in LA ,so kind of doing things that help them outside of what they might expect.
Brilliant. So this is really good. So we you, you come in, you teach them about your fund, and they learn about capabilities. We outline red, yellow, green, as far as where we at coming in, what do you need? And so you, sounds like you really go through on the, I don't know if you call it onboarding, but when you get these new deals and new founders come in, you really sit down, pick apart what they need, where are the gaps? And then the rest of the work begins. Is that, is that what I'm hearing?
Exactly the rest of the work is most important like that, is you go from diligence, but you have to know when to stay high level and when to swoop in. And it's a hard balance sometimes, but knowing when you can add the most leverage to the founder, whether it's, hey, let me work on your fundraising deck and shorten it. Or, hey, let me red line, like, let me send me over this BD deal, and I'm going to send you my notes. And so knowing where the lever it, where you'll make the most impact of these companies.
Brilliant. So you know brand is, is a big part that we were talking about earlier. So how do you think about brand as a compounding distribution asset in early stage companies like, what do you push founders to do in the first 90 days?
So brand is so important. And I feel like, especially technical founders, who I love, they often think about branding as the logo on your website, or like the colors, like that is not it is the foundation of what you're building. It is how you're attracting the right people. It's all these things. And if you look at, you know, look at Apple to me, of course, they built amazing products, but they made this, they built this incredible brand around them that was so thoughtful in every detail and inspired, educated or provoked thinking. And I really believe that the earlier you can build a brand, the more value it creates and it tracks better talent. It tracks BD partnerships, you're able to punch above your weight more.
That's right, yeah, and it helps with, probably feel free to disagree, but probably helps a lot with, we love organic leads, whether it's getting investors, getting talent to hire, when it's inbound, often it's because they've responded to some signal or repeat signals of a brand, and they're like, I got to give Overwater a call. Or I got to listen to the show or buy this shirt or whatever it is. And often, I think that value that you're talking about, the earlier you can do it, the better it works out, couldn't agree more. And I think what it works out means, at least in my brain, and feel free to add or take away, is it creates inbound. It makes people want to be a part of something, right? It makes you want to own a Mac not because it's superior, probably is, but because it's cool, right? We talked about brands help you to know who to beat, not just what to buy. And so you're like,
It's aspirational.
It's aspirational, and you're just saying, when I own this, like, you remember when the white AirPods, or they weren't AirPods, just the headphones were out? So, and everyone's wearing these white earphones to these new iPhone and you're like, what the heck are these earphones? And then you realize, oh, you're not cool unless you got these white, I was in college when all this came out, and every it was aspirational. And then everybody started buying Macs, and then everybody started getting iPhones and this brand that you're referring to really created a lot of organic traffic, organic sales. And you don't have to excuse this expression, blow your brains out on your brains out on your marketing budget, because you've actually built a successful brand early on, you had enough foresight to do that. So I can see why you love the brand as a distribution channel, and how that really helps people to move forward so.
It's the poll, and I will say, like Lululemon did an amazing job of this, and they did it in a way that you. It's unexpected. So you know, when they went into a market, I don't know if you know this, but they would start with having a would start with having a community manager. This community manager would know where the muse was going, where was she spending time, what studios, who were the cool instructors, who influenced the influencer. Then they would have a pop up store, it was in a back alley, like you had to know about this. You know, they went to community events. It was very not traditional. They'd never sold in unexpected places and so by the time they opened the store, they had so much demand and interest. And so I think about it, someone told me this, and maybe this is it's like, be the tequila, not the lime, like you want them to chase you. I don't even really drink tequila, but I like that analogy.
It's a good metaphor. Yeah, one of the ones that on branding and I teach a lot of people at Fund Raise Capital, where I teach people to raise capital. We talk about, instead of chasing butterflies, why don't you build a beautiful garden and let the butterflies come to you.
I love that.
And so that's that brand to be like, I want to be there, you know? And so you're engaging these community people at, when you're at Lulu, Lululemon, which is, everybody loves that brand. My wife loves that brand. And when they go in, they're just saying, we're not just trying to get you to buy, say, athletic wear. We want you. We want to invite you to be part of a culture, a community and we want to be part of the culture in the community. Want to influence the influencers and really be a part of that. And now people are like, well, when I use this product, I know who I am. I belong to something. It's identifiable, and you can draw positive conclusions about me when I use an Apple computer device, when you, when I wear sportswear from Lululemon, or whatever it is, or drive a certain car. So the power of that is huge, and you do it brilliantly. Now, one of the tests that you told me about was something about if I don't want to steal your thunder, but it was if the Wall Street Journal wrote an article, that was one of the questions you asked. I was wondering if you could expand on that.
