#160 - Shawn Ellis | Inside a $100M Fund Investing in the Future of Risk

[00:00:00] Well welcome back to another episode of Lets Grab Coffee. Shawn, finally we make this happen.

[00:00:06] I'm so excited for this. Thank you for having me on.

[00:00:09] Thank you for being here. Especially for in person. I feel like I told you before we started recording, this is like a resurgence of the podcast in many ways and it's always nice to do it with a friend.

[00:00:18] It's great. Yeah, couldn't echo that more man.

[00:00:21] Yeah, likewise. Well for folks who don't know, we're gonna get into the personal story in a second, the whole career, you know, journey, outlook and VC.

[00:00:29] Yep. For folks in Chicago, I know you as the managing partner of Distributed Ventures, a $100M fund focused on mainly insure tech, fintech, healthcare, digital health.

[00:00:40] All these three segments under the sort of corporate venture umbrella which we're going to touch on.

[00:00:45] But you've had a very long standing career in the VC space.

[00:00:49] Long standing. I thought you were going to say a meandering career.

[00:00:52] I think that there are almost two parts of my career, right? The most recent part has been focused on,

[00:00:58] you know, venture building and supporting awesome backers that are bringing compelling innovation

[00:01:04] to market. And the first part for me was a little bit of a professional finishing school with a couple

[00:01:08] of different stops. So, you know, I did an investment banking turn for Lazard's middle market group.

[00:01:16] I did some corp strat and M&A in a corporate context at McDonald's in the wake of Pershing Square,

[00:01:21] having an activist stake there and did some time in strategy consulting with BCG.

[00:01:29] And I'm sure we'll get into it, but, you know, kind of tried a bunch of different things,

[00:01:33] had the good fortune to hone a really strong skill set and work with some really smart people.

[00:01:37] But I think over the course of that, kind of got a sense of what resonated most for me professionally.

[00:01:43] And that was really leading to a focus on, you know, early stage things and working with founders and entrepreneurs.

[00:01:51] Yeah, I mean, that's actually a place I wanted to start with. You know, you start in sort of mid-market investment banking.

[00:01:58] Yeah. You go to the strategy side, right, with both McDonald's, a really actually cool place to do strategy.

[00:02:03] Yeah. Especially being in Chicago. Yeah. And then obviously BCG, which many are familiar with.

[00:02:10] Always curious, how does someone transition from consulting and strategy into venture?

[00:02:15] They seem, you know, it's like a common place to go.

[00:02:18] Yeah, I think it's, you know, it's so interesting is you get these different like phases of venture, right?

[00:02:24] And I think when I transitioned from that consulting sphere into an early stage context,

[00:02:29] it seemed a little more unorthodox than it does today. I think it's more of a well-trodden path

[00:02:35] because the skill set is so robust and broad and you're dealing with ambiguity and a lot of change.

[00:02:41] So that flexibility and the skill set that you can hone in a consulting context, I think has

[00:02:48] really strong application in, you know, a high growth environment. But it was not like an obvious

[00:02:56] thing in terms of a career path for me at the time. And certainly for some of the folks that I was

[00:03:02] speaking to, it was much more of an attitude of like, you're really well paid, you have this stable

[00:03:08] job, like you're getting paid to kind of think deep thoughts and work with established clients. And

[00:03:14] you're going to the polar opposite end of the spectrum in terms of, you know, high risk, a lot of

[00:03:20] uncertainty in your earnings potential and those types of things. So I had to be a little bit more

[00:03:27] persuasive, you know, in the moment at that time.

[00:03:30] What is the skill set you think, you know, strategy consulting gives you, especially today,

[00:03:35] that's super relevant?

[00:03:36] I think a number of different things. And I, by the way, I think it applies if you're in an

[00:03:43] operating role, or if you're in an investing role. In the investing context, you're dealing with a lot

[00:03:50] of the similar things you might be contemplating for clients in a consulting sphere, you're thinking about

[00:03:57] size of market, attractiveness of market growth rates, competitive landscape,

[00:04:03] you know, almost from a game theory perspective. How do you see kind of challengers in the market?

[00:04:09] How will incumbents respond, those types of things, and trying to do that with imperfect information,

[00:04:15] right? In a consulting context, if a corporate client is going to pay you, you know, a pretty

[00:04:23] attractive sort of hourly rate, like if they're going to go to the trouble of hiring a BCG or McKinsey

[00:04:28] or Bain or, you know, any of the other players, that's a significant investment for them.

[00:04:34] And the expectation of like, giving me something I don't know.

[00:04:37] Yeah, that's right. I mean, these are not sort of like, layup questions that they need answers to,

[00:04:42] that they're spending that amount of money for, right? They're challenging questions,

[00:04:45] you're dealing with imperfect information. And that's very much the reality that you're living in,

[00:04:51] in venture land. And especially for where we play at DV, it's early stage venture, it's seed series A.

[00:04:58] It's not as though you can do desk research and find, you know, an industry analyst report,

[00:05:04] or something of that nature. It's like, if I can find it, doing desk research, so can any number of

[00:05:09] other people, right? So you're, you're really dealing with a degree of ambiguity and trying to bring

[00:05:15] structure and kind of think of the verb, you know, in that context, how do you want to play? Right.

[00:05:21] So I think, you know, that, that, that skill set, that sort of dexterity is, is really helpful. And

[00:05:28] then how do you want to apply that? Right. It's not just a research question. It's a, and then what?

[00:05:35] Interesting. Yeah. McDonald's. Good, good time.

