20VC: Mac the VC on the Journey from Homeless To Becoming A VC, What It Takes To Raise a Fund on Twitter, Why the Venture World is F***** Up and How Institutional LPs Need To Change

McKeever "Mac" Conwell II is the founder and managing partner of RareBreed Ventures, a pre-seed fund that invests outside of large tech ecosystems, with a concentrated portfolio approach being the first check with up to $250K. Mac's journey into venture is nothing short of inspirational, Mac went from being homeless to being an engineer to founding his own companies to today, raising Rarebreed largely on Twitter. In Today’s Episode with Mac the VC You Will Learn: 1.) How Mac went from being homeless to becoming an engineer and starting his own company? How did his time operating lead to his becoming a VC and building his Twitter brand? 2.) What are the biggest ways that venture is messed up today? Why does Mac believe it does not matter about getting into hot deals? Why does Mac believe that the brand of the VC that does your round does not matter? Does Mac see the leading venture brands investing outside SF and NYC? What elements of an investment compel them more than others? 3.) In the wake of the George Floyd event, who does Mac note did not say anything? How does Mac want to see diversity introduced at the institutional LP level? What does Mac believe institutional LPs care about? What can institutional LPs do structurally to allow themselves to invest in the next generation of emerging managers? 4.) Why does Mac not like AngelList Rolling Funds? How did he structure his fund in a creative way? How does Mac feel about the requirements for GP commits? How did Mac use Twitter very specifically to raise his fund? Which people went out of their way to help him? What were some of the biggest takeaways from those discussions? Item’s Mentioned In Today’s Episode with Mac the VC Mac’s Favourite Book: Why Should White Guys Have All the Fun?: How Reginald Lewis Created a Billion-Dollar Business Empire

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Harry Stebbings here for another week in 20 VC world and to our show today and when I put on Twitter, I was booking new shows. This guest was by far the most requested show by the Twittersphere. Hundreds of messages poured in requesting this guest. And so by popular demand, I'm thrilled to welcome Matt with VC. Matt is the founder and managing partner of Rare Breed VC, a pre-seed fund that invests outside of large tech ecosystems with a very concentrated portfolio approach, being the first check-in with up to a 250K cheque. Matt's journey into venture is very different to the usual Stanford, McKinsey, Bain, Goldman, and it's quite simply nothing short of inspirational and exceptional. Matt went from being homeless to being an engineer, to founding his own companies, to today raising Rare Breed largely on Twitter.

• 0:41Harry Stebbings?

  Such a fascinating and inspiring story and I'm so pleased to make this show happen with Matt today. But before we dive into the show today, Mercury is building full-stack banking for startups, applying in under 10 minutes from anywhere for FDIC insured bank accounts, physical and virtual debit cards, domestic and international wires, and integrations with Gusto, Stripe, QuickBooks, Plaid, basically every other tool your startup uses. They also offer unusual features like API access, custom team management, and their newly launched Mercury Treasury, a cash management product for high-growth startups. They'll even help you build your startup with Mercury Raise, a program to connect you to Silicon Valley's top investors. Head over to mercury.com/signup to apply today. And speaking of crucial infrastructure for your business with Mercury,

• 1:25Harry Stebbings?

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• 2:10Harry Stebbings?

  To manage my investments, the team and the platform at Angel List takes care of all my back office needs so that I can focus on working with great founders. Leading fund managers have made over 10,000 investments into 6,000 startups via Angel List, all online and all in one place. And with the recently announced Rolling Funds, you can easily find and invest in these top managers on angellist.com/rolling. But that is quite enough for me. So now I'm so excited to hand over to Matt the VC, founder and managing partner at Rare Breed VC.

• 2:43Speaker 01

  You have now arrived at your destination.

• 2:46Harry Stebbings?

  Matt, this is such a joy to do. I've wanted to do this for a long time, having been a bit of a fan of your Twitter. So huge pleasure and thank you so much for joining me today.

• 2:54Speaker 02

  Thank you for having me here, man. This is like a crazy moment for me to actually be on the 20 Minute VC Show. Like, it's truly an honor.

• 3:01Harry Stebbings?

  I mean, listen, it is great to have you here, but I want to start with a little bit of context because, you know, you've heard the show many times that, oh, I serendipitously fell into venture from being at Harvard Business School and Google, and it was just so surprising to me. It's not your background. So tell me, how did you make your way into venture and what was that entry point for you?

• 3:19Speaker 02

  Yeah, it's weird. Like, I was a software engineer and I was a government contractor for years, and then went on to be a two-time founder. But my second company wasn't a success, it was a failure. And so I had ended up working at a marketing firm for a year. That firm ended up getting a client I didn't agree with ethically, and so I quit. But when I quit, I didn't have any plans. And so I quit on a Friday and the very next Monday I get this email saying the investment arm for the state of Maryland is hiring. I'm like, okay, I don't have a college degree, I don't have a finance background, but I know startups and I know a lot of people in Baltimore. Let's go ahead and try this. Four and a half months later, they hired me. So I broke in.

• 3:55Harry Stebbings?