Yeah, so on the aspirational side, well, part of what we do in this reverse pitch onboarding session is to say, like, what do you need to raise the next round? Like, what are the milestones you need to hit? And it's not, you shouldn't, you shouldn't have your objectives based on fundraising, just to be clear, but it's more hypothetical. Like, what do you need, what needs to be true? And so I think the best way to do that is like, okay, even if you just raise your seed, imagine that the New York Times is writing an article about your A, your Series A, and you, you've you raised it, what are they going to say? What did you accomplish? Who's going to be that investor that's writing that big check? And I think the more you visualize it and articulate it, the clearer you can figure out the plan to get there.
Brilliant. So I would challenge anyone listening to that to follow your advice. That is to say, if the Wall Street Journal wrote a massive article about you on the past accomplishments, and someone read it when they're assessing, they will say to invest in you. What would you want it to say? So that's a future casting and now reverse engineer it, and let's make that happen, so I absolutely love that.
Fund managers out there, I think you really have to think through, you know, what does that look like? And what is your strategy? I you know, there are, there are VCs who are really strong at being active on Twitter, and then there are some, you know, I think Thrive did an amazing job building their firm, because they were more like a speakeasy than a bar with a marquee, and like, you know, heads down building, and the right people came to that and so it's kind of knowing, you know, what is the strategy you want to take?
Brilliant, you know, based on that, I'm curious, where do you see the line between being a high conviction builder and crossing into founder dependency, and how do you keep that relationship healthy?
It's always a balance, and you know, you have to maintain, it starts with trust, and I believe it starts with the foundation of trust, and that's not easy to do to be honest, it takes takes a while to build that whether you think it's getting people outside of their their office or their conference room, going on a run, climbing a mountain with them to build that trust. But I think it's really under, creating an environment where they can tell you what's really not working. Because the faster you know what's not working, like, you know, move aside the BS, like, just tell me what is not working with you, with the company, with you personally, like, what's keeping you up at night? Because then you can start to problem solve. And so I think that's one, and then two is being able to be able with good intentions. But I think a lot of investors, or many investors, I should say, go to board meetings, they say that's great, like they say, you're doing a great job. Ask some questions. What's hard is when things are not working, or what's hard is giving the real tough feedback, even if they come. Is doing well. And so I think it's being able to say, hey, you're doing the company's doing well, but I think you're going to hit a wall in three months if this keeps happening. And so being able to know when it's going to move the needle in the company and when to swoop down and when to stay high level, and where to give feedback, but to say what no one else is saying, with the intention of really helping them to get to their vision faster.
Brilliant. So really helping them to move along that scale from builder and understanding how that hybrid between the investor, you and the builder, and managing that that's a fine line to walk, is what I'm hearing is that right?
It's always a fine line, and I think it's also knowing and being clear on the hat that you're wearing. Meaning, if it's for the best interest of the founder, oftentimes, like I'll hear other investors give feedback, not necessarily because that's the right move for the company, but because they want to mark up around or that they want that company to go through an exit. And so I think it's being really clear with the motivations of other people, where it's coming from, but then also being able to find that balance. Because they do say, you know, some of the best founders, they don't need your help. But every single company that's built a billion dollar business, they go through really tough things, like they almost, I can't tell you the number of companies that are now public, that I've had conversations with the founders they were about to fail. They go through something tough, and it's building the trust to know what that is and to help them at whatever that moment is. So it's not all the time, but it's the waves and being there, you know, when the waves are starting to crash.
