Heat. Hey, Heat. What's up, party people? My name is Sunny Ray. This is the Sunny Ray Show. My next guest, his name is Marco. From investing at 12 to managing multi-million dollar venture funds, OMG. What's up, Marco?
Hey, Sunny. How are you doing?
I'm doing well. where are you calling in from today?
Edmonton, Canada. Edmonton, Alberta. Sorry to hear that. No, I'm kidding. Born and raised, by the way. Royal Alexander Hospital.
I was in Calgary. boy through and through until a few years ago.
Well, that I'm definitely sorry to hear about. Marco, take me into the deep end, man. What's what's going on? What are you building? why should the world care? yeah, I guess let's start there. We'll keep it short and sweet for now, but let's make our way we'll make our way into it later.
Yeah, short and sweet. started building a venture fund. well it started with an angel syndicate about 6 years ago called Redthread Ventures. from there navigated to an actual fixed fund and that was we fund one where we closed about $6 million to invest into 12 companies and now subsequently working on the next step to weave one which can't fully announce but working on another fund to say the least.
Noted. Very interesting. Cool. So let's let me slow down a little bit. interested to kind of just rewind a little bit. So you were running, you said a like a room full of angels before you ran a fund. What did that teach you about, you know, how people decide?
You know, it really teaches you a few things. First of all, urgency and deadlines. that's something that it absolutely teaches you. if you give angels or ultra high net worths infinite time to make a decision, they're going to take infinite time to make a decision. And so it taught us that we needed to create deal urgency deal tension and subsequently create excitement surrounding the opportunity which I think translated well into to building a fund and closing LPs.
Gotcha. And what was the first check you were part of and like what did you get wrong?
So just a clarification question there. Are you referring to the angel investments or the public market investments?
Oh no. Let's start with the angel first.
Yeah. So the angel investments, our very first deal actually was a unicorn. It was called Uni Oi. so Uni Oi reached a valuation of I think it's at 1.4 billion Canadian right now around 1 billion American. What we went wrong with was actually we were a little too excited about the opportunity and exited the position too early.
Okay, that's super interesting. But first one the unicorn that's something else.
So I guess.
Yeah. So Red Thread Sourced and Valhalla Funded. what made you think those two should become one thing?
Simple supply demand curve. So for us, me and my partner Mark, when we created Red Thread, we were two guys that were under 25 and not really sure how to create an environment where you had sourced deals and cash flow. And so we found an opportunity to find companies and create deal flow and subsequently used a fractional seuite executive network to couple that to get qualified deal flow. So we actually partnered companies with a seuite executive and then we said okay well we built this great network of companies but now we need money and where can we find money that's easy at the start and we're like angel network and so we started working with Valhalla.
Got it. Interesting. So 17 companies before there was a fund like I guess what did that track record have to prove before you know a limited partner would listen?
Well once again it was everything. We were two young guys with no relative history, with no history of raising a fund, no not a huge amount of personal equity. So, it's not like we had a track record even personally in this ecosystem and didn't have the financials to prove it. And we needed to utilize this angel network to showcase what quality of deals we're bringing to the table, what opportunities are available and subsequently how can we manage investments on a deal-by-deal basis. And those investments in incorporated of course term sheets. It incorporated creating holding companies and it created management throughout the life cycle of the investment and talking to the company getting data in providing that data to our investors keeping them informed keeping them educated and making them excited about the opportunity that was presenting itself.
Fascinating. I guess what broke the day you stopped being an angel and became a fidiciary?
Two things. one the like for fund deals went away which I still do personally on the side sometimes but when I became an angel investor I was roughly 22 and I had a little bit of cash to work with but I wasn't flush by any means and so I would throw like 5 to 10k checks and stuff that I thought was cool for fun a lot of that money is gone but it was fun and it was educational but there was also a nature of doing deals by gut check and completely by gut check and having a really good instinct surrounding how the founder felt about the industry or about the company and just having a really good connection point with the founder that itself is still an important facet to investments but it's just I can't make an entire deal based on just like hey the founder is the guy I need a little bit more or girl I should clarify but I need a little bit more background information to justify the decision after the Yeah, that makes a lot of sense. And why Edmonton, Marco? like what was like what does being, you know, there get you that being, let's say, in Toronto or SF wouldn't?