  I love that. Can I ask one thing? It's just like, you know, I've failed many times, you know, failed to get jobs when I was early. I got rejected by many venture firms, which not many people know, but we're gonna have an open conversation today. So this is gonna be a fun one. When you failed with the startup, how did you manage that? And how did you deal with that personally? It's such a tough time.

• 4:11Speaker 02

  I didn't deal with it well, right? I basically got burnt out, told my investors, hey, thanks, but no thanks. Here's what little money. We have left, you can all have it back. And I basically hid in my house for six months because I didn't want to see anybody or talk to anybody. And I was basically depressed because to fail in such a public way, when you got all these people and supporters around you, everybody's telling you how great you are, how smart you are, how you're going to be the next this, the next that, and then it doesn't work out. It felt terrible. Like, I spent all this time networking and being around people to like, not wanting to see anybody. I didn't want to have to explain what happened. I didn't want anybody asking like, how's your startup doing? And maybe think about it, did the smile of, ah, we're doing okay. And so I was just stuck in my house. Then something incredible happened.

• 4:55Speaker 02

  I recognized the people who truly cared about me and loved me didn't care. Whether or not I succeeded in that startup didn't change the way they thought about me or change how smart they thought I was, how much they respected me. Love and respect from your friends and your family members can truly be unconditional. And so when I looked up and everyone was like, eh, so what? Like, you've done all these other amazing things. You had one thing that didn't work out. Oh, boo hoo. Like, it's okay. You have a great skill set. If you need to, you can always get a job. Are you coming over for the holiday dinner? Because like, we, everybody wants to see you. It's like, but I failed and I lost these people's money and, you know, I thought all these things were going to happen. And nothing happened right now. And I was like, okay, so do something else. But let's go get, grab a drink, go to a bar and watch a game. Like, we miss you.

• 5:37Speaker 02

  And that helped me move forward and recognize like, whether or not I succeeded in a startup or a venture or anything, didn't dictate how the people around me felt about me. And so that was really liberating.

• 5:49Harry Stebbings?

  I spoke to a couple of your founders before the show, and they said that, you know, when it comes to the conversations they can have with you, they're a lot more real and honest than they are with other members of that cap table. What do you think it is that basically allows you to have that relationship of depth and intimacy with founders that maybe other investors don't have?

• 6:06Speaker 02

  I'm okay having any and every conversation with them because we're people. I remember as a founder, just like how hard it was, how lonely it could be. Like, yeah, I had a team, but as a CEO, I'm still lonely. The arguments me and my teams would get into after pitch competitions because I didn't talk enough about their background and then point them out enough. Like, you know, I remember these arguments and these issues and how hard it was. And then also like, when I got started, like, I was like a twenty four Year old black guy in Baltimore who's engineer who didn't know anything. I didn't know what startups were. I didn't know what VCs were. I didn't know what networking was. Like, the first time somebody told me I was networking, I thought they thought, I thought they were talking about me running wires. I was so confused. And it's a really vulnerable place when you're in an ecosystem like this and you don't know.

• 6:48Speaker 02

  And so for my founders, I want them to feel like they have somebody they can come to. And they can come to me for anything, right? Because we're all just human, right? So just the same way, like, a good friend of mine is gonna call me and tell me how him and his wife just had an argument. One of my founders can pick up the phone and call me and be like, yeah, you know, I'm having a hard time trying to juggle it all. We can have a conversation about it. I don't know, that's just wild.

• 7:10Harry Stebbings?

  No, I totally get you. A friend of mine always tells me, everyone is fighting a battle you know nothing about. And I always think back to that. I do want to ask you, so you know, you obviously go into the investment world. And then you decide, I'm gonna do rare breed. Talk to me about the decision to do rare breed. And what was the thinking behind raising a fund on Twitter, Matt?

• 7:26Speaker 02

  So I think there's one thing, for for context, there's one thing I should point out is that my career adventure has been sparked by the killings of two black men here in America, right? So when I mentioned that I quit the marketing firm, it was because Philando Castillo, which was a black man here in America, who was driving around with a legal firearm and told a police officer beforehand that he had a firearm in his car, was shot and killed by that police officer. And that was the same week my organization started soliciting the National Rifle Association for a contract, which has a history of not supporting black gun owners. And that's my, I quit my job and end up seeing that email where I apply for the investment market in Maryland and breaking the venture.

• 8:07Speaker 02

  And that's in 2016. Fast forward to 2020, I had been thinking about a structural fund or wanting to start my own fund for like a year and a half, almost two years. And then the killing of George Floyd happens. That was around the same time I started tweeting more and like the Twitter thing started happening. And I had met a founder in Dallas, Texas, a gentleman by the name of Roberto, who runs a company called Robo Amp, doing some really incredible things, but nobody wanted to support him because he was a Latin guy in Texas. And so I decided like, okay, like, I'm gonna put SPV together and I'm gonna invest in this one guy and I'm gonna support him. Because I couldn't do anything else. I was Stay employed and as I started putting SPV, one of my mentors, somebody I respected missly said, hey, man, I don't want to invest in this company. I want to invest in every company you ever find. So here's 250,000. Go raise a fund.

