Brett Martin (Charge Ventures): This is my dream job – being an entrepreneur and being an investor.

Brett Martin is General Partenr at Charge Ventures. He is the founder of Sonar and also helps AppFund, a NYC-based, seed stage incubator build game-changing mobile technology companies. Prior to AppFund, he co-built an automated social media monitoring platform for SMBs after he spent a year researching resource allocation in early stage start-ups as a Fulbright Fellow in Milano, Italia. Before that, he worked at an IPTV startup as an internet marketing associate and at an investment bank as an equity research associate.

How did it all start? How did you decide to enter the venture investment business?

Aside from a brief stint on Wall Street after college I’ve either been building or investing in early-stage companies my entire career. Even when I was in college I took Venture Capital classes and won the business school playing competition. My buddies and I always talked about business ideas to start. When I’ve done being an analyst, I spent a year at a sailboard, I lived in Italy for a year then I came back and started building my first company. An early new fund, AppFund, came out right when IPad was first announced, and the idea was to fund new companies that were building for this new form factor of the iPad. It ultimately funded some companies, had some exits, and then turn into an incubator, out of which I started my second company, Sonar Media. It was 2013, and social, local, mobile was a big trend. Sonar helped you to discover how you’re connected to people nearby. That’s how it all started, and I was building and investing in companies ever since. 

What surprised or impressed you the most when you started working in venture capital? 

It’s interesting that you get a view of, as a venture capitalist, is how much zeitgeist is there in terms of businesses being started. For example, cohort-based learning. You may have heard of OnDeck. It’s a cohort-based learning company providing courses if you want to be an entrepreneur or an angel or now if you want to be a part-manager or gross marketer. You don’t take classes on-demand online, like from Coursera or any other learning platform, but they put you into a group, or cohort, of learners and then you learn together. This trend started a couple of years ago as a trickle and now I see dozens of startups building cohort-based learning platforms. It is interesting how the idea that learning is best done together permeates the startup ecosystem. A lot of people have similar ideas at the same time. That’s an interesting perspective, and you really only get to see it if you’re in VC, who can see lots of ideas over the course of a year. But your job as VC is trying to catch the front end of the trend, and when you see a novel idea, something that is truly different to pay it really close attention and get it before the trend becomes played out. 

What upsets you the most after all this time you work in VC? Maybe even makes you think that becoming a VC wasn’t a good idea?

As an entrepreneur, I think that the choice of the partner is obviously important, like the Good, the Bad, and the Ugly. I think the default investor is pretty neutral, they don’t do much, just capital and capitals monetize. A good investor can be helpful and give good suggestions. Bad investors can literally sink your company. As the capital markets have become increasingly competitive and the cycle between raising the capital and closing a round becomes shorter and shorter with all these capital floods on the market, it puts increasing pressure on VCs to act quickly. Obviously, I think that’s a benefit for entrepreneurs but I would say that what they’re missing out on is an opportunity to build relationships with VCs. Nobody’s dating now – everyone is going straight in the marriage. These are long-term relationships: you are stuck with whoever Is your Seed investor for 5 to 10 years. And not having an opportunity to get to know these people before taking their money is a two-way stream: you’ll get the money quickly and with not as much diligence but you don’t know the person you’re taking with this money. That may come back to bite you. So, if you can go relationship before raising capital, it’s still the best way to act. Find a few people you’re particularly interested in and learn about them.

What is your strategic vision for the next five years?

VC is a fun and dynamic market right now. It used to be a sleepy backwater or a cottage industry, pure Good Old Boys club. It still is in a lot of ways, but it is being democratized – there are additional sources of capital, factoring and data-driven investments by companies like Clare bank, crowdfunding, companies like Republic, that was one of our investments, there’s all of the proliferation of investors and seed funds. The industry is maturing and industrializing. I think, it looks more and more like finance, it is becoming more egalitarian over time. One of the trends I’m particularly interested in is quant VC – increasingly using the quantitative methods and analysis and data and signals to identify, evaluate, and invest in a company you didn’t have personal relationships with initially. I think it can be a democratizing force for venture capital.

What was the most unusual or even exotic startup you ever supported? 

We don’t play favorites here – we love all our children. But in terms of exotic, we invested in a company called Bedrock witch builds autonomous underwater vehicles for seafloor measurement and prospecting. They do sub drones that score the ocean floor and map it because it’s still largely uncharted. There is a lot of focus on space while there is plenty of undiscovered things under the surface of the ocean. That’s a really cool company with a really cool founder who, I think, is Elon Musk of the sea. I like to partner with people like that to do crazy stuff like this. 

What is the size of your current fund? 

The fund I’m investing out of now has about $20M under management. We write pre-Seed checks during the very first round of a company – we are the first institutional fund and invest alongside Angels and friends and family trying to get companies off the ground. 

What percentage of it is reserved for follow-up rounds?

We generally try to invest in pre-Seed and Seed with the intention to follow-on in the Series A. We try to create SPVs and we have a large bunch of LPs that really want to get more exposure to our portfolio companies. We’re pretty consistently doing several million-dollar SPVs into companies raising A, B, D rounds. 