Brilliant. I love the water analogies keep them coming. So you know, you really touch on something that I feel like just after putting in reps like anyone else in this industry, you start to see patterns. And one of the things, and I'm glad you talked about trust, because this is really important on both sides. As investors and fund managers on our side, as well as getting and maintaining the trust as someone who accepts capital from investors, the thing that I have found, there's many, but one that I have found a correlation between those who raise versus those who don't. And this is funds, this is founders, if you're looking for money. One thing that I found is common, is successful fund managers versus non successful. So non successful capital raises, what I found people who are not good at it is they go for transactions first, before trust. But I found that people, especially in my world, might be different for founders, but I don't believe it is. What I found is trust comes before the transaction, and when you understand that, then you put in the time to build trust with people who are going to cut a check into your firm, your fund, whatever that might be. So I called it The Fundraise Formula. But when you have trust, if you ask for the trust before the transaction, you'll probably get both. But if you try to go for the transaction without any trust, you're probably gonna get neither. You'll get a lot of advice, which I have liberally applied on my LinkedIn inbox of people that say, here's my pitch deck and my county link. Let me know if you're interested. I get those about two or three of those a day. And I'm like, oh, I just wish I could just, I don't want to be preachy, but I was like, just, can I help you please? Just before you start spamming people, what are you doing to show that they can trust you? And this is to me, it's obvious to you it's obvious, but I think it often gets maybe neglected because we're so focused, the outcome is the transaction often, and so we think we can just leapfrog it. And I think that's a problem. So I love what you were saying with that frame. I love what you're saying about all of this hangs on trust. And I was like it always did, and the second that's gone, and this is true in any relationship. Just saying the second trust is gone, we've got major problems, and it's a really hard go without any trust. But with that trust in place, I think people come together and real value gets unlocked. Would you agree with that?
Yeah, absolutely. And I think even the communication in the fundraising journey, because I think about it as kind of like a marketing campaign, right? I think the more you understood, you know, in the first call, what are you really looking for? What, what are your objectives overall, not even just from a fun, you know, investing in a fund and really understanding how you can add value. And then oftentimes, you know, I mean, a family office, and they're really interested in these three areas, and I met an awesome researcher solving that problem, and you can start to make those connections early. And they also see the power, you know, they subtly see the power of your network. They see how you collaborate. You know, we, one of our most incredible LPs that we have is because we were just, how can we help them? How can we have either send interesting articles or have a point of view on a specific thesis, or like, hey, these four companies are doing awesome things that are so relevant for your, for what you're looking at, you should meet them and that's when things start to convert. And then I also think it's when it's not, it's when you know the email is not written by AI. So, like, I actually, I had someone go through my emails and say, like, when did my emails convert? Like, when it sounded like you were a white guy on a golf course? Maybe that's when it seemed like you were adding value when it wasn't, the pressure wasn't on when you could be your authentic self. And so the hardest thing to remember is, be your authentic self. Give more than you get. Give that, you know, really start to make the connections and understand what motivates people, truly.
Brilliant. Yes, be, be a student of psychology, motivation and persuasion. Big help, for sure. I love that. You know, in investing, whether you're a funder or a founder, we have psychology that we have to deal with. We have kind of the spider web covered, shaded areas of our psyche that do come out when you're being authentic and again, I agree with you you should be. But as a VC, our job is to think clearly and to look around corners, and more importantly, we got to be right at the right time. So with that setup, which VC biases are the most dangerous right now, and what decision rules do you guys use at Overwater to just keep yourself from falling for them?
Yeah, great question. So we actually have put together our brand and investment filter, and it has to, kind of, we run through that to make sure that we're not just meeting a founder and saying, oh, this is so awesome. Or chasing hype. I think there's a lot of hype right now where there's party rounds, or you see an amazing VC who's coming in and you have to make a decision in 24 hours. That is not what we're going to do. We are not, we have to date before we get married. We're not going to make a decision in 24 hours. So when I think, whenever there's like an exploding time bomb that's like a red flag signal going off, where you should really think twice. And then on valuation, we're seeing a lot of you know, quite a difference in valuations with founders, founders that have started companies as a second time founder. And I'm like, hey, look, you could raise at that, you could raise at a $50 million valuation, you could, you could get money, but it's not about just taking money. It's taking money from the right people who can help your business. And it just sets you, it makes it so that the bar is even higher to raise the next round. Do you want that at this stage, it's going to change who you hire is going to change what you have to do. And I think with constraints comes creativity and some discipline. So I really encourage to be disciplined, both with for the founders and having the conversation of founders to be disciplined, but also at a fund level, like, let's be disciplined with that said, you have to know when to break the rules. Like, there's going to be a balance and the hardest decision an investor to know when to break the rules and when to stay within the you know, the rubric.
Yeah, I love that. So I think I'm hearing is valuations industry hype and party rounds, meaning someone else did the due diligence. You just kind of hop on that train. So VIP, so you want to avoid the VIP biases, industry hype and party rounds is that, is that right?
Kristina Simmons
Exactly.
And know, and know when to violate them as well. So sometimes very high, yeah.