• 8:52Speaker 02

  I'm like, I don't want to raise a fund. It's a pandemic. Things are crazy. You know, life is wild. And he's like, no, you should do that. And there's a moment in time where people are looking for managers like you. And I was like, great. And so I was like, I'm going to raise this fund. And I started going through my network and I got the 400K. And I was like, well, 400K is a far cry from 10 billion. What do I do? Well, I didn't know what to do, but at the time I started tweeting consistently and I noticed other VCs were following me. And so I was like, okay, whenever I see a VC, follow me on Twitter. I'm gonna send them a DM and ask them for a meeting because I need to learn how to raise a fund. As I started doing that, I started having these conversations where these other GPs would be like, well, I really like your strategy. I like the way you're thinking about what's your minimum. And I wasn't prepared for that. I'm like, well, my minimum is 10K.

• 9:35Speaker 02

  And you know, trying to meet some folks like this conversation is not about that, but you know, if you know anybody who'd be interested. And one of the first people to say they would be interested, I don't think she knows this, is Elizabeth Yen from HustleFud. And that gave me the spark of like, oh, GPs will back other GPs. I can do this. And so I just doubled down the strategy of staying on Twitter between the middle of June 2020 to September 2020. I had over 1100 meetings, which allowed me to soft circle my first 2 million and kind of gave me the confidence to quit my job and really go do this day.

• 10:06Harry Stebbings?

  I mean, I absolutely love that. There's a couple of points I have to unpack there. On the DM strategy, I love it. How many responded? How many didn't? Like, what was the ratio? And were there certain people who went out of their way to really help?

• 10:17Speaker 02

  It was like 70, 75% because in the end of the day, in the world of venture, we're all happy to meet each other because everybody's looking for deal flow. If you see a name, Mac the VC, you assume I'm an investor, so you'll try to take that meeting. So that worked out. People who reached out, like Elizabeth was really helpful. Nir from Strug Capital was really helpful. Marlon Nichols from Mac Ventures, that dude has been great. Low Tony at Plexo has been amazing. Hunter Walk, early on, you know, really helps. Jason from Saster, he was the first guy who like really looked at my deck and beat it up and was honest with me about it. Like, I don't know if he understands like how impactful that was in my journey. There's a lot of people helped.

• 10:54Harry Stebbings?

  Do you think the traditional fundraising process is fucked up? Are you raising a fund so successfully on Twitter? Do you think it's like, why do we do it the way we do?

• 11:02Speaker 02

  A hundred percent, but that's how I feel about half the stuff in venture. One of the things that happened for me as I was raising my fund was I had this career and I had learned all this stuff. I had gone through these trainings. I've read these books. It was like ventures done in this like specific way and like this is all the rules. And then I started raising my fund. I was like, I don't care about any of these rules. Like fuck the rules. Like these are all just legal structures. They can be changed. So like most people, they close. They say you should have like thirty or forty percent of your fund closed for your first close. My first close was at ten percent, right? People like, you know, you should only have this many closes. No, I do a rolling close every three weeks. Like I bring my LPs in batches. Like I want to access the capital so I can start deploying. I wanted to build up some momentum. You need to do traditional capital calls because you don't want to mess up your IRR.

• 11:47Speaker 02

  No, I gave my LPs three options. You can do a hundred percent upfront, fifty percent each year over two years, or thirty-three percent over each year over three years, with the minimum being ten K per year. So if you gave me a ten K check, you gave a hundred percent upfront. And it's like, I'm just gonna hold the money in escrow and get it when I need it. I'm not chasing anybody down for ten K checks. And that was actually inspired from the way five hundred startups of their fund won, where there's fifty percent upfront and twenty-five percent each year over the next two years. As I was building the structure and putting it together, like I don't care about any of these rules. I'm gonna do what I think is best for me to manage this fund as somebody who was a broke VC, right? Like when I started raising the fund, most people don't know this, I'm broke. I was sitting at home just raising a fund.

• 12:26Harry Stebbings?

  How did you afford legal fees? Cause this is the other thing that frustrates me. It's like, one is legal fees are expensive and two, GP commits, it's a lot of money.

• 12:34Speaker 02

  So remember when I said fuck the rules? So I have no GP commit. I didn't have the money for it. I wasn't even an accredited investor when I started raising my fund. Legal, remember now, like I'm getting popular on Twitter. I'm tweeting a lot. My lawyer actually found me on Twitter and chased me down, said, what I gotta do to be your lawyer? He's never charged me. He's been my lawyer for over a year. He's never sent me a bill. I'm like, yo, I love you, brother. You can send me a bill now. Like we've raised some of this money. I could pay you. He's like, no, no, no, no, we'll get to it one day. So like, it's just all kind of fell together for me.

• 13:02Harry Stebbings?

  Man, I love that. Carlos, you said that like one of many things seem to be fucked up. What else do you think is fucked up in venture?

• 13:08Speaker 02

  It's this idea, like if you talk to a lot of older school VCs, they tell you. Especially as an emerging manager, like you need to become friends with folks at Sequoia or First Round and see if they'll let you onto these cap tables. And I'm like, so you mean to tell me the only way I'm ever going to be able to do a good deal is if I'm friends with these top tier funds, because only the top tier funds seek good deals. So that means you meant to tell me fundamentally, if I don't work in a big fund, I don't have the ability to get into or find a good deal. And really, but they're not talking about good deals, they're talking about hot deals. I don't give a fuck about a hot deal. Hot deals don't mean anything. The deals that matter are deals that return capital. And every hot deal, we know doesn't return capital. So why are you telling me to use a mediocre strategy? Doesn't make sense to me. You're trying to tell me I don't have the ability to pick a good company? I'm a pre-seed investor.