[00:05:38] It's a great brand. I mean, yeah, listen, it was, uh, I made the comment about the transition

[00:05:44] from consulting to the venture sphere. Um, I think it was equally, uh, sort of, uh, surprising

[00:05:52] for a young person that was an investment banking analyst to move to McDonald's. Um, but it, it was,

[00:06:01] it still continues to be an amazing brand. Hard to think of more brands that have the, the global

[00:06:06] presence and recognition that McDonald's does. So, um, you know, I got to do really cool work in

[00:06:14] in other markets, right. Got to do work in Japan. Um, our team focused on a lot of work in South

[00:06:20] America and Europe, um, got to do a variety of things that had really meaningful impact to

[00:06:27] McDonald's financial performance and also kind of operational performance that was in the core

[00:06:31] business. And then, you know, the other dimension that the team I was part of was heavily involved

[00:06:36] with was, um, unloading a lot of, or, or moving out of a lot of McDonald's venture positions. You know,

[00:06:44] they had a corporate venture fund that predated me that was fairly active, did a lot of cool

[00:06:50] investing work. You know, a lot of people are aware of Chipotle as a standout investment that

[00:06:55] McDonald's had made. Um, but Prada Manger, other concepts, really thinking about how they could optimize

[00:07:02] kind of the value of the restaurant box and the real estate holdings. So when I went to McDonald's,

[00:07:08] they were the second largest global real estate holder after the Vatican. I mean, so many cool

[00:07:14] dimensions to that, right? I mean, one, there's the global footprint, there's the scale, there's the,

[00:07:19] so as a, you know, as a young professional in my twenties, that was really, really cool exposure,

[00:07:25] but, uh, definitely felt like a left turn from the investment banking sphere at, at the time.

[00:07:31] Yeah. I think, I mean, all three are such, such great areas to learn, you know, especially if you're,

[00:07:36] if you're early in your career, investment banking on the finance side, you know, strategy at a

[00:07:41] corporation like McDonald's. I mean, it's, it's like the epitome of what you would think of strategy

[00:07:44] and supply chain and logistics. Um, and then with BCG, because you're seeing so many different clients,

[00:07:50] um, and they all, I think they all have these like formal leadership development programs.

[00:07:54] Right. That's how I, I did a very short stint internship when I was doing my undergrad at GE,

[00:07:59] you know, and like the golden heydays of GE. Right. And it was just tremendous to get that kind of formal,

[00:08:04] you know, tutoring at that, at that time. Yeah. There are places that make huge investments in their

[00:08:10] junior talent. And, um, I was really fortunate to have a couple of contacts where, you know,

[00:08:16] I had an employer that was, was investing in their talent in that way. So, um, feel very fortunate, uh,

[00:08:23] in that. And that, yeah. I wonder for you when you were at BCG, speaking generally of consulting,

[00:08:30] one comment I know, and I've heard from friends who were in consulting more generally,

[00:08:35] who pivoted to either becoming founders or on the investment side that they sort of eventually

[00:08:42] developed this, this itch that, you know, over time it's like, you're passing on the solution to clients.

[00:08:46] Right. But you, you, the, the follow through is what you miss. Yeah. Like having, having a hold on

[00:08:52] the actual. Sort of owning it. Yeah. Did you feel this? Is that why you, you moved away from consulting?

[00:08:57] You know, for me, um, I grew up in an environment I had the benefit of watching, you know, my, my father

[00:09:05] was in a business and, um, you know, it was not glamorous, but that, that sense of kind of like,

[00:09:12] what was the business? Uh, it was a manufacturing business. They were, uh, they were supplier to

[00:09:17] like Caterpillar and John Deere. Um, it was a really cool environment. You know, my, my dad traveled

[00:09:22] a lot, uh, when I was a kid and this is of course in the, in the age pre cell phone, you know, pre,

[00:09:29] pre kind of all the modern communication, uh, um, you know, conveniences. So like Saturday morning,

[00:09:36] he was like in the office responding to, you know, client communications and like letters and, you know,

[00:09:44] things of that nature. Some of your listeners may find that hard to believe that was the primary,

[00:09:50] uh, motor communication, but I got to wander his, uh, you know, his office and they had a manufacturing

[00:09:57] facility and, you know, I got to, to kind of wander around. Like, I'm sure this was not in any way OSHA

[00:10:03] compliant or, uh, certainly wasn't advisable from a parenting vantage point, but I got to go and like

[00:10:09] play in, you know, they manufactured among other things like tractor cabs for John Deere. So I get to

[00:10:14] go, you know, sit in these tractor cabs and, and play or like walk through their manufacturing facility.

[00:10:21] So, you know, just for me, I think what I sort of came to realize over time was I wanted to be part of

[00:10:27] a building in a way that resonated from my upbringing and sort of what I'd seen nascently.

[00:10:32] And, um, I think the, the hard decision in context, like consulting and investment banking,

[00:10:40] much the same, you're, you're working with a caliber of talent on average, that is super,

[00:10:46] super high, right? Your access to information is super, super high. But I think for me and consulting,

[00:10:52] you know, if you're going to, uh, kind of find a sustained, uh, satisfaction in that role,

[00:11:00] you have to have a really deep kind of industry vertical interest.