Kristina Simmons
Ya, ya, you need to break your own rules, you know, I'll give you, I'll give you an example. We just, you know, we are very disciplined, but we did break our own rules. And we were like, okay, well, we felt like it was undervalued for what they were, you know, what they were doing. And the founder was incredible. They had really amazing technology. They already had a sales pipeline built in. We're like, okay, well, we can find a creative way around this. Or I'll give you a really great example. We are pre-seed and seed investors. We like to lead and co-lead, that's really our focus. But I actually had a, you know, Brian Singerman actually encouraged me this. He's like, well, if you really believe from Founders Fund, you really believe in this company, why not write a bigger check? And I was like, well, I'm a pre seed and seed investor. He's like, so and so that was really the motivation behind this, writing larger checks. And companies like over to life and Gemito, we led their Series C, which is playing outside of the box, but because we saw opportunity, and we had an unfair advantage in that opportunity.
Brilliant. So creating that understanding, avoid the VIP generally, but also know when it's time to do it and I love that. So, so kind of the gate on that is to say, if you really have deep conviction in this, and you're like, this is incredible, maybe that is a good indicator to just double check those, those VIP constraints. I love that. So.
I would also say I would just add on to is that you have to go top down, bottoms up. So you might love, you might love, you might get an introduction to a company and, but you have to validate it. So you have to do the work, the diligence, even if it's, you know, sent to you by an amazing founder, you still have to do the work. You can't cut corners. And I think the best founders respect that.
So I'm going to ask you a question, but I'm going to before I do there was a lead up, and I have a personal story on this. So I was at an event where it was filled it was just fund managers, and I'm on stage, and someone posed the same question I'm going to ask you, and they, it was the trade off between returns and impact investing, and I hated that question. And I'm going to ask you that. I hated that question, and the reason why is and I called the host out who posed it. So it was three versus three, and it was an online debate, three fund managers for it, three man fund managers against it. I was for it, and we can talk. We're not about my answer, maybe I can get to it later. But I'm curious, from your standpoint, how do you underwrite impact without sacrificing returns, and more importantly, how do you make your investors see it too?
Yeah, of course. Yes. So first of all, we are a venture fund, and so our goal is outside of return. So we look at, you know, is this a massive market? Can this be a billion dollar company? And I always, you know, I think in the future, they're not and, or they're both. Like my viewpoint, and, you know, my strong viewpoint is that if you're really making a massive impact, you're going to build a big company. And I think impact is like, woo, woo and fluffy. And it's not about that.
Yeah.
It's like, are you solving a real massive problem and are you doing it in a unique way? And I think, you know, I share the philosophy with Vinod on this, and helped him write this 84 page paper called reinventing societal infrastructure with technology, which you should read.
I'd love too, love to.
If you, if you have some spare time. It was all around how non government components of the GDP, where is the most impact, and how could technology solve that? And then where are their businesses? You have to look at it from all three levels, but they're not and or they're together. And if I really believe that if you just look at transactions as you were saying, or outcomes, you're missing the real opportunity. And for LPs out there, for fund managers out there, if you're only looking at how they're getting to 100 million in AR, you're asking the wrong question. You're not necessarily thinking about, what's the real opportunity, maybe this can be a billion dollar company, but can it be a $10 billion company? Can it be a trillion dollar company and what would it take to do that?
Brilliant, you know, early in my career, I worked at in oil and gas, and you would not think those are impact firms. Those are like the opposite of it. So they're often targeted for people who believe in that. But I learned all about impact, and it moves it from shareholder to stakeholder. There's many other shifts in thinking and how you operate and exist, but I think engaging stakeholder engagement. And so what that led to is these companies would work with First Nation tribes, work with the land, because you drill on the land. And so we would say, how do we do this in a way that doesn't that minimizes any disruption to ecosystems? And you're starting to see it in historic, 100 years ago, they were the worst. They would just come in and ecosystems gone, and, you know, biodiversity gone, and there's many avenues other than environment on this, obviously, but we'll use this as an example. And now you're starting to see a shift where people are like, wait, I get it. Now, this is a really, this is just a good way to build business. And this was, by the way, this was the argument I made on stage, and I totally mopped the floor with him, but I talked it crap, and I was like, I can't stand your presupposition, that you assume that you have to sacrifice returns in order to make an impact. And we really have to, and companies are doing this now. So I outlined, and I said, it's our job to showcase and highlight the absolute returns, but also the absolute cost.