So, to be frank, this wasn't really necessarily a business decision as much as it was a circumstance and b the environment. why Edmonton? It's the age-old story. something about a girl. Like I wish I had a better answer for you, but I met my wife and my wife needed to be here and that's a little bit more important to me than business in any regard. but that being said,.
When we started Red Thread, it was actually the start of co which was the best thing possible for Mark and I's career. And the reason being is because it took this ecosystem that was previously relatively sheltered and incorporated on what's in your backyard and made it globalized. so we went from needing to be traveling to Toronto, to San Francisco, to Montreal, to Utah, to New York, to wherever you needed to go, to Texas, and instead, hey, want to hop on a Zoom call? And so it allowed for us with two guys with relatively little liquidity at the time to really globalize our brand and globalize our deal flow and globalize our LP generation at the earliest of stages. And so it really made it so that Edmonton was not a limiting factor and now is actually a benefactor. And the reason why it's a benefactor is because we're based out of Western Canada. Western Canadian venture capital funds receive 17th the amount of capital as Silicon Valley companies and one onethird the amount of capital as Eastern Canadian companies. And so as a result naturally those companies are cheaper by about 40 to 60% despite being in the exact same stage of growth. So if I have a company in Edmonton and a company in Silicon Valley and they're the exact same company, one is about 60% more expensive than the other. And so my question to you is we have all this talent with these amazing universities in our localized ecosystem.
Do you not think that they can build a company just as much as a Silicon Valley individual can build a company?
People from University of Alberta are definitely dumber. I would say.
I don't know if that's necessarily true.
I went to UA. I went to you. I'm just kidding.
Okay.
No, I definitely agree. I mean, I've built companies my whole career. So, yes. so I do agree with you and I think that's a very that's a very interesting insight. what's the habit from the monthly forum days you've kept?
Urgency, one word. urgency is everything. once again, it's like it's you ask somebody once, most of the time they're going to say, "hm, hi, I'm interested. I want to learn a little bit more." You need to create urgency. You need to create deadlines. You need to create hype. You need to create energy surrounding the opportunities. It's directly in ingrained into our LP generation funnel. If you give people a minute, they'll take an hour, so to speak. Yep. I like that. at Upper Bound, you spoke about red flags in AI pitches. Like what's the one founders don't know is a red flag?
I think it als it often has to do with the personality trait and it's overclaiming like your technical or business capabilities. it when it comes to founders, we're talking to a couple hundred a month. Not not one in 10 days. It's like we're talking to like a thousand companies a year plus. And so with that, we're going to be able to see individuals who actually can execute on their technical capabilities and we'll be able to see through people who cannot. And we also have referenced experts in our network that we go to and say, "Hey, look, is this person validated?" And so if you're overclaiming your technical or business capabilities or your networks or whatever it may be, it's very evident and often will lead to quick pass.
Cool. I guess checks of like 150 to 300,000 for 3 to 6% is a very precise formula like what can you walk me through how you know a $6 million fund returns a real outcome on that math?
So two things one part of that's due to circumstance. We're a micro fund. Our first fund was a micro fund. Our second fund probably won't be a micro fund but our first fund was a micro fund. So you only have so much dollar to work with and you need to capture a certain amount of ownership in order to make it of course worthwhile. And so for us that the check sizes were limited to that option. But given that we were able to get 3 to 6% ownership by being in a Western Canadian market, it really allowed for us to get cheaper valuations to get the ownership that we needed to be successful. And our ideology was surrounded around being a fly on the cap table. And what I mean by that is we wanted to be big enough that we went to these founders and said, "Hey, can we get a board observer seat? Hey, can we get NFS rights, Pratta rights, followon financing rights?" And since it was in an underc capitalized market, we were able to do that. And it made it so that we were big enough and had enough connection with the founders and enough urgency or ownership around the business that when it graduates to series A and beyond, a lot of these bigger batter investors come to us and they're like, "We don't want you here. You're an annoyance. You're a fly. Get away." And so what that does is it actually creates a secondary opportunity for liquidity for us. We don't have to see a company through entry to exit to make a multiple. With us being at a preede level, we can make a quick 5 to 7x being bought out as a secondary at series A or series B and while series B would be a much significant larger investment than 5 to 7X. But that being said, that that's the ideology. We want to be big enough and annoying enough that larger investors want us gone. And then subsequent to that, I think the thing that most founders might not truly understand because I don't know if financial literacy is the best thing in Canada in particular, but an exit waterfall really dictates how much you get paid. And if I went to a founder and I said, "Look, you own 25% of the business at the end of the day and you raised a hund00 million company and you sell it. How much money are you making?" And most people or sorry it's 10%. of a business you raise $100 million it sells. How much money are you making? And most individuals say like 10 or maybe eight. No, you make about $4 to5 million. And so with that backwards math, it's really evident to dictate what the returns are like from a venture level. and it's why there's clauses like liquidation preferences to benefit our ownership percentage and things like that to double down on our returns. But the long and short is you need a certain amount of ownership in order to get a certain amount of liquidity. subsequently, you need to be big enough to be annoying enough and to give you optionality. And then third, not all companies need to go through to exit to be a winning fund. Well, super interesting. Wyvern Vern had already raised from a serious outside capital like why does a fund your size add to a company that can get those checks?
