Monday, August 20, 2018
Interview with Marlon Nichols, Cross Culture Ventures
What's the best way to build a strong portfolio of technology companies, which tap into the broadest markets and avoids the "bubble" group-think of many venture firms? For this morning's interview, we sat down with Marlon Nichols, co-founder and Managing Partner of Los Angeles-based Cross Culture Ventures (crossculturevc.com). Nichols is a former Kauffman Fellow and investment director at Intel Capital, and tells us how his fund--which he co-founded with Atom Factory's Troy Carter--is looking to find companies solving large problems outside of the typical Silicon Valley bubble. Cross Culture's investments include Mayven, LendStreet, Wonderschool, and Fair, among many other investments.
Talk about Cross Culture, what your investment areas are?
Marlon Nichols: We are a three year old, early stage venture capital firm. For us, that means most of our deals are at the seed stage, and some are at the Series A. We take a thematic approach to investing. For us, that theme is cultural investing, which is taking a hard look at global popular culture, and identifying emerging and overlapping consumer behavior trends. We make our investment decisions based on that. We've made about thirty investments so far, over the first three years, and they have performed pretty well. A good chunk of those investments are based in LA, and we also have investments in the Bay Area and across the U.S., and we even have one across borders, in Nairobi, Kenya.
How did the fund get started?
Marlon Nichols: Right before this, I spent five years at Intel Capital, where I ultimately became Investment Director. I led a number of investments for that company. When I joined Intel Capital, it was the largest and most active venture firm in the world. It was a great training ground to learn the business of venture capital. During that time, I became a Kauffman Fellow, which helped me to better understand the venture capital landscape and the business through the lens of iconic venture professionals. It was through that experience, that I sat up in my chair when working at Intel Capital, thinking that, this is cool, I've got a pretty big checkbook to write from, and to do deals from, but there are so many more companies I could be investing in that I am not. The reason for that, is as a corporate venture capital firm, Intel Capital has a strategic mandate. So, I started to first look at other firms I might want to work at, and after I couldn't find a firm that was a complete match, I set out to create my own vehicle. I connected with my co-founder, Troy Carter, and we built the firm that I now manage and lead.
I imagine a seed/early stage fund has been quite different than a corporate VC? How was that transition?
Marlon Nichols: I wouldn't call it easy, and it probably has been the most difficult thing I have done professionally, which is to raise my own capital and learn how to manage a fund. At Intel Capital, the fund already existed, it was a known entity, and basically the job was to find companies that fit a certain strategy and make an investment, to help those companies grow. Whereas, at Cross Culture, we had to first learn how to build a brand, and make entrepreneurs aware that we were a credible organization, that could be very helpful to their company. Plus, we also are betting on them, which is another challenge. I think we have done pretty well at it, and we have some great companies now in our portfolio and CEOs we work closely with. It's been about making sure that we have clear differentiation, and obviously a value proposition. For us, out of our first fund, we may not be the largest check they are going to see. We're pretty early in the game, but we are going to be your most useful and effective investor. For you, what that means, is we will leverage our network, which spans professional athletes, entertainers, government, and executives in Fortune 500 companies. We have a unique way that we're able to vet potential relationships with those groups I mentioned, and the companies that are in our portfolio. The other thing we focus on, is helping you to tell your story at every stage of the company, and especially at the early stage. That's something that is critical for a young company. You have to let people know you are her, t hat you exist, and what you are about. If you miss that, that's the beginning of the end. We're pretty good at that, as well. From my background, as a former operator, I can get into the unit economics of the business, and operating playbooks I have seen at other organizations. So, it's about building a brand, showing that we are a value add, and that we are complimentary to any investor you might be bringing to your cap table. It's been exciting to see our portfolio get additional funding from many, household, Silicon Valley venture capital brands, funds like GV and Andreessen Horowitz.
Not to dwell too much on it, but it seems you're in a unique position to comment on venture capital and it's lack of diversity. What are some of your thoughts in that area?
Marlon Nichols: I'm more solution oriented, than one to whine around a problem. The lack of diversity in venture, and that also trickles into the lack of diversity in founders funded by venture capital is a real challenge. It's a real issue, and one, frankly, that doesn't make a lot of sense. If you look at it from a business and product perspective, it's pretty well documented that the more successful companies in the world are all strong from a diversity perspective, in all industries. We're seeing that move into tech as well. There is true value in lived experiences, and varying perspectives. The diversity thing can help you avoid significant pitfalls, which you see with some companies that haven't done very well with. From a venture perspective, it's important, because you tend to invest in things that you understand, and if you don't have the same lived experienced, and don't have people with that experience on your team, it's much harder to grasp if a problem is real.