• 13:52Speaker 02

  I give companies their first checks. So I gotta be good at this. Like, if you can't see that already, and this is the advice you're giving me, you don't understand what I'm doing. I just think that's so stupid. How stupid is that? The LPs actually think that means anything? Like, a hot deal does not mean a good deal, right? Why does it matter who was the follow-on investor? If some no-name private equity firm ends up leading a series E somewhere, does a SPAC, and my company exits, is that not as good as somebody, as a company that got Sequoia money and exited? No. At the end of the day, we're just here about returns. So why are you qualifying my returns based on somebody else's previous success? Stupid.

• 14:27Harry Stebbings?

  And listen, I'm totally with you on the hot deals not always being good deals. What else is fucked up? I'm too interested, man. This is great.

• 14:33Speaker 02

  We talk about diversity in venture, right? And everybody saw after the killing of George Floyd, there was all this conversation around, you know, we're going to invest in minority founders, we're going to invest in black founders, we're going to invest in black GPs. All this stuff came out. But I always tell people, when you go back to that time period, you look at it, pay attention who didn't say anything. Institutional LPs. Name one pension fund that said anything. The first people to say something was really Yale, like five, six months later. And even then, nobody else said anything, because they don't have to say anything, because nobody knows who they are. So if you're going to talk to me about diversity, let's talk about the top of the food chain in this industry. They didn't say anything. I don't know how much they actually care about diversity. I know what they do care about. They care about good returns. That's what I'll focus on. And if it just so happens that 77% of my portfolio are underrepresented founders,

• 15:18Speaker 02

  just happened that way. At the end of the day, I'm a unicorn hunter, so I'm looking for. Returns all day, every day. But if you want to talk to me about diversity, let's start at the top.

• 15:25Harry Stebbings?

  So what needs to change is the investment committees and the decision makers at institutions like pension funds, like corporates.

• 15:32Speaker 02

  A lot of that stuff needs to change. And then also, there needs to be more allocators along the asset class, right? Because when you think about it, if you're going to raise a fund and you're a first time GP, you're raising, say, a $10 million fund. Those institutional LPs can't even write a check small enough to invest in your fund. Even if a large institution comes out and says they want to be about diversity, well, most of us diverse emerging managers are raising micro funds. And they can't write checks that small. So it's like, what can you do to support us? You probably should have a fund to fund divisions just for emerging managers that write smaller checks. Like, if you're an LP, you'll have the ability to write a one, somewhere between like a one to five million dollar check. And you might miss out on some things, right? Like, you're just hoping that when I get the fund three or fund four, if I'm doing really well,

• 16:13Speaker 02

  that you'll get a chance to get allocation, or you're going to have some consultant who's going to meet me at a conference, who's going to then tell you that I'm great and that's how I'm going to get in front of you. Like, I get it, right? Like, the deal flows crazy on the LP side, just like it is on our side. But there needs to be more creativity around how we get money to emerge management. And look at folks like Insight Partners or Alpaca VC or Plexo Capital, where they're doing these type of checks. And because of what happened with George Floyd, you know, Insight and Alpaca did these diversity initiatives, where me and some of my peers got funding at stages where we normally wouldn't be talking to folks like that. And that's great for us emerging diverse GPs, but why don't we just have that ecosystem overall for all emerging GPs, right? I think it's a smart strategy. I think the bigger thing is, don't do diversity for diversity's sake.

• 16:58Speaker 02

  I know several diverse individuals who got those associate roles, who aren't being valued at their firm. Trust me, I get as an associate, a job can suck sometimes. It can be thankless, you're doing a lot of work. You're not investing in stuff that you always like because your job is to get stuff to the partnership, not really just because you like it. I've seen some folks have to go through hoops and do extra work and go above and beyond what their counterparts have to do because people are making the argument that they're new to venture. But you hired them because you thought they were qualified. They've been there for over a year. You haven't done a single deal of theirs? I had one of these associates, they've sourced three deals for me. I've had another one sourced too.

• 17:36Speaker 02

  And I know they're good deals, follow up funding showing they're good deals. So why don't their firms appreciate the deals they're bringing up? You gotta question something when things like that happen.

• 17:46Harry Stebbings?

  I totally get you. Rare Breed, Rare Breed one, what is that? You know, you've listened to the show, you know, I love kind of portfolio construction. What does that look like for you? You've got 10 million for the fund. How do you want to allocate this? How diverse in terms of, you know, concentration? How do you think about check size?

• 18:02Speaker 02

  So checks are 250 to 100. Really, the strategy was really doing just 250K checks. Cause really my strategy is around doing larger checks at pre-seed. And when people ask me about ownership, I tell them it's not so much about ownership as it is about multiples. What we know is you get the highest multiples at pre- C to C. And then every round after that, the multiples go down. So you need to put larger dollar amounts to get higher returns. So really what we're trying to do is put in the largest check reasonable as early as possible. So that we have the potential to get a large enough return to return the fund in every investment we do. Really, we're going to do somewhere between like 40 to 45 companies. You know, I'm trying to be the next lowercase. So we'll see how those returns come out.