There are many venture funds out there today. How do you differentiate yourself for limited partners? And to entrepreneurs?

Everyone says how crowded it is, and it certainly is at the Seed stage, if you’re trying to put $20-40K in a deal, but it’s still pretty uncharted and collaborative and open at the pre-Seed level. There are not that many investors that are willing to lead a pre-Seed round – be the lead investor, structure the deal, set the terms, help entrepreneurs with the round among these $500-750K. These rounds still happening, most entrepreneurs still need this sort of capital. So, it’s not that competitive here. 

How startup teams usually find you? Do you wait for inflow or scout actively? 

We actually do something very interesting in Charge. I teach Data Analytics at Columbia Business School. Aside from helping our startups, we help them with the data analytics – get their numbers straight, get the reporting straight, hire data engineers, data analysts, data scientists and get their metrics humming for Series A. We use that internal capability and do a lot of data-driven sourcing. Where the later stage funds, growth funds are trying to find data, sifting through signals, looking for companies that are breaking out, we do something similar but that at pre-Seed level, looking for emerging companies or people who just left corporate jobs, reaching them proactively. 

How many startup projects do you review per year?

In terms of the top of the funnel, it’s thousands. We’re looking at a company deciding if there is a quick stab at the market or does a founder has an interesting background or looks particularly well suited to tackle the problem they’re going after. We’re down to something like 80 calls a month. And we do 8 to 12 investments a year. 

At what stage do you prefer to enter? And the geography of your interests?

We have been focused on New York City – it’s a fast market that has grown 5x in the past 10 years while being unpenetrated by West Coast VCs. But in this fully remote area that’s a little less clear: I talk to New York entrepreneurs who are now in Spain or in Florida, but I do expect them to come back either as we get over the pandemic as a society. We also do a lot of deals in small cities and we are a North America-focused fund, and every company we invested in is either domiciled in the US or moving here.

What are the verticals or industries that you or your fund have been looking into recently? 

Members of our team had built Consumer Marketplaces, Labor Marketplaces, Product-Led SaaS Companies, B2C2B SaaS Companies, Clean Tech, Recycling Focused Tech, Logistics, and Data Analytics. These are the Industries we tend to focus on and that’s the area of our and our partners’ expertise. The more unifying factor is what we don’t really do: we don’t do heavy-duty top-down Enterprise Sales, Compliance or software that forced on people, AdTech, Sports, including E-Sport and other things we don’t know much about.

Can you name industries you really like, yet will never invest in?

I don’t think anything fits that. I like things that I think are good investments and do them. 

Before starting a round, what is the way for startup founders to estimate their company’s realistic valuation and how much money they need to rise?

I think the market determines your valuation, so just let the market sift that out while you do your best job to create a competitive bidding situation. It’s not always the right thing to maximize your valuation – it should be optimized in the first place. The question of how much money to raise is more a function of the minimum amount of money you need to significantly de-risk the business plus a healthy buffer. That’s a dilution-minimizing formula.

What makes a good pitch vs a bad pitch?

A typical Seed pitch explains why your company deserves funding. An exceptional Seed pitch explains how you’re going to raise a massive Series A round.

What are your criteria to select startups to support?

It’s people who show that they’ve not just met the table stakes needed to raise capital but have a simple and clear plan to take it to the next level and increase the value of the equity that I’m putting in. Because we are so early, we usually don’t have operational and financial metrics to look at. We often look for founder-market fit. Show us a strong understanding of the market you’re going after, some sort of insight, some special expertise, your passion for it that makes you able to understand it and have a secret about your market. Teach us something that we don’t know or the market doesn’t know and how you’re going to proffer that. 

What qualities you are looking for in founding teams? 

We’re looking to borrow from relentlessly resourceful people. The speed entrepreneurs move, the speed at which they follow-up, the speed at which they push us down the funnel – those are soft signals beyond founder-market fit. We like to talk with founders of all shapes and sizes. I mean, there is a pattern where certain Industries require more expertise, usually, that are older industries. New industries are more permissible. Like Crypto, which is here for about 10 years, and this is the most experience you can have, and it makes it more of a young man’s game.

Who you would prefer to work with, Steve Jobs or Steve Wozniak?

It’s sort of unfair questing because we do tend to focus on technical founders and look for people that scratch their own itch and build themselves with their own hands. At the Seed stage, you need a higher amount of capital to hire engineers and pay recruiters to get them. It’s a tricky situation for pre-Seed startups. We do look for maniac people that are obsessed with the problem they’re trying to solve, and that passion can bring people who have less experience up to speed very quickly. We look for a blend of the two, frankly, or a team that has both. We want Steve Jobs and Steve Wozniak.

Investors prefer to work with teams. Have you ever supported a one-person startup?

We definitely have, but we also prefer teams just because it’s very hard to have everything in one package.

What are your red flags? 

People that seem like they’re doing it just because they want to start a company. It’s a pretty bad reason to be an entrepreneur. Being an entrepreneur begins by seeing an opportunity and being so moved by it that you can’t do anything else. People that can’t admit risks in their own model and deny risk every time you try to have a healthy conversation about it. In part, because we can’t say if an entrepreneur is blind to the risk or doesn’t talk about it with us. Both situations are bad.