So remember when we entered Wyvern they were not that size of company, right? So our cost value or what we're providing to these companies varies depending on the stage of growth of the business. And so when we invested in Wyvern, we found them before they were a company. So they were based out of the UVA. there were a bunch of guys that were just working on their school projects. They were the only kids in Alberta to ever successfully launch a satellite in their program and they were like, I think we're going to make a satellite company. And we're like, that sounds pretty cool. Are you actually like thinking about forming a business? And they said, yeah, like we're actually thinking about forming a business. And so then they started working together. And I believe the program, it's been a while since I was there. I think it was called VMS. It was a UVA venture mentoring center service, some something like that. And they were working at it as it like a capstone. It was a capstone project for them. And so we said, "This looks pretty cool." And so we were their first check and we got in at a very small dollar. gave them a fair bit of money and we got great ownership for it. So, we got diluted down pretty big when they need to raise so much capital, but ultimately we're very, pleased with our position in Wyvern and we're very pleased with how the company is working.
Good for you. where do your best deals come from? Can you take me through the last three and like how each one kind of reached you?
Man, there's a few. for we're very fortunate our fund one and red thread are performing very well. We're very pleased with that. I don't know if I can ne necessarily narrow it down to three. I'll give you five. so Uni O it's tough to discount our first unicorn. Like you gota you got to give that company all the flowers. They're our highest performing company to date and amazing business. Blossom is one of top Canada's top like 10 fastest growing startups right now. It's a financial company, a fintech. Got Care is a basically a platform that allows for people to organize and structure home care for their sick family members. they're I think we'll call it 10 digit revenue at this point in time year year-over-year. Home Team Network, they're phenomenal. They're actually multinational at this point in time in terms of where they're servicing their product. It's basically a network that provides youth and amateur as well as semi-professional sports streaming. They have great licenses with great individuals and have a lot of great leagues under their platform and doing extremely well. And then of course Wyvern I think would be one worth mentioning. And how each one reached to us I guess Blossom was a warm intro. Got Care was a warm intro. Home Team Network we found them when they just started their business in Saskatchewan at a accelerator. Wyvern met them before they were a company. Ooni oonie random circumstance.
Wow. cool. So, I guess what does a founder usually have like what have they already tried before they land in front of you and like what does that kind of tell you?
That's a little bit of a tougher question. a lot of the times like a founder needs to go through an entire angel network before they go to VCs or go through their friends and family before they go to VCs. In Canada, oftent times a founder will go through the grant system before they reach VCs getting on to Luda funding. but typically what they need to do on like a business level is they need to be past their go to market and or their we'll call it their prototype. needs to be established. If they're coming to us pre-revenue, they need to have a very clear product in development that is not like a hey look, we're trying to build this. It needs to be a little bit more established than that.
Makes sense. And when you're close to a yes, like who else has to be in the room before the check moves?
I think namesake is valuable, but it's not a determining factor. it's more of a progressive signal. And so what I mean by that is like if I'm in making a an investment and I see that SEOA is on the cap table, obviously that's a little bit of a different circumstance, but Sequoia is on the cap table. I'm going to be like, well, that's pretty interesting. Like I wonder why they have such conviction because they're going to see like everybody else, they're going to see a classified tier of deal flow because everybody knows who Sequoia is. So all the best deals are going to go to Sequoia first and Sequoia is going to only pick the best of the best. So if that name's on the cap table, I'm going to be like, hm, that's pretty interesting. I might be a little bit more compelled. That being said, our internal like our internal structure requires us to go through our details of what our check boxes, yes, no, In order for us to get conviction, namesake is just like a progressive signal.