• 18:39Harry Stebbings?

  And so, so 40 to 45 with no reserve strategy?

• 18:42Speaker 02

  No, no. So we're going to do somewhere in the neighborhood of like six to 10 follow-on. But mostly most first checks and we'll also do a few off thesis investments. You know, we got about 5% of the fund allocated for off thesis. And I'll tell you, it's funny, I have a pre-seed fund. I invest super early. Well, it just so happens that we got to be a small check in the second round of Main Street. For those who don't know, Main Street's second round was a $60 million round. I got to put 100K check on that round. Do you not know that is the deal that gets most LPs excited? It's not even my strategy. It's just the fact that for me, it's all about quality of deal. And so if it's a quality deal, I need to take a look at it. And Main Street was amazing. Yeah, the strategy is some off thesis things for like really opportunistic quality investments.

• 19:27Speaker 02

  But mostly it's companies outside major tech hubs, outside Silicon Valley, New York and Massachusetts, North America, South America and the UK. For these founders that are just typically overlooked and sometimes founders that aren't overlooked, but just building great companies. People ask me sometimes, what makes Rare Breed different? Pretty unique. I was like, we invest in everybody. Like, the idea that I could say that's even incredible. That's a differentiator, but like, I invest in everybody. Doesn't matter. One of my top performing companies right now is a company based out of Memphis, Tennessee called beautybyme.io. With a founder who changes his nail color three times a day and go plays basketball after work every day. He's incredible. Charles is incredible. The company he's building might, it's going to truly revolutionize the beauty industry in ways that I don't even think he understands. And he's just in Memphis, Tennessee, trying to figure it out.

• 20:09Harry Stebbings?

  You know, when you had Grab Reed in your mind and you were thinking about what it would be like, what's the biggest challenges and what been the biggest surprises?

• 20:17Speaker 02

  The biggest challenge was getting over my feelings of being inadequate. I don't have a college degree. I don't have a finance background. You know, I got into this in really unconventional way. For a long time, I was concerned about whether or not I could do this or if people were going to respect me or if people were going to care about my firm and I could get follow on funding for my companies. That was just me inside my own head. The other thing that was a challenge was like finding LPs. Like, I didn't have a network of LPs. So like, thank you Twitter and thank you 506C. Like, if not for 506C and my ability to publicly solicit, like, I don't know if this happens. And I think the last thing was, I mentioned being a broke VC. I figured that if you gave me 24 months and I could talk to enough people, I could figure out a way to raise 10 million. Like, give me enough time, I'll figure it out.

• 21:00Speaker 02

  But one of the issues that held me back early on was I didn't have the money to do the traveling to raise a fund. COVID being what it was and everybody being stuck in the house actually helped me. I'd had all my meetings over Zoom. I didn't have any in-person meetings, so I didn't have to travel. So I got to save that money. If it wasn't for that, I actually wouldn't have had the money just to go to like meetings in New York every other week or fly across the country to go meet with, like, I didn't have that. And so I got lucky.

• 21:25Harry Stebbings?

  Can I ask, on the feelings of inadequacy side, I've had a team, I, but my question to you is, what helped you get over that? Was it the Twitter accreditation? Was it the support from GPs? What allowed you to break that barrier?

• 21:35Speaker 02

  It was a little bit of all that, you know, the Twitter thing was very reassuring. Meeting with other GPs and, you know, talking, shopping, realizing like I can go toe to toe with everybody here. But I also think in August 2019, I went through 500 startups VC unlock program. It's based in Stanford and it's basically You know, for two weeks, you and a bunch of peers are learning from these Stanford professors about venture. While I was there, I recognized very early on, like, I knew most of this stuff. I could do all of this. I'm having conversations with these professors far beyond what we're doing in the class. And one of the professors, Trevor, pulled me to the side one day. He's like, man, you can do this. He's like, you're as good, you can do this as well as I can. You know all this material. If you want to raise a fund, I don't understand why you haven't already.

• 22:18Speaker 02

  That validation in those moments was so impactful. Having somebody who I look up to and respect and so already been in venture for years, being like, yeah, you can do this. And being in these classrooms and like, oh yeah, I understand all these concepts. It reminded me of the time I actually went back to school. Like, there was a time I went back to school and I went to Strayer University, you know, online college. And I took a database administration course. I was like, everybody in the class is like, I'm taking this class because one day I want to be a DBA. And they got to me like, I'm a DBA trying to finish school. And I'm just sitting in the class like, I could have taught this class. Yeah, I'm not doing this college thing again. It was just like the same kind of moment again. And so that was really helpful. Yeah, that's how I got over it.

• 22:55Harry Stebbings?

  Can I ask you one? And again, imposter syndrome to being more successful as you are now. Do you ever worry that kind of, you can kind of believe the hype and actually this grit that you have in the early days and that I'm going to make this work? And it's just hell, fire, whatever it is, nothing is going to stop me. You can almost become a little bit lethargic with success.