[00:11:04] Uh, or, yeah, exactly. Or a technical interest. Cause I think to your point,

[00:11:09] um, you, you sort of formulate a strategy, you'll, you'll do certain analysis, but you do have to

[00:11:15] hand it off. And then whether or not it's executed in a way that you think is optimal,

[00:11:20] that's not yours to own. Um, I think for me, it was more a matter of, um, you know, being part of

[00:11:28] an early stage growth, uh, sort of experience. And for lack of a better way of putting it, like

[00:11:35] really feeling the needle, seeing the needle move when you punch the accelerator. Right. And that,

[00:11:41] that was something when I compared BCGs and experience to what I'd seen in Lazard and, you know,

[00:11:47] especially the lower middle market deals that I'd worked on in the LBO boom, you're often dealing

[00:11:53] with founders that again, looked a lot like the environment I grew up in. They hadn't taken

[00:11:58] outside capital. You know, you were prepping them up for a life changing event. They'd invested their

[00:12:05] blood, sweat, tears. I mean, their businesses were their lives. And so I'd sort of had this

[00:12:10] professional exposure to something earlier in the growth curve and then something to what was largely

[00:12:17] more, the problems that mature companies were dealing with. And I found the growth and kind

[00:12:22] of the early innings much more exciting. Hmm. Yeah. And then I guess like taking that into

[00:12:28] and stepping into the foray of, of VCs is quite difficult. I mean, it's difficult for anybody,

[00:12:34] but even in this market, they're often, it's like, even to this day, these aren't positions that are,

[00:12:39] you know, widely publicly posted. Yep. You know, it's usually kind of smaller teams,

[00:12:44] yeah, very curated. It's a lot of word of mouth. Yeah. So stepping into VC, unless you sort of pivot

[00:12:49] from university or MBA, yeah. Or coming from consulting usually could make it easier depending on the,

[00:12:57] on the VC itself. Yeah. Yeah. But here's for you, like, what was the stepping stone? I think a lot of

[00:13:01] people are always curious, how do you crack into VC? Yeah. So what I would say, um, I've got some

[00:13:08] more general advice, you know, or probably my story would, um, would align with what a lot of folks say.

[00:13:15] I mean, it's, it's not axiomatic, right. To your point, funds aren't coming and recruiting in most,

[00:13:22] you know, college or business school campuses or, you know, any graduate school program. Um, so they're

[00:13:28] hard to come by, you have to network into them, uh, pretty, you know, you've got to dedicate a fair

[00:13:34] amount of time and energy and there's risk there, right? Because there's uncertainty as you're going

[00:13:38] after it. Um, I think that the more you can demonstrate a track record or an expressed interest,

[00:13:49] really that you're going to have like resolve in your commitment and interest, those are things that

[00:13:55] matter. Um, so it could be that, you know, here in the Chicago context, like I've been volunteering at

[00:14:01] 1871, I've been, you know, involved as a subject matter expert coming from X, Y, or Z corporate or,

[00:14:09] or vertical expertise, you know, sort of context, but I've worked with founders in, in these contexts

[00:14:16] and I love it. And people will attest to the value you bring in your perspective, or, you know,

[00:14:21] if you've written even modest checks, um, yourself, um, or had a hand in that so that you can point to

[00:14:29] a track record. If you've been an entrepreneur yourself in any capacity, or you can speak to

[00:14:34] entrepreneurial tendencies, I think that that resonates. I mean, at the end of the day, venture

[00:14:41] as a business, you're evaluating risk in a really high risk environment. I think funds are thinking

[00:14:47] about talent intake the same way. It's sort of like, how is this obvious or what are the risk factors?

[00:14:54] And, you know, how can you kind of lean into, uh, those punches and kind of blunt those concerns for

[00:15:01] them so that you de-risk yourself as a candidate? That's, that's all more general. I mean, my specific,

[00:15:07] uh, experience was, I was sort of networking in this sphere. There was definitely luck, right? So I,

[00:15:13] I got to know two, uh, what were then known as two amazing operators and entrepreneurs,

[00:15:20] um, Glenn Tolman and Lee Shapiro. This was in the days they were just transitioning from all scripts,

[00:15:26] the EMR provider that they'd, um, you know, built and scaled, um, to seven wire ventures,

[00:15:32] and they were looking for help. And back to my earlier comment about what's the skillset you bring,

[00:15:37] you know, can you solve an acute sort of problem for, uh, folks? You know, in their case,

[00:15:45] they had tremendous deal flow. They were very connected in healthcare and they needed,

[00:15:50] you know, some help sort of, uh, moving those deals along at that point. So it was like,

[00:15:55] I had the skillset and, um, you know, deal experience and, um, jumped in and, and, uh,

[00:16:03] uh, you know, that was kind of my entree into the venture market.

[00:16:08] When you say, um, I know you said it was networking and luck,

[00:16:13] what type of networking do you think works best both as, I guess, a founder and on the VC side?

[00:16:20] Cause I think, especially in today's world, it's changed a lot. Obviously you have LinkedIn and all

[00:16:23] sorts of social, you have access to events, but that can also be a lot of noise. Um, so people talk

[00:16:29] about networking a lot and it's super important, especially in the world that you're in,

[00:16:32] yeah, really any industry. Just curious, what, what is the most effective approach for you?

[00:16:37] I mean, for me, it's relationship driven, you know, trying to be in person, trying to be highly

[00:16:43] authentic. Um, these things, these like, if you're trying to get a venture role,

[00:16:51] the openings come up quickly, right. And the, you know, sort of the list of folks who might be

[00:16:56] interested generally pretty long. And so it's about, you know, being top of mind, building

[00:17:02] meaningful relationships so that folks are thinking of you as they may have a need.

[00:17:08] Um, it's not that dissimilar from early stage startups, you know, it's like when they're

[00:17:13] hiring, it's because they've had an acute pain point for a period of time. And so, you know,

[00:17:19] it's like, no, we're not hiring. We're not hiring. We need, uh, we need to solve this issue yesterday.

