Welcome to see to scale. We're for investors with backgrounds as Founders who met at the engineering school at the University of Pennsylvania. Timmy on the hall metha had Lee Harris fixing we certain unique in 2009 with more than 80 years of combined experience building our own companies. We now lead seed rounds and bold Founders who use code to create transformational companies starting a company from the ground up is really hard in this podcast will be having conversations with some of the most interesting Founders investors and influencers about the ins and outs of building an early stage company. We talk about it all funding growth and everything. It takes to build a lasting business. Hi, everybody, its nahal co-founder of eniac today. We have the one and only Josh kopelman in the house the first 24 months of a company's life or magical Josh has been a mentor from afar it certainly an inspiration to everybody I'd say in the seed stage from you know, the investor ecosystem as well as the founder ecosystem as many of you know, he's he's the co-founder first round capital. I would say probably the first seed stage fund probably put C it on the map since 2004 first round is invested in over 250 companies with many unicorns including Uber blue apron or be Parker appnexus Square flat iron health and ring and many more to come Josh also is a fellow Alum of University of Pennsylvania. And after college Josh founded a company called half.com that was acquired by eBay and then obviously went on to start first round Capital. So we're really honored to have you on the show today Josh. Thank you for taking the time. Thanks for having me. Dots connect backwards, but maybe just talk about some of your experiences that inspired you to be where you are today. Sure, so I'd say that it really is a journey of Entrepreneurship. I was fortunate enough to go to Penn at a great time. So I got into Penn in 1989 and graduated in 1993. And what's really interesting about that is in 1989. The web browser did not exist and in 1993 it did so when you get to pain no one had email addresses and I was one of the first people that weren't to get an email address undergrad and so that was a special time because I find that when disruptive platforms come out. They provide a real leveling between what I would say the veterans and the pros, you know, there are people that have been the software industry for 20 years while I was in school. But by the time I graduated because I totally geeked out on the internet, you know, I had three years of experience on the internet and it was just as much experience as the veterans did so the gap between the pro and the rookie was really narrow. I mean, I think we see that right now with So currency for example, right they you know, you have people who have been trading cryptocurrencies for two or three years and they probably have just as much if not more experience than the derivative Traders at Goldman Sachs. It's a really special time that's not going to last and but what I found was that at that time it really helped Propel me into the internet industry before half.com. I co-founded a company called in Fanatics, which was one of the first online search engines targeted at kids and that company went public in 90. X and then I left there to start half.com which eBay Acquired and then I even helped start a help found a third company an anti-spam router company called Turn tide which semantic Acquired and and I've been doing a bunch of Angel Investing after my first company and I saw something really interesting my first company of Fanatics took five million to get the first product ship my second company half.com took two and a half million to get to First. Addict ship and my third Company the anti-spam company turned tight took that 750,000. So the cost to start these companies have come down by an order of magnitude. Whereas during that same period of time the average Venture from tripled in size. So, you know, I saw 30X Gap in the Market at 10x increase in capital efficiency and a 3X increase in Venture seeking out capital in efficiency, and that's kind of what led to the creation of first round. Early days it was you and Howard and Chris and how did you guys all meet and and coalesce and and decide to launch? The firm Howard was actually the first angel investor in my first company and Fanatics. So he was sort of the first person that ever really believed in me and in the ideas that I was an MI startups, and he you know Howard had been Angel Investing in Venture Investing For For a decade decades before starting first round and then shortly after Howard and I got it started Chris fralick and Rob has joined and I'd known Chris for years. Chris was my first executive higher at half.com and Rob I had known through Angel Investing and we all shared a similar alignment similar perspective that there is a real opportunity to build a product a venture product that's targeted towards the seed stage the first 24 months of a company's life for Magical you hunt for so much you're hunting for for your first team for product Market fit, you're figuring out pricing and distribution and go to market you're figuring out your culture all of that gets done in the first 24 months and I think what the four of us all shared and what my current Partners Fin and Bill and Haley and Brett also share is just a real excitement and enthusiasm about Rising the privilege of working with entrepreneurs at that special stage, what's magical about Philadelphia to you so so first round has offices in Philly New York and San Francisco, right? We have about 20 people in San Francisco then our next largest office News New York, but Philly is where I want to live and that's what's magical about it. I think it's a great place for me to raise a family. It's where my family wants to be, you know, and it's also where I started all my prior companies, right? So Fanatics half.com and turn