What is your process of working with startups, once you invested in a company? 

When we invest, a company is little more than an idea and a couple of smart guys and gals in a garage coding. We really help them set up reporting, get free credits and things that they need, insure them with downstream sources of capital. We do product gym sessions as they acquire users or customers. We do empathize with entrepreneurs being an ear to listen or shoulder to cry on we’ve been there and we understand them. We help them with the next round fundraising package because the Seed round of $2-3M has huge significance for their business. We step back and let the next investors take the reign, but we can always be there while other investors have more resources available to them.

What are the most common mistakes startups make?

Premature scaling is a problem I see with a lot of startups. They raise capital and start burning it before they have achieved any degree of product-market fit. They think that they’re playing startup and building out the infrastructure of a company before there is any core business idea proved.

How much runway should a startup have to feel safe?

If you’re going to rely on financing to survive and if you have 6 months or less then you should be in the market fundraising.

Your target multiplication on exit?

As we are pre-Seed, we are looking for 50x. When we invest in a company at $5m and it sells for $250M, it’s a good outcome for us. It’s sort of unfair questing because we do tend to focus on technical founders and look for 

Your target ownership’s percent?

Most of our investments are around 5% to 8%.

Have you ever rejected a startup and then regret it?

“Rejected” is a strong word. We did not invest in a number of very successful companies. One I particularly rue is BlockFi – a well-known crypto-lending company. When I met Zac Prince, I immediately thought what a smart guy and what a real problem he is solving. I made a mistake: we didn’t invest because I was afraid of too many things like the cost of the capital game, and JP Morgan, and things like that. Usually crypto people don’t want to work with JP Morgan, and I misunderstood the market. That was one I missed. 

Can you name the three most breakthrough startups in history? 

Ford Motors is a pretty good one in terms of bringing the assembly online as a core component of manufacturing. Monsanto is a systemic important company changing the way billions of people are fed. Airbnb is an impactful startup. I take this call from you in my apartment in Spain, and it changed the way I live personally. It’s been great for consumers. I have questions about its impact on local neighborhoods, raising prices and lowering affordability, still it is a game changing idea. 

The greatest startup failure?

I’m going with Juicero, it’s the funniest. They made an at-home juicer. You bought packets of pre-juiced fruits and vegetables, you plug them in, and then made juice. They sold their machine for $399 and raised $120M. It was a hilarious “innovation” theatre. 

Who are the 3 entrepreneurs who most inspire you?

Ryan Denehy, who is the CEO of one of our portfolio company Electric AI. He is a super cool guy but super laid back and completely zen. he executes flawlessly while never losing his cool. He is one of the most understated guys in his industry. Another is our founder Brandon Brown, who runs a company called Grin. He is like clockwork and runs his team as NASCAR pit crew – he never misses a bit. And Fred Wilson – a New York City venture capitalist who built a reputation around being a nice guy. And he is actually a good guy, someone you’d want to be on your team, and the whole Union Square Ventures puts that vibe. As an investor, that’s something I aspire to. 

What are the most important things you have learned from founders?

Most of the things I know are from founders. I’m constantly impressed with people’s capacity for pain and resilience. Founders get turned down over and over, they pull things up, deals fall apart, companies run out of money – and they keep coming back for more. One founder, a friend of mine, told me about his sister, who started, like, 10 companies. They all failed. She started her 11th company and everyone, even her friends and family, were giving up. She had an idea for a popcorn company and that turn into a $40M exit. I like this tenacity and aspire to that as well. 

Any books that you would like to recommend to founders?

One I would recommend is Finite and Infinite Games by James Carse. It is pretty abstract and talks about ways in which we create barriers around ourselves and prevent ourselves from achieving what is possible. He provides a framework, a series of experiments that show the ways in which the possibilities are infinite. People always have to find the third way, and that’s it. A nice book. 

Is VC business chess, checkers, backgammon, go, card games?

It’s more like Dungeons and Dragons, a role-playing game. You have to inhabit the role of the character that you want to be. 

What are the biggest shifts that you see in technology which will define our nearest future?

It’s nothing novel, but seeing machine learning integrated into everything is going to be the trend that will continue playing out for the next 20-30 years and has all sorts of unforeseen consequences.

Your three pieces pf advice to founders

I’ll go with one. Or, maybe, two. First: Especially for early stage founders, be careful about identifying yourself with the success or failure of your startup. It’s so many ups and downs for a business that a lot of people start to confuse their personal traits with those ups and downs. If everything goes well, they believe in themselves, when things go poorly, they start to think that they are losers. You need to divorcing your feelings about yourself with how your startup is doing. It’s an important thing for a healthier life. Second: Founders that have failed care of this scar tissue. It makes you tougher, but less flexible. Be mindful about it. You need a beginners’ mind in order to succeed, you need to be open minded and not protecting yourself to get back on the horse and try to get it all again. You have to work through the scars of the past.

What was your dream job when a child?

I think, this is my dream job – being an entrepreneur and being an investor.