[00:17:23] Like we need to find someone and put the butt in the seat. Right. So I think that's, um, it's much

[00:17:28] the same in the ventures for the, the difference just extending that, that parallel between,

[00:17:34] you know, early stage startups and venture funds is venture funds budgets change when they raise

[00:17:39] new funds. Right. And they have more management fees that they can draw on. And, um, you know,

[00:17:45] I joke with a lot of my companies that if they're doing their job well, and I'm doing my job well,

[00:17:49] they're going to be scaling much more rapidly than I am because they're going to be taking in rounds

[00:17:53] of capital and they're going to have more flexibility in their budget. And, uh, that is,

[00:17:58] that has definitely come to fruition, right? It's a lot of fun to see these organizations

[00:18:01] scale super rapidly. Yeah. I think it also, I mean, it's always helpful to know what someone

[00:18:07] needs. Yeah. Like what is your particular pain point? Yeah. And if you, if you focus on one

[00:18:13] industry or segment long enough, they're very, uh, common, like Sean's pain points as a,

[00:18:18] strictly as a venture investor are going to be quite common to another VC. Yeah. Whether it's deal

[00:18:24] flow talent potentially, or diligence, or when you're raising a new fund access to LPs. I think

[00:18:29] for us, the operating DNA is really important in the early stage operating experience when, you know,

[00:18:36] companies and leadership are highly resource constrained. Um, so, you know, I had that experience

[00:18:42] at seven wire. I was on the deal team for a period of time and then jumped into a concept we incubated.

[00:18:48] Um, you know, my partner, Adam Blumenkranz really deep operating expertise in the insurance sphere.

[00:18:55] Janet Jew who joined us recently, you know, about eight years of early stage operating experience.

[00:19:01] To me, that's an important, um, that's an important quality to have. Like it differentiates our capital

[00:19:08] because we're more than just showing up at the board meetings. We've been in the seat,

[00:19:11] you know, we know the day to day challenges we can help see around corners so that we can, um,

[00:19:16] you know, if we're doing our jobs, while we can help founders and early teams avoid hitting their

[00:19:22] heads against some of the things that we might have witnessed or, or, uh, you know, run into ourselves.

[00:19:28] Yeah. I gotta say it is a phenomenal team. So, uh,

[00:19:30] Thank you. Definitely shout out to you, Adam, Janet Hill. Yeah. Uh, just a great, great team.

[00:19:35] Yeah. Hilton, uh, Irons joined us more recently and obviously you, you know, Hill Wells, someone

[00:19:41] who's been in the Chicago community for the last few years. So, um, yeah, we have, we have a great team.

[00:19:45] Good people. We're very fortunate. Yeah. So what I wanted to sort of understand from your perspective is

[00:19:51] why insurance, I mean, out of any sort of segment that you can go into, and I know now with

[00:19:55] distributed ventures, you're focused on insurance, healthcare, fintech, but primarily it is the

[00:20:00] central piece is, you know, employer services benefits within the insurance space. Yeah. I mean,

[00:20:04] our, our sort of meta overarching theme is we invest in the future risk and we try to positively affect

[00:20:09] that. Um, and so that has a number of different facets, right? Part of that is, um, kind of

[00:20:15] employer sponsored benefits, major medical, anything related to acute health conditions or just improving,

[00:20:23] um, that the healthcare navigation experience or health outcomes for individuals in doing so,

[00:20:28] lowering cost trend for risk bearing entities there. Um, life insurance applications, property and casualty,

[00:20:36] um, deep infrastructure investments in those contexts. So really broad spectrum. I think we're,

[00:20:42] we're a little bit different, you know, certain funds might be dedicated or certain shops might view

[00:20:48] one of those verticals as sort of worthy of, you know, uh, a total strategy. Um, and we view it a

[00:20:56] little bit differently. We focus on enterprise distribution and, um, you know, sort of looking at

[00:21:03] those other verticals. In reality, we see things that intersect a lot, right? You'll see an employer benefit

[00:21:09] solution that has fintech components to it. Like Wingspan, one of our portfolio companies is a great

[00:21:14] example of that. You know, uh, Chris Crawford at Rxave, who I know, you know, and I've spoken with on,

[00:21:21] on this podcast, Chris is another great example. There's a meaningful cost containment strategy play

[00:21:26] there. That is an employer sponsored benefit value prop, but there's a payment stack and a flexibility

[00:21:32] in terms of how plan design and incentives can be put around that. That's really meaningful. So it's really a

[00:21:38] fusion of employer benefits and yeah, exactly. Yeah. Cause it does touch pharma. It touches

[00:21:43] fintech in terms of the card itself as a payment, you know, from a, you know, checkout perspective.

[00:21:49] Yep. And then it touches the insurance side as well. So yeah, all three. Yeah. So that's,

[00:21:55] that's kind of how we got here. I mean, um, how did this opportunity come up?

[00:21:59] So how did you become basically the managing partner of distributed?

[00:22:03] I would say stepping way back and describing my career progression, not all, not all who wander

[00:22:09] or lost. Um, so in my operating experience, um, with the several crew, we were working with benefits

[00:22:18] consultants and brokers. And I came to appreciate that, you know, over half the U S is accessing

[00:22:25] healthcare through an employer. Um, and you know, of the eligible employees, 80% of employees are electing

[00:22:34] to get healthcare through their employer versus a public exchange. Um, so it's a really meaningful

[00:22:40] channel. I got to know the benefits consulting and brokerage sphere through my operating experience

[00:22:46] in a concept incubated with seven wire and, and, um, got to know one of those benefits consultants

[00:22:53] that was, uh, held by Madison Dearborn for a number of years called NFP. And so my transition from Zest to NFP,

[00:23:01] they recruited me to build out a corporate venture function for them. So the, the predecessor fund to DV,

[00:23:08] uh, the, the vehicle we're investing out of now was NFP ventures. And, um, it was, it was, uh, it was luck,

[00:23:17] to be honest. I mean, I got to know them. I came, they had sort of capital loaded. They were amazing

[00:23:24] partners. The executive leadership there, um, thought about it in a really prudent way, had an

[00:23:30] appreciation that there could be a benefit in the proximity to a corporate enterprise. But I think

[00:23:36] they were also really thoughtful about keeping that venture function separate from the corporate

[00:23:41] enterprise. So we were, we were always a separate dedicated fund. It was not like an annual, you know,

[00:23:46] balance sheet top off. So it had the, it had the benefit of the characteristics of a dedicated fund,

[00:23:53] having the concentration of a corporate venture fund. Um, yeah, so that, that was how I kind of came to,

[00:24:00] uh, NFP ventures, which just to complete the, the thread, um, you know, we had early exits,

[00:24:07] we had about five exits from NFP ventures within a couple of years. And, um, you know, on the back of

[00:24:14] that success, uh, we're fortunate to get the support of executive leadership at NFP saying,

[00:24:20] we're happy to do another fund. We want to stake you, but you guys are welcome to take capital from

[00:24:25] outside as well. So we did that with distributed. Hmm. So it becomes almost a separate entity, right?