• 23:15Speaker 02

  Yeah, but I think I've had enough failures in my life to know I need to stay grounded. Like even now, my portfolio is doing well. You know, we've gotten several early markups. And everybody's like, oh, this is amazing. This fund is going to be great. And I'm like, eh. Until we get returns, none of this matters, right? Like, this all looks good on paper, but like, what matters is returns. And so it could look good today, it could look good for the next three years, and it could all bottom out after that. And keeping that perspective and always reminding, you know, my team and the folks helping me helps me stay level. Because it is easy to get caught up in the hype. When I was working for the investment arm for the state of Maryland, we started this pre-seed fund for underrepresented founders. And they got all this hype and everybody's excited, like, oh, you're doing these amazing things. The first three companies we invested in went straight to zero.

• 23:57Speaker 02

  Like, my first three, straight to zero. The next six, all still live. The day, three of them are in my current portfolio. But that was a humbling experience. Like, ah, we could do this. We know what we're doing. We're going to chase the game. We're going to do this amazing thing. First three, zeros, right off the bat. You can't start off any worse than that. Like, you can only go up from there.

• 24:17Harry Stebbings?

  But I do want to ask you, I said about the challenge that, what about the biggest surprise?

• 24:21Speaker 02

  The biggest surprise has been Twitter. I've been on Twitter since 2010. Last June, I had 2,500 followers, right? Like 10 years, 2,500 people. I went from 2,500, I think I just crossed 50,000 like yesterday. And it's been surreal. Having done the Twitter thing and interacting with so many folks over a short amount of time, I would have folks I've been meeting with telling me how all these people in their firm are talking about me. I'm like, but you work at like a top tier firm. How did they even know who I am? Why do people care what I have to say? I've gotten on calls and like, I've had people like burst into tears because they're meeting me. You probably have, you probably had some of this before. It's like, I'm just another emerging manager trying to do good work.

• 25:01Speaker 02

  Like, I ain't special. I ain't a celebrity, nothing like that. That's been kind of, and then, you know, because of that, I've now gotten to have a podcast with Inside. I've had like four or five different people reach out to me about doing TV shows. It's just like, just because I got people to listen to me on Twitter, like my whole life is changing. That was like a crazy surprise.

• 25:20Harry Stebbings?

  I do want to ask you, you know, we spoke about rare breed and the, the structure and the strategy. A lot of people are talking about rolling funds. Like, how do you feel about the rise of rolling funds? And why did you decide not to do a rolling fund?

• 25:31Speaker 02

  I think rolling funds are another sign of the lack of innovation in our industry. Like, Angels List took something that had been around before that people weren't really using. They took a designation of 5060, which had been around since 2013, that nobody was really using and kind of pushed it together and made a product to help emerging managers or give another structure for fundraising. It's like, everybody's like, oh my God, this is so world changing. It's like, well, should we be doing stuff like this on the regular? Should we be thinking about how to come up with stuff like this often? If this is the biggest innovation we can point to, that's sad, right? But then the other thing for me was, I looked at rolling funds. I thought they were really interesting. They would allow me to take advantage of like growing Twitter following and such, but. I didn't like about rolling funds with the way they do LP returns.

• 26:14Speaker 02

  Like LPs have to continuously buy in the quarters to make sure they get allocation to the companies you invest in. So if you're not an LP in the specific quarter, and that's the quarter I make my best investment in, but you're an LP in the quarter before or the quarter after, you don't get access to that deal or to those returns. And I knew for me that a lot of my earliest LPs were just going to be people who truly supported me and cared about me. And some of them were going to be writing small checks. So if you write me a small 10K check and you can only spread that across four quarters, then that means if I make a really good investment in quarter five or beyond, you don't get access to that. But in a traditional fund, you get access to every deal I do over the life of that fund. I needed to make sure I was going to be equitable to all my LPs. And I couldn't put them on the wheel of like, well, you gave me 10K for these first four quarters.

• 26:59Speaker 02

  If you want to get into the next deal, you gotta put up another 10K. Like, I didn't want to do that to folks. And but I did still want all the advantages. And so I created a fund, this traditional fund. We use 506C so I could publicly solicit. We work with Carter's, our backend. Carter told us they were partnering with a company called Andwin Transactions, which turns your subdocs into a guided web form. And so we made a website that had a button that says, click here to become an LP. And if you do, and tell me you're accredited, you get access to my subdocs. It's that easy. Go to our website, click a button, you get to our subdocs, you can sign up being an LP. I've had quite a few LPs sign up to be LPs without ever talking to me. And so I have to like double back and talk to them after the fact. And then I told Carter, I was like, look, I want access to capital. Kind of like how rolling funds do, they give you that first quarter as you go.

• 27:43Speaker 02

  I was like, I'm gonna do a rolling close every three weeks. So as our LPs come in, I just want you to close on them. I actually wanted to do it every week. And they were like, can you give us a better cadence, like every three weeks? I was like, sure, we can do that. Quite quickly, I had a traditional fund that gave me all the advantages of a rolling fund, without any of the disadvantages. Because all the disadvantages were structural, all the advantages were all like technological, so just run with it.