tied the anti-spam company. We're all philadelphia-based companies and I find that actually sometimes being outside the echo chamber of Silicon Valley could be really helpful to me at least in forcing me to think slow and giving me opportunities to be with be alone with my thoughts as opposed to just bouncing from meeting to meeting as I do when I visit my my San Francisco office. There's a A lot of headlines recently that there is real sizable. Companies being built outside of Silicon Valley. What are your thoughts? Is this a trend that's going to continue outside of the valley and how are you guys kind of capitalizing on that? Sure. So a few thoughts like the first thing is I want to be very like Philadelphia has a great Chinatown. I go down there for Chinese food often. It's fun, but but I don't think that you know the head of the Philadelphia Chinatown Association gets together. Calls a membership meeting trying to figure out how do I compete with China? And I want to be cognizant of the fact that Silicon Valley still magical place is still a special place. It has such a gravitational pull for talent and for experienced talent that despite the fact the first round invests Nationwide 70% of our investments are still in California that said it's never been easier to start a company outside of the valley. We find that sort of you know as more and more information. Is available online what used to be passed down through apprenticeship is now being passed down online for a lot of skills and a lot of jobs whether it's things like our first drive review or Y combinator's Hacker News or a number of online communities just the ability to learn about entrepreneurship or any role in a start-up is far more distributed. We have seen that most companies that are looking to scale run into challenges when they get above 30 to 50 employees. That's typically when companies switch from In for hiring generalist hiring Specialists and and in ecosystems outside of Silicon Valley in New York. We've seen companies struggle to attract those folks. It's one of the reasons why we've made a big bet in New York, you know, we've been fortunate enough to work with I believe it's four of the five largest Venture outcomes in the last decade from New York or first round companies and we think it's a it's a fabulous ecosystem to be to be investing in. Yeah. It's interesting. You said kind of after 30 employees. It's really a talent issue to find those Specialists. And then of course most of the downstream Capital, you know is still in Silicon Valley, right? So so don't think access to Capital is the challenge, you know, I think if you have a great company, you know capital is far more plentiful and far more portable than it ever has been before look. It's not very easy to raise money and you know, you talked to any entrepreneur and they'll tell you it's hard and and and it's always been hard I'd say it's easier now than it ever has been VCS. And investors are far more willing to fund geographically dispersed companies than they ever had been before but I think that the real challenge in scaling outside. If you're trying to build a company outside of Silicon Valley or outside of New York City, maybe La I throw in there as well. The real challenge comes in and access to Talent regarding talent you guys have done a great job on your platform. Could you talk a little bit about maybe person review and some of the insights that that you're saying each year. We publish a few things, you know, we publish first ride review weakly. It's our attempt to sort of take the knowledge that's trapped in the heads of sort of the the practitioners of multiple the craft of startups of Entrepreneurship and and democratize it and share it. So so, you know, we're publishing stories about growth about leadership about marketing about customer acquisition all all aspects of Entrepreneurship. We also publish things like the Of startup survey where we survey hundreds of Founders a year to understand their views on Trends their views on what's happening in the ecosystem. We look back at our performance and try to figure out learnings as to what are the characteristics that have driven out performance and under performance in our community. Well, you know one such learning was that companies that had a female on the founding team outperformed males by 60 Percent it talked about the talked about the difference between first time Founders and second time Founders and and while second time Founders end up creating more value on an absolute basis and that's already factored into the pre-money as well. So the economic return is basically comparable this industry. There's a lot of pattern matching pattern recognition. Hopefully, we get better and better with every company that we back if you had your ideal team walk in the door today. What would they look like? I'll push back a little bit on pattern-matching. I think that by definition we're trying to find raw and fragile and contrarian ideas and the challenge with pattern matching is that you begin to generalize so I'm not sure that the best pattern matchers are the best investors. You know, I think what we're looking for is a Founder who has a unique perspective a passionate perspective and informed perspective. On a problem or on an industry that other people think is wrong that other people have ignored that other people have overlooked. You know, we're looking for someone who really wanted to see how to put you know, it's building a business to solve a problem rather than picking a problem to build a business you're investing out of which fun now first round. We're at the at the tail end of our sixth fund. So it's interesting that your fun sizes have basically been the same. Same size or even like coming down a little bit, you know, obviously in our industry, we've been very cognizant of size as well. And we've stayed focused we see funds raising as much as they can