[00:24:31] I would say, I would say we, again, we had the benefit of a really strong relationship and

[00:24:38] you know, I'm telling you something that you do better than anyone else. Like you have to build

[00:24:43] relationships along the way, right? It was sort of an earned opportunity outside of the financial

[00:24:47] performance. Um, so we are, we are independent today. Um, we have strong connectivity, of course,

[00:24:53] from a strategic vantage point and, um, and really earned that right. Not just on the, on the financial

[00:24:59] return and performance, but you know, and the way we demonstrated value in the relationships we built as

[00:25:05] well. And the types of innovation we brought to the table, even if we weren't investing in a

[00:25:10] particular company, right? We were like, we think this could be interesting. May or not be right for us.

[00:25:16] Might be worth you taking a look. Which model do you prefer? If any, I mean, you don't have to say I

[00:25:21] prefer one over the other, but what I'm curious of, cause I think a lot of corps, corporations are,

[00:25:27] are either looking at doing something similar, either they have something similar or they have innovation

[00:25:32] houses, like in house, you know, innovation labs. I'm curious, do you think one is better than the

[00:25:37] other in terms of the operational efficiency? So, you know, it's interesting, right? I've,

[00:25:42] I've seen two corporate venture contacts as I noted with McDonald's, to be fair, it's not like I

[00:25:47] had a hand in, you know, building that or running it. I was really at the table at the time they were

[00:25:52] thinking critically about focusing on their core corporate enterprise and, and getting out a lot of

[00:25:58] other venture positions. Um, NFP totally different scenario, you know, head of hand and building that out.

[00:26:06] Um, so contrasting those two, uh, corporate venture, you know, context that I, I'd seen,

[00:26:14] I think the McDonald's one made me appreciate you, you see this in a bunch of corporate contacts,

[00:26:19] sort of the commitment to that can be, uh, can, can, can be unstable, right? And so if you have an

[00:26:25] executive leadership change, that can mean that, you know, a commitment to that, uh, corporate venture

[00:26:32] function can wax or wane. Right. Um, and, uh, so I think that that's sort of the volatility you have

[00:26:41] to be comfortable with. Um, but I think there can be enormous benefits too. And I think again,

[00:26:48] um, the success we had as a team at NFP ventures was really rooted in a very thoughtful approach on

[00:26:57] the part of executive leadership there. And that positioned us to be, you know, to sort of earn the

[00:27:03] right to be successful. Um, I think you can have noise, um, depending on the construct, the, the sort of

[00:27:12] corporate posture and they're thinking about innovation, how much that's really embedded, um,

[00:27:17] in, in, uh, the, the corporate culture in the moment, even like incentive structures, right?

[00:27:23] Like are people incentivized to consider something that is outside the box of their normal day, right?

[00:27:29] This is like an extracurricular activity, the way most people think about it. And if you bring good

[00:27:35] solutions to the table and you can demonstrate value, you're going to earn the right to, to sort of get an

[00:27:41] audience with them again and again and again. But if you have a few things that, you know, blow up or

[00:27:47] you're kind of coming to, you know, to, to partners in a corporate context with ideas that are not

[00:27:53] thoughtful, not fully baked, you know, it goes back to kind of knowing your audience, like you need to

[00:27:58] know their pain points. You need to know what the value prop is here. And is this really a sort of,

[00:28:04] uh, an opportunity to, to match that pain point with something that could resonate.

[00:28:09] So all those things, it's kind of like you have to do the right things like every day. Right. And if

[00:28:15] you do that well, you can build a really deep relationship and there are examples of people

[00:28:20] doing that, you know, super successfully for extended periods of time. I think it's just,

[00:28:26] it's just a function of like, what are all of the variables and you know, how does that tip the scale

[00:28:32] in any given moment? Love that. How long have you been operating DV as a sidecar? So separate of

[00:28:39] when you were in house at NFP? Yeah. So we, we spun out independently,

[00:28:44] um, started making investments in 2022, closed the fund in 2023.

[00:28:51] So, um, I guess since that final close, you know, we're, we're almost, almost two years out,

[00:28:56] year and a half and change. Two years out. How many active investments? Nine today. You sit on a

[00:29:02] bunch of obviously the boards of the investments that you've made. What does a standout founder look like

[00:29:08] to you? Um, you know, number one product market fit, right? So they've got, they've got passion

[00:29:17] and expertise in the sphere. Um, you know, and looking at background, you're, you're looking for

[00:29:23] folks, again, this, this kind of resonates with some of the comments that I was making about getting

[00:29:27] into VC. You want indications that they're going to have kind of the drive, maybe the insanity,

[00:29:35] you know, to push through and, and kind of climb a hill when statistically, you know,

[00:29:41] the deck is stacked against them, right. In terms of being successful. So you're looking at background,

[00:29:47] track record expertise, you're doing a ton of, of reference checks, you know, people around them,

[00:29:54] um, getting a sense of who they are, how they operate. A lot of that is, is like contextual,

[00:30:02] you know, are they geared to win? Do they have a constitution to win? Do they have the expertise?