• 28:02Harry Stebbings?

  We spoke about the kind of structural lessons there, how you did that. Love that, actually. And I'm totally with you. I think the biggest mistake people make is they don't take LP cash off the table and they leave it for too long. And then people forget about it and say, ah, I actually allocated it elsewhere. And you know, you lose some then. You know, you've had a lot, from the challenges to the surprises to the lessons on the structure. When you think about advising managers today. What do you know now that you wish you had known when you were at Maryland? When you were starting Rabreed in the first day? What's the, oh, I wish I had known this when I started?

• 28:32Speaker 02

  Fundraising is going to be one of the hardest things you ever have to do. Everybody's going to tell you that and it's going to be harder than that. So just know that going in. Understand that all the strategies and advice you're getting, it's all great. But you don't have to follow any of it. You don't have to do any of it. You can create your own structures, like the same way. I decided I was going to change the way I was going to do my fundraising and my structure. You can do the same thing. You don't have to follow these traditional rules that everybody says we have to do. You can be innovative. You can be innovative with your fund. You can be innovative with your structure. I mean, you could look at somebody like Will Zell from Zell Capital. He created an access fund. He worked with the S E C to create a fund where you could publicly solicit. And you can take as many L P s as you want, like from anybody, including retail investors. I mean, that's innovative, like Will's doing some crazy stuff.

• 29:15Speaker 02

  You can put in the work to kind of structure a fund the way you want it to be. You don't have to follow all these antiquated notions and advice that you get. So be bold, be very bold.

• 29:25Harry Stebbings?

  Be very bold. What do you want to build with Rabreed? Like, if we do this show in 10 years' time, what is Rabreed?

• 29:30Speaker 02

  So I love this question because I'm going to build the next N E A, the next Greenspring Associates, the next top tier firm. And I use those two firms very specifically because what I don't think many people recognize is both of those are Baltimore-based firms. Two of the three founders of N E A are from Baltimore. That used to have originally N E As in Maryland-based firm. One of the founders of Greenspring is the son of one of the founders of N E A. And those are people who are my mentors, my advisors, the folks who will help me in my career. And so I am built on the shoulder of giants. You're going to look up 10 years from now and we're going to be building the next top-tier multi-stage firm based out of Baltimore. And that's what it's going to be.

• 30:06Harry Stebbings?

  Final one before the quick find. It's like every firm says, what is it? You know, entrepreneurship is unevenly distributed and amazing people come from anywhere and all of this. Do you find that's the case when you look at follow-on funding and you give it to your top-tier Series A's, B's, C's? Do you find that actually they are fully embracing Maryland, Texas? You name your, I don't know America very well.

• 30:29Speaker 02

  It's okay.

• 30:30Harry Stebbings?

  Middle America. Or are they like? It's not in New York or not for us.

• 30:35Speaker 02

  They care about money. So if you have strong enough metrics, they find a way to get over themselves, no matter where you're from. And that's why I tell my founders, like, hey, there may be biases against you. People may say if you don't live close enough to us, or if you're dying in New York or Silicon Valley, you can't find top tier talent. But if you're growing by forty percent month over month, and you got strong margins and the business looks like it's unstoppable, you'll get a check from somebody somewhere. So if you focus on that, everything will be all right. And that way, I don't have to think about what the series eight folks are doing. As long as I help my company be as strong and grow as fast as they can, it'll happen.

• 31:08Harry Stebbings?

  Yeah, I'd I'd take forty percent month on month. That'd work work for me. Thanks, Manic.

• 31:13Speaker 02

  Absolutely.

• 31:14Harry Stebbings?

  I do want to move into my favorite, as you know, the quick fire. So I'm going to say a short statement. You hit me with your thoughts. Sound good?

• 31:19Speaker 02

  Sounds good.

• 31:20Harry Stebbings?

  Okay, so you've listened to the show before. What's the favorite book and why?

• 31:23Speaker 02

  Favorite book and why? Why should white guys have all the fun? Because Reginald Lewis being a black man from Baltimore who created a private equity firm and was a billionaire is somebody who I look up to and respect. And just last, earlier this week, I got to speak at the Harvard Club where he was a member. And it was like a full circle moment to be in the same hallways that he walked and where he celebrated his wins. And even more cooler than that was afterwards, I tweeted about it. And his daughter posted about it on Instagram, which is like kind of surreal for me. So why should white guys have all the fun? Because Reginald Lewis was a pioneer.

• 31:56Harry Stebbings?

  Tell me, when shit hits the fan, how do you deal with it?

• 32:00Speaker 02

  When shit hits the fan, I call up my friends, tell them we should go to Buffalo Wild Wings and go have a drink and have a beer or two and some spicy hot wings, talk to my friends, vent about it, go back and answer some emails.

• 32:11Harry Stebbings?

  I think it's a lot cheaper than my therapist.

• 32:16Harry Stebbings?

  Tell me, what's the hardest element of your role with Rare Breed today?