And I was on stage and this fund manager, I put them on the spot with the easiest question. I said, so how do you calculate returns? Like, how do you get net income, revenue minus expenses? Like bro said, look, don't overthink it. And I was like, if you choose to ignore the costs, then you choose to ignore the real returns. Now, if you want to stand in front of your investors and say, I didn't know that this was a cost, if you're an oil and gas fund, or, you know, whatever, some Social Fund, then you're denying it. And so the shift of impact, I think, enhances returns when you fully understand it. I don't believe it sacrifices returns. I feel like in this market today, there's never been a better time. And in fact, investors with money, especially the younger ones, they demand it. They expect you to not, they don't want to throw money at; just make money at all costs. They want people that are doing a lot of good. Now I'm over generalizing, but not completely. It's important that we understand the true impact, both on the revenue side, the good that we do, as well as the impact on some of the negative side, the societal impact in the like Lululemon would go in and be part of communities, and all that impact. They're saying, how do we move into a market? Obviously, we're going to sell stuff, we want to sell stuff. We believe in this area. But how do we do it in a way where it energizes community and we create impact and people love that we're here. Imagine being an oil and gas company asking that question. It's pretty quiet meeting on that, but getting to that impact, I think now is the only way you don't have to be, you know, making big demonstrations, all that. But I think impacting is the way, this is maybe me being a little dramatic, but capitalism 2.0 I don't think 1.0 make money at all costs and just to take care of shareholders and screw everybody else, I'm being dramatic. I don't think that flies anymore. I think you absolutely have to say here's how we're going to make money, and people are going to love that we're making money doing this because of the impact that we're making in local communities, environments and so on. Have you seen that setup happen?
Yeah. And I also think, Well, I think we asked the question of, in 10 years, what societal impact you want to make, and how, and how would you measure it? And I think you can start to learn the fluff from the reality, like the fluff from the true intentions. And then I like to ask a different question, which is, okay, if you had 100, if someone gave you a $100 million check, what would you do with that? And you start to see, well, what kind of business you want to make? I'll give you an example. There's a founder I met them, their pitch was all around, AI, drug discovery. And I was like, and then in selling to pharma. And I was like, well, if you had 100 million what would you do? And they're like, we would do personalized medicine that could reverse disease. And people, I'm like, that's it. That's the mission. That's the bigger thing. And so sometimes we don't, I think we have to really think. Of those ripples and to think big, think bigger. Dream bigger, and then scale back and say, how do we get there?
Brilliant. So before we wrap things up, my final question to you is, what would you say is the one single most counterintuitive lesson you learned that took you from being a good investor into a great one, and how would you suggest others apply that lesson immediately?
Yeah, good question. First of all, don't fit into the boxes. Like, there's a lot of pressure to fit into boxes. The magic happens when you don't fit into a box. When you color outside of the lines, whatever you know, whatever you think there. I think there's pressure to say, let's fit into you know, you're investing in enterprise SaaS, or you're investing in health, and it's like, well, you have to stay true to yourself, and you have to be authentic, and you have to know what the true north is. So one, I think people like you have to do the work on yourself to know what that true north is, so you don't distract from what that is. The second thing is, I think trust your intuition, and intuition is a muscle, but if I look back at the best pitches I knew within 5-10 minutes, there was something about it that really got me excited. And then if I take three meetings, there's clearly something there. And if you look at the data room, there's a million reasons why you'll eventually say no, but it's the improbable possibilities where I think the billion dollar companies are created.
I love that. So billion dollar companies are created in that sector. Absolutely brilliant. So before we wrap things up, final, ways anything that you'd like to say, ways people can reach out if they want to learn more, anything at all?
Sure, I would say, go to our website, overwater.vc, if you're building a company in this place, this space, if you're commercializing breakthrough technology, solving massive problems, pre-seed and seed, send us an email. We'd love to chat. If you have questions, other fund managers always happy to chat and send me an email. I'm on Twitter. I'm quite active, and always happy to answer questions. And lastly, we are only just at the beginning of what we're building at Overwater. Our goal is to build a new brand of VC, do things differently and focus on pre-seed and seed and commercializing breakthrough technology.
Well, I can promise you, I've interviewed a lot, and they've all been great, but what you've talked about, I can tell you have a different edge and approach out and I can see why you're so successful. So just to summarize everything Kristina and I spoke about, remember, when investing, don't neglect the psychology of founders and the size of their vision. This is key for them to recruit in the future, get high quality talent and good quality customers. The other one is avoid VIP valuations too high industry hype and party rounds, but also know when to break them. And finally, just remember trust comes before the transaction. You do these things and you too will be well on your way in your pursuit of Making Billions.
Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better, and make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.
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