[00:30:07] Then there's also the personal dimension of like, you know, I may not be the best board member for

[00:30:13] every founder. So there's like a stylistic dimension too, you know, or, are, are they someone that wants

[00:30:19] to hit, you know, the, the, the next biggest issue, uh, like over and over and over. Like,

[00:30:26] I think a fair critique of me, probably a lot of founders I work with would tell you like,

[00:30:31] he is going to focus on the next problem and the next problem and the next problem. Right. And

[00:30:35] like, that's not constitutionally for everyone. So I think there are those like stylistic personal

[00:30:41] fit things. Um, one would think you were a consultant. Yeah, exactly. Exactly. Yeah.

[00:30:49] Product, product of the environment along the way. Yeah. But obviously very important. Yeah.

[00:30:53] Interesting. Um, have you ever had a sort of a standout founder? I'm, I'm sure every

[00:30:59] founder of every Porco that you've invested in are, are stand out standoffish, but yeah.

[00:31:04] Um, yeah, just curious, like, have you ever had a run in that really, really was the most memorable

[00:31:09] for you? I think you, and I'm not trying to give like sort of a trite answer. It's just like,

[00:31:15] every company is different. The markets they're in are different. The market environment like

[00:31:21] is different. And so it's, it's hard to compare and say like, Hey, apples to apples, this, that,

[00:31:27] the other, um, you definitely see where folks spike and stand out. Um, you know, Bill Snyder,

[00:31:37] who I'm not sure if you know, but he's local in Chicago. Um, the CEO of cylinder health,

[00:31:43] you know, Bill has done a terrific job scaling that company. Um, you know, strong culture carrier,

[00:31:51] his first time in the CEO seat. Um, you know, he just builds a business the right way. Um, very

[00:31:58] thoughtful, you know, gets, gets scaling, uh, came from a commercial, um, major medical, you know,

[00:32:05] carrier background. So kind of gets a key channel partner node and, you know, how you can really ramp

[00:32:13] a business rapidly. Um, you know, Pam pure at posterity health, uh, a business that we invested

[00:32:21] in more recently out of, out of distributed, very, very strong, deep subject matter expertise.

[00:32:27] One of the best business development kind of transformational business development leaders

[00:32:31] that I've worked with, you know, we invest early. So a lot of the story is growth. You know,

[00:32:36] it's kind of like, you have to have the oxygen to build a big business and then optimize a bunch of

[00:32:40] other things. Um, you know, those are examples of like commercial first leaders. Um, they're also

[00:32:48] like more technical product first leaders. Uh, Anthony Mironoff at wingspan is, uh, he's, he, he's

[00:32:56] someone that, you know, he and his co-founder Greg built an amazing platform that's focused on meeting

[00:33:03] the needs of, uh, contract workers and the employers that, that, uh, you know, that, that pay them and

[00:33:10] their unique needs, um, in a gig economy context. So that was a business. Um, some of the time you're

[00:33:17] having to educate the market, you know, that was a business that, uh, they built amazing tech and

[00:33:24] amazing solution. And, um, I think the success of that company was really rooted on them spotting this

[00:33:31] market opportunity well ahead of anyone else and building that. But, um, I would classify them as,

[00:33:37] you know, really smart, uh, strong technical or product first leaders. So yeah, but it's again,

[00:33:44] to my point, it's like these contexts are so different and it's really about thinking,

[00:33:48] what does the company need to excel in the context they're in or what are the blockers

[00:33:55] in their given environment? How do we mitigate those risks so that this company has the opportunity

[00:34:00] to kind of realize its full potential? Speaking of realizing full potential, I feel like sometimes

[00:34:07] the hardest thing I would assume that you have to deal with sitting in your seat is pressure.

[00:34:13] Yeah. You know, dealing with pressure. Yeah. Um, and that's often, I'd like to talk a lot

[00:34:17] about mental health, um, for various reasons, but I think that's not talked about as much in our

[00:34:22] field. You, first of all, you're, you're working with a team, a growing team. Yeah. I mean,

[00:34:28] your own distributed venture. Sure. Yeah. You manage a hundred million dollars. Yeah.

[00:34:34] You are trying to deploy that money into portfolio companies. You are hoping that some of these

[00:34:39] decisions lead to extraordinary results for you as a fund and for the companies themselves,

[00:34:44] because you deeply care about their conviction. And there are so many levers outside of your control.

[00:34:50] How do you deal with this pressure?

[00:34:51] Yeah. It is, you have to dedicate focus to it is the very honest answer. Right. I mean, it, it, uh,

[00:34:59] it ebbs and flows materially. And, uh, and then the other dimension, you know, we're whole humans,

[00:35:07] right? So you're dealing with founders, investors that have their personal lives. You know, I have a

[00:35:13] young family, right? And so I'm trying to do my best at work, my best at home as a partner and a father,

[00:35:19] and those types of things. Um, it takes, uh, uh, takes a lot of discipline in the way you frame,

[00:35:28] um, how you show up. And so, um, in the venture context, like with portfolio companies,

[00:35:36] uh, I can influence, I can't control. We never have a majority stake, right? We're playing a pretty

[00:35:42] traditional venture game from, uh, a holdings vantage point. And so, uh, in those board contexts,

[00:35:48] I'm one of many voices that's for a reason. That's the purpose of a governance contract,

[00:35:54] construct. Um, I can bring a perspective to the table. Discourse is good. Disagreement is good.

[00:36:01] And so I just sort of frame it as my job is to share my perspective.