Makes sense. so your thesis says founders don't need to relocate. three years in I guess like what's the evidence either way?
You know it's hit and miss. It depends. So the originally when we created we fund one we were really selling the narrative of hey in 25 years your kid is going to be entering the workforce. do you want them to stay in Edmonton or do you want them to go to Silicon Valley because there's no jobs here? that was really kind of the narrative we were selling to our investors. and to be fair, like I think that's like a truthful statement. A the large majority of talent in the UVA is poached by the big four tech companies before they even graduate. And so like in order to keep talent here, we need to give the talent a reason to be here. And so that was the foundation of the thesis. and how it's worked in practice. well, Uni Oi is still in Vancouver. I think they have a head office as well or a secondary office in the States and in multiple other countries, but I think their head office is still Vancouver. Blossom is Toronto. Got Care is Vancouver. Home Team Network is just now moving after their series A to Florida. but previously has built have entirely built their company in Canada. Wyvern has entirely built their company in Canada, but I know that there's in order to get certified contracts, they need to be an American-based company. So, I think they're an American-based company now. I need to double check. I honestly don't remember. but yeah, I think they're American now. But for the most part, I think it's dependent on circumstance.
Marco, I want to just rapid fire through a couple more here, but this has been I can't believe how many people are watching, by the way. This is awesome. c can you give me weave in one minute? Like what do you back? What do you refuse? And like how fast can you decide?
Yeah. we invest in early stage founders building multiple layers of AI anywhere through energy and infrastructure all the way through to defense autonomy and chips. for us preede to seed stage companies anywhere where we can get and 5 to 8% ownership is now the new target with our existing fund. And yeah, happy to talk to any founders that's that are in the network. A.
A and I guess what's the one com what's the company in the portfolio that's I guess I don't even know if I want to ask this one like struggling and what did you miss in the pitch? Let's skip that one unless you want to answer it.
I'm fine to answer it if you want to answer. There's we've had two deaths.
We've had two deaths and both businesses I don't think they died to things that weren't present in the p pitch. Like I don't think they were detectable. It was more of like things that could have been diligenced out. So one was called dine and other was called light strike. light strike the CEO had a personal issue like nothing we can really do about that. It had nothing to do with the business and he had to step away and it really put the company in disarray. dine it was just younger guys who had never done it before and they made certain contracts that really hurt their cash flow and they could just never recover. they made it a long way invested or got a ton of investment but they just lost control of their cash flow.
A satellite company, a property platform and a lending tool sit you know in the same portfolio I guess. What's the thread in short? fund one was based upon opportunity at cost. it didn't matter what you were building as long as we could see scalability. And so, satellite company, infinite scale, the outer space is definitely not monetized to the degree that it can be at this point in time. a property platform, the property platform did a really good job of shaking up how property works in general and how real estate works in general. And so it gave an opportunity for individuals to tackle a big market and have success in it and a lending tool. that particular company serviced a significant need and that's one of the companies that actually moved to San Francisco that we we're confident.
Last one for you Marco and then just maybe tell people where they can learn more about the fund. Machines will soon I guess buy compute data and energy right from each other. Does that world need money that settles without a bank in the middle? let me rephrase that. I think it needs money that settles without a human in the loop. like whether a bank sits in the middle is mostly like a second order question.
Like today it's the part of the stack that gets the most attention and doing the less least amount of work.
Got it. Cool, man. Where do people learn more about you and the fun? And then, like I said, I'll land the plane after that one. Yeah, you can reach out to me at my email marcoeve weavevc.com if you ever need to inquire about the fund and or tell me about your business. weevc.com is our website although it it's under reconstruction because we're secretly building a new fund and so more context will be available there in October 15th and then you can reach me on LinkedIn. most popular stream today. This is my fifth interview, 40 people. Thank you so much all for tuning in live. appreciate all of you. And Marco, thank you so much. Hang out for one minute, Marco. I'm going to bring this to an end.
Sounds great. Thank you for having me.
Cheers.