• 32:19Speaker 02

  The hardest element of my role at Rare Breed today is figuring out how to be present for my family. This job is so all consuming. And once you decide you're going to start a firm, you're basically making a twenty year commitment, right? Fund one's ten years. Two, three years later, you're going to raise fund two. That's another ten years. Two to three years after that, you're going to raise fund three. You're now seventeen years in that you're dedicated. And it's a hard job. It takes a lot of time and a lot of effort. And so it makes it hard to be present at home when you have a family, you have a significant other, when you have children, trying to make sure I give them the highest quality of time, because I know I can't give them the quantity of time. That's been a struggle.

• 32:56Harry Stebbings?

  What would you most like to change about the world of venture? There's many things, I'm sure, but what would you most?

• 33:01Speaker 02

  I want venture to be more diverse on the LP side, the GP side, all the way through. And I would love for ventures to give founders, especially first time founders and diverse founders, more grace for not knowing every little thing about this industry. Like if a founder gives you an NDA, don't go crazy on them. Don't end the meeting. Use it as a teachable moment to explain to them like, why we don't do that. So many VCs don't take just the simplest five minutes to explain why they don't sign NDA. Things like that. I wish we would be more thoughtful about being people.

• 33:32Harry Stebbings?

  Penultimate one, you can have a billboard anywhere in the world and it can say anything on it. What do you want on that billboard and where is it?

• 33:39Speaker 02

  It's probably in New York City somewhere because where most people are going to see it. And it's going to say, wear a mask, get vaccinated, let's all do this together. Cause I miss going to bars and clubs and happy hours and everything else I love to do with my friends and family. So let's all work together so we can get back to a normal. I'm tired of saying new normal. I just want to go back to normal.

• 34:00Harry Stebbings?

  But I do one final one and it's as you know, what's the most recent publicly announced investment? And why did you say yes and get so excited?

• 34:07Speaker 02

  Most recently publicly announced investment was an investment in a company called Unspun out of Oakland. If you go to their website, it shows that they make custom jeans. They have an app to scan your body, get jeans that made to fit. And what they're actually building is in the background is they have a hardware component that takes the information from the app of your sizing and basically 3D prints your clothes. And one piece with zero waste. When I first met the founders, they were just incredible people who were truly passionate about this. And they were building a tool that could revolutionize manufacturing all across the globe. And then they had a letter of support from like the head of design from Levi's saying, my job is to figure out how to make the best jeans and they do better than me. Nothing up, okay, I'm in. Like that works for me, right?

• 34:50Speaker 02

  This is a combination of the amazing people, the ambitious goal, and then the support they had behind them. And I should also say that company was sourced by my venture partner, Jonathan Croll. Shout out Jonathan, you know, he was truly bullish on this company and wanted to get it done. And so we were going to do it regardless because you know, if somebody on my team truly believes that strongly, then I believe in conviction. If you have that strong enough conviction, I'll ride with you every time. But he was right. He was so right. They're such a great team.

• 35:16Harry Stebbings?

  Listen, Max, as I said, I'm so pleased that we connected over Twitter. I'm so pleased that we got to do this show. So thank you so much for joining me today. This has been a lot of fun.

• 35:24Speaker 02

  Thank you for having me, Harry. I really appreciate it. Again, like, I can't believe I'm here. I'm on the show. Like, mama, I made it. I'm on 20 Minute VC.

• 35:34Harry Stebbings?

  Such a fun episode to do there with Max and can't wait to see all that he builds with Raab Read. If you'd like to see more from us behind the scenes, of course you can on the 20minetc.com. I always love to see you there. But before we leave you today, Mercury is building full stack banking for startups, applying in under 10 minutes from anywhere for FDIC insured bank accounts, physical and virtual debit cards, domestic and international wires, and integrations with Gusto, Stripe, QuickBooks, Plaid, basically every other tool your startup uses. They also offer unusual features like API access, custom team management, and their newly launched Mercury Treasury, a cash management product for high-growth startups. They'll even help you build your startup with Mercury Raise, a program to connect you to Silicon Valley's top investors. Head over to mercury.com/signup to apply today.

• 36:18Harry Stebbings?

  And speaking of crucial infrastructure for your business with Mercury, do you want to spend less time vying for tech talent and more time building world-class products? Well, that's when my friends at Terminal come in. Terminal helps fast-growing tech companies rapidly scale engineering teams so you can focus on innovating. They do this by providing you with a pipeline, pre-vetted global remote talent, currently 90,000 and growing, and a remote management platform that handles all localized admin, legal, and HR support, so you don't take on the legal risks and operational headaches. To date, Terminal has hired hundreds of developers based in Canada and Latin America that are fully remote, full-time employees at high-growth companies like Gusto, Chime, Earnin, and Hims. To learn more about how you can scale your engineering talent today, go to terminal.io.

• 37:01Harry Stebbings?

  And last but by no means least, I have to say I just love using AngelList's fund admin platform to manage my investments. The team and the platform with AngelList takes care of all my back office needs so that I can focus on working with great founders. Leading fund managers have made over 10,000 investments into 6,000 startups via AngelList, all online and all in one place. And with the recently announced Rolling Funds, you can easily find and invest in these top managers on angellist.com/rolling. As always, I so appreciate all your support and I can't wait to bring you the first ever completely unscripted, unscheduled episode on Thursday. It's a very special one with Ryan Dannhe at electric.ai.