[00:36:07] Um, I, you know, if I'm clearly communicating that I'm doing it well and I'm explaining why,

[00:36:14] um, you know, some of the time you, you have to think about the volume on that and how hard you

[00:36:20] want to push what your energy level is around that. But I, I can't dictate these things ultimately,

[00:36:25] right? In a fund manager context, we've got diversification across a host of portfolio companies.

[00:36:31] You do your best along the way to construct that with, you know, a view of risk. And yet,

[00:36:40] you know, you sort of do your best in playing that game and seeing what's on the field in front of you,

[00:36:45] but you know, the field can tip, right? Like the markets have been in a very different state,

[00:36:51] right? The last couple of years than they were, you know, through 2021 for the prior few years,

[00:36:57] right? Lots been said and written about kind of the froth in the market at that point or the bubble,

[00:37:02] um, and a lot of the air coming out of that market. And so I, I think, um, you kind of have to have this

[00:37:08] view of like, am I doing my best within the realm that I can control? And outside of that, you've got

[00:37:17] to have luck on your side, right? So I, I think there's, uh, there's definitely an appreciation for that.

[00:37:24] Mm. Do you have a, like a go-to activity when you feel burnt out?

[00:37:29] Um, yeah. What you're talking about is a lot of mindset, which I think is super important.

[00:37:33] It's a lot, it's a lot of mindset, you know? So there's the physical piece of,

[00:37:37] right. Do you walk, do you, you know, you fly fish from time to time?

[00:37:40] Yeah. Yeah. Definitely not as, as, as often as I would like.

[00:37:44] You promised me to take me to my first fly fishing experience.

[00:37:46] We're going to do that.

[00:37:47] Now it's, I just want to make sure it's on.

[00:37:49] We are on record.

[00:37:49] It's recorded.

[00:37:50] Recorded video.

[00:37:51] Um, you'll be hooked forever. Your, your, your wife will hate me because your disposable

[00:37:56] income will be gone.

[00:37:58] Um, not good.

[00:38:00] No. Uh, so some of it is physical, right?

[00:38:03] Like you want the endorphin release, you want to work out, you want to do those things, um,

[00:38:08] take care of yourself.

[00:38:10] Uh, I think the other bit is, um, you know, getting support, whether that's, uh, having your

[00:38:17] set of folks that you can turn to as a sounding board, um, that may be formal.

[00:38:22] That may be a coach that may be, you know, from time to time, whether it's prolonged or

[00:38:27] acute in a moment, you know, like a professional mental health, uh, person that's involved in your

[00:38:33] life.

[00:38:34] Um, but then I think the other bit just in terms of like the whole picture is,

[00:38:39] you know, if you would have asked me the question in my early thirties, I would have been like,

[00:38:43] work out, work out, work out, you know, play hard, work hard, that type of thing.

[00:38:48] And I think, you know, now if I'm trying to help a founder work through a challenging moment

[00:38:54] or dealing with an issue that's, you know, bringing a lot of friction for me,

[00:38:59] what I find is if I'm going and hanging out with my six year old and getting a sense of what his world

[00:39:06] is and how his day has progressed, that snaps things into perspective for me.

[00:39:13] I mean, it's kind of like my world's really important.

[00:39:16] And I think it's to the basis for your question, you're dealing with folks that are being paid

[00:39:22] a fraction of what they could in a market context, right?

[00:39:27] As they're building, it is their life, right?

[00:39:30] It is their passion point.

[00:39:31] It's their days, nights, weekends, all of it.

[00:39:34] And you see the sacrifices they make and you're focused on it.

[00:39:37] You're managing folks money and you want to do the best for them.

[00:39:43] And some of the time you're just kind of like, yes, all that stuff matters.

[00:39:46] But you've got to find a way to kind of contextualize that in the broader world.

[00:39:51] And so it could be, you know, playing sports or going to, you know, a show or

[00:39:56] for me right now where I'm in my life stage, it's kind of like

[00:40:00] making sure I find time to hang out with my kids and approach them on their terms instead of,

[00:40:06] you know, just kind of being there and bringing the same baggage.

[00:40:10] And so for me, that's a really helpful sort of steam valve and release.

[00:40:13] Mm hmm.

[00:40:14] Well, because they also probably don't

[00:40:16] not to say they don't care, but at the age, like if they're super young, they don't

[00:40:20] no matter what your day looked like.

[00:40:22] Yeah.

[00:40:22] When you get home, all they care about is to like

[00:40:24] play around and, you know, have a good time and catch up.

[00:40:27] Yep.

[00:40:28] And like my kids are at the age now, like they're, they're preteen.

[00:40:32] Right.

[00:40:33] So like the world is full of wonder.

[00:40:35] Right.

[00:40:35] So I think it's a lot easier to do that now.

[00:40:36] Like if you were talking to someone that was dealing with like,

[00:40:38] you know, 13, 15, 17 year old, they'd probably be like,

[00:40:42] I actively avoid, you know, in those hard points.

[00:40:46] But, you know, I have, I have a really supportive partner, my wife and

[00:40:51] and my kids are at that age where

[00:40:56] it's it's it is a really helpful grounding wire for me because they're at this totally

[00:41:01] other stage developmentally where like everything is new and everything is amazing

[00:41:06] and there's an innocence.

[00:41:07] So that's very fortunate right now.

[00:41:10] Mm hmm.

[00:41:12] I got one more for you and then I'll close with it with a last question.

[00:41:15] I wanted to I know we're both in Chicago.

[00:41:17] Yeah, I've had the fortune of obviously meeting you and becoming good friends.

[00:41:21] Yeah.

[00:41:21] Yeah.

[00:41:22] I think I can say.

[00:41:22] Yeah.

[00:41:23] No, you officially we're announcing it here.

[00:41:25] I think that's a not so well kept secret.

[00:41:28] Yeah.

[00:41:29] Are we brother?

[00:41:29] You remember?