That's especially true if you're living in one of those bubble cities, where everyone looks the same, and for the most part is in a similar tax bracket. You miss the fact that there are some other, real challenges out there. In addition to that, black and brown people have been pretty well documented as earlier adopters of technology and consumer products. They also spent up to 30 percent or a little more of their income on technology and consumer products, higher than any other group. They're also big influencers in this new wave of social media, with mobile and the internet. So far, for the most part, venture capital has ignored those groups' needs and wants. I posit that, if you build solutions that are for those communities, who are already doing significant spending in technology, and have really large spending power, I think that will turn into more dollars for whatever your company is, and ultimately, will turn into more dollars for those venture investors who back those companies. It's both a social issues, and an economic one. If you go after the things that are important to you, and realize the best people to solve those challenges are those who have lived them, you end up with a pretty diverse portfolio. It's opposite to saying we're going to invest in back men, or black women, brown men, and brown women. You might be able to do that, and maybe move the meter, but in some ways that perpetuates the underlying challenge and bias.
It looks you have some programs you have put into place to help in these areas?
Marlon Nichols: We have spun up some programs, like our venture capital apprentice program, where we've partnered with Silicon Valley Bank to bring on MBA interns over the summer. Basically, that gives them access to the venture business, and, ideally, we'll hire some of them full time into our firm. But, even more than that, it's addressing the pipeline excuse lots of venture firms use who say they can't find qualified, diverse people out there. The program is training black and brown women, who are very talented, in the venture space, so that they can become part of the talent pool. We did it for the first time this one. Jennifer Richard was at Berkeley, and already had been part of three startup founding teams. She's from LA, and now is at Berkeley finishing her MBA. She spent a summer with us, and was terrific, and we hired her even as she's finishing out her last year at Berkeley. Hopefully, she'll continue with us beyond that. We're doing things like that. We've also partnered with another organization, HBCU.vc, which focuses on historically black colleges, and now historically Hispanic colleges, and helps train students on the venture capital industry. It gives them a formal education on the fundamentals of that world, and is also opening up and helping them to build a network through experiences at venture firms. In the last school year, we had two interns remotely from HBCU.vc, one from someone who just spent a summer at Goldman Sachs, and the other from a group called 36/86 in Tennessee, a tech conference and accelerator. It's been helpful to increase exposure of students to the venture ecosystem. That's how we think about it. It's an unfortunately challenge, but one that needs to be met with real actions and solutions.
What's the best way for entrepreneurs to engage with you?
Marlon Nichols: We always trust the opinions of entrepreneurs we've worked with in the past, and also investors that we've worked with too. And, your network in general. The absolute best way to get to us is from referrals from people we respect and trust. However, we know that oftentimes that locks really talented people out of the space. We post our emails on our website, and entrepreneurs can email us directly, and we're seeing a lot of inbound that way. Part of Jennifer's job, is to help us screen through who might be a good fit and who we should have a follow up conversation with, so that we're not just perpetuating the problem of access. That's probably the largest challenge of people of color in trying to raise capital. You can reach out to us directly that way, or come in through our network, and we'll look at everything. We won't necessarily engage with everything, because not everything makes sense for our fund, but at a minimum, we'll take a scan and see if there might be a fit.
Let's talked further on what you are interested in seeing—what are you looking for in your investments?
Marlon Nichols: We're looking for companies taking on real challenges and real opportunities, and we prefer a net new market. The reason I saw that, is that with a net new company, you are probably creating a new market. It must be a market that is real, and it has to be something that people really need and want. Those are the things that can stand the test of time, and weather through downwards trends like a recession. So, we prefer to invest in companies solving real challenges. Like a Wonderschool, like a Mayven, like a Fair. It goes back to our thesis, cultural investing, and looking at what is happening around the world, how are consumers behaving, and what do they believe. Then, because we're at the early stage of seed investing, the team is super important. Their connection to the challenge they are trying to solve is really important, and their ability to solve those challenges also is really important. We need all of those things to be A plus.
Finally, what's the biggest advice you'd give to an entrepreneur?
Marlon Nichols: I think the focus for an entrepreneur has to be on the unit economics of a business, and then on growth. If you grow too quickly, before you truly understand your business, you might grow your business in the wrong direction. Sometimes, it's really hard to recover from that. You have to have a dual focus, both on unit economics and scale, and you have to figure out a way to do both effectively.
Thanks, and good luck!