[00:41:30] We are brothers.

[00:41:32] Do you remember that?

[00:41:34] Don't get me started on stepbrothers lines.

[00:41:36] I will I will lower the credibility of your podcast very rapidly.

[00:41:40] I think we need this at this point.

[00:41:42] Yeah.

[00:41:43] Very, very fortunate to call you a friend, obviously a trusted advisor in the VC space.

[00:41:47] But we're both sort of building in Chicago.

[00:41:49] And I'm always curious as someone who can, I think, do it from anywhere.

[00:41:53] And your team is mostly in Chicago.

[00:41:55] Obviously, Adam, a partner at the firm at the fund is out of New York.

[00:41:58] Yeah.

[00:41:59] But just curious, why Chicago?

[00:42:00] Why are you bullish on Chicago?

[00:42:02] What makes Chicago exciting to you?

[00:42:04] Yeah.

[00:42:04] I mean, I'm so I'm a Midwestern guy.

[00:42:07] I mean, we've talked about this.

[00:42:08] Minneapolis.

[00:42:09] Yeah.

[00:42:10] Actually, Rochester, so south of Minneapolis.

[00:42:13] You know, I came here for undergrad, sort of one role led to another.

[00:42:18] I've always lived here.

[00:42:21] Yeah.

[00:42:21] So I think I have this appreciation for Chicago and like the promise that it has.

[00:42:26] And it's not to suggest that it hasn't realized so much already.

[00:42:31] But I think, you know, the best is yet to come in terms of this ecosystem.

[00:42:37] And, you know, that's a talent statement.

[00:42:40] That's sort of cost of living statement.

[00:42:42] That's, you know, a lot of the things that the folks at P33 talk about, like structural advantages to the city in terms of like universities, major corporations, those types of things.

[00:42:54] So I don't at all discount like all that Chicago has achieved.

[00:42:59] There have been amazing companies built here.

[00:43:01] There's a ton of great talent here.

[00:43:03] But I just think it's a really rich ecosystem in terms of the inputs that are here.

[00:43:09] So that's kind of the reason for my commitment.

[00:43:12] Love it.

[00:43:13] Pro Chicago.

[00:43:15] Last one.

[00:43:17] And this kind of just occurred to me now, but we're recording this.

[00:43:19] It's December 2024.

[00:43:21] Yep.

[00:43:22] If let's say we, you and I sit back down, maybe we can do the 2.0 version in December.

[00:43:27] Next week?

[00:43:28] Oh, no, I'm sorry.

[00:43:28] You were saying.

[00:43:29] Okay.

[00:43:30] That's fine.

[00:43:31] Too early, man.

[00:43:31] Yeah, no, no.

[00:43:32] We can do that.

[00:43:33] We can do that too.

[00:43:34] Let me check my schedule.

[00:43:35] Should we do it weekly?

[00:43:36] I'm free.

[00:43:36] You want to be my co-host on this?

[00:43:38] Let's do it.

[00:43:39] You're talking to the wrong person.

[00:43:41] It's a yes for me.

[00:43:41] Do I or do your listeners?

[00:43:43] That's maybe two different questions.

[00:43:45] Yeah, let them decide.

[00:43:45] So we sit here a year from now.

[00:43:47] Yep.

[00:43:47] What would you hope happens in your personal, professional life that you look back and

[00:43:53] you're like, this was a bang on year worthy of doing another, you know, sit down to talk about it?

[00:43:59] Yeah.

[00:44:00] I mean, you know, number one, in a local sense, I'm hopeful we continue to find great companies,

[00:44:06] you know, like Rxave, like Cylinder that are based here.

[00:44:10] We did have a concentration in New York.

[00:44:13] NFP was headquartered in New York.

[00:44:14] So we spent a lot of time there.

[00:44:16] That's obviously a very rich ecosystem.

[00:44:18] It's a place where we'll continue to spend time.

[00:44:21] But I'm excited about finding more amazing founders here and supporting them.

[00:44:27] You know, I would say the broad kind of VC ecosystem statement.

[00:44:33] You know, I think the skies are clearing.

[00:44:37] I think we'd all love a crystal ball to know exactly when things are going to be like kind

[00:44:42] of at a steady state again, because it still feels like it's been slow.

[00:44:46] But, you know, I think we're going to continue to see acceleration there, which is great.

[00:44:52] Hopefully see some companies that, you know, exit and stand up in a really favorable sense,

[00:44:59] whether it's IPO or major M&A.

[00:45:01] I think those proof points are going to be really important for the market and for folks

[00:45:04] kind of in the mid and late stage capital cycle to kind of come out of the sidelines,

[00:45:09] come off the sidelines.

[00:45:12] You know, in a personal sense, as we've noted, it's been a lot of fun as we're continuing to

[00:45:18] build our team here.

[00:45:20] So excited for what that will hold, just as we can continue to support the ecosystem

[00:45:25] outside of investment, you know, explicitly.

[00:45:28] It's just we want to be good citizens and human beings here locally and support

[00:45:33] folks' causes.

[00:45:34] And I'm sure I'll have all kinds of unexpected surprises at home as my family

[00:45:41] continues to grow and all the all the chaos and fun that that entails.

[00:45:45] Yeah, love it.

[00:45:46] Well, I wish you continued success.

[00:45:49] Thank you, man.

[00:45:50] And I appreciate you grabbing coffee on the podcast.

[00:45:52] Finally, we made this formal.

[00:45:53] My pleasure.

[00:45:54] Thank you for having me.

[00:45:55] This is a real treat.

[00:45:56] Sean Ellis, Distributed Ventures.

[00:45:57] Thanks, man.

[00:45:58] Thank you.

[00:45:59] Appreciate you.

[00:46:00] There you go.

[00:46:01] So fun, man.