and then become a multi-stage. Can you talk about like how strategic it is to you to have the fun size very consistent. So for us, you know Fun Size is not a strategy Fun Size has a tactical decision to as to So as to what what is optimized for our model it comes down to a model and I think so many people obsess over fun-size, right but a 50 million dollar fund that's deployed over two years. Every two years is the same as a hundred million dollar fund that's deployed every for what we've done is we've just picked model which is which says sort of what's the right stage? What's the right ownership amount? What's the right investment amount per company? How do we think about reserves and follow-ons? And yeah, Enable us to execute the strategy we want to execute and we've chosen to build a product that's really focused on the needs of the earliest of stage Founders. So we're not playing an assets under management game. We have not raised a China fund not raised in India fund. We haven't raised a growth fund or an opportunity fund. It's not to say we won't but historically we've just tried to be very disciplined on where we think we have a unique product where we I think that we we are we get energy from the market and and where where we connect the most and for us that's been at the earliest stages, you know, whether it's precede mango seed for us. It's just all that early stage where you're sort of pre product Market fit and and and and oftentimes pre-launch. Everybody has a shadow portfolio. Do you do you have any kind of Quote unquote big messes that you that you regret. Yeah, I'd say we we gave I mean, I don't even know where to start we gave Twitter their first term sheet and and it was a few months before Fred they chose to self-fund. Yeah and pretty much chose to self-fund and then the biggest myths is that when Fred was leading he gave gave us the chance to participate and we said no did a price. We we offer Dropbox their first term sheet, but we're wouldn't budge on pre-money and lost that to Sequoia. I was talking with Mark Pincus for months before he started Zynga. Yeah, so, you know, where should where I'm lucky. I still have a job given the strength of our anti portfolio. What do you think has been sown some of the biggest challenges in terms of growing the firm and now promoting Folks up beneath you You know for me, the challenge has been sort of inventing the firm and work working with my partners to invent the firm that we that we want or that that we think can win. I think so many people view building a firm as a cookie cutter thing, right? You know, you just ask your lawyers for your GP docs and then you're off and running, but for me, I view first round as as my fourth startup and and so I'm constantly seeking product Market fit. Hands were constantly experimenting. We have an incredible team of people on our platform and services team. We have software Engineers that are Building closed tools just for our community. So my partners and I are really trying to sort of experiment whether it's with first round review, whether it's Building Services, like pitch assist which help our companies put together compelling narratives and slides when they go out to raise their series a you know, what we're trying to do is rethink. Ink seed stage from the ground up to try to think about what are the best products experiences and expertise and services that that we could provide to our Founders to help them win. So now a few questions in our lightning round to finish up just say kind of the first word or words that come to mind after the question. What's the best part about being a VC? Being able to just learn something brand new every day, right? You know, you're talking to one entrepreneur and they're talking about synthetic biology. You're talking to another entrepreneur. They're talking about Hardware manufacturing and you're talking to a third entrepreneur and they're talking about Enterprise security just the ability to sort of have such a diversity of areas to learn about. It's super fun the most challenging part of your day still saying no to Founders, right? I'm an optimist. I like I love the dream with me scenario where the founder tells you their story and you just bring him along and you know, the hardest part is that you know, first round has to say no over 4,000 times a year and and that's really draining. Because you want you want to work with them you want to believe with them and you just can't with everybody. What are you most excited about these days, you know at the highest level. I'm most excited about the use of artificial intelligence to radically transform Enterprises and maybe to allow some as I mentioned earlier a lot of some rookies to take down some incumbents. Number one reason early stage companies fail, they run out of cash. And what's the best or worst piece of advice? You've received lately? I think I can answer that both when I talk about what I quote Nat Turner the founder Flatiron who tells you that 90% of most advice is crap and that you should ignore 90% of it and the so that's the science and the art is picking which 10% you should pay attention. Engine 2. Well Josh, thanks again, you know for like I said for being you know a mentor and inspiration to all of us investing at the seed stage and we obviously love working with you and your team so thank you for for giving us your time today. Everybody can find you at I think at Josh K on Twitter. That's right. And thanks for having me. It's been it's been fun chatting. Awesome Josh. Thanks everyone for listening. Make sure to also follow Oh at seed to scale and subscribe anywhere you listen to podcasts.
Josh Kopelman, Founder and Partner at First Round Capital, a seed-stage venture firm that has invested in some of the biggest names, including Uber, Square and Flatiron Health. First Round aims to help early-stage companies build a strong product-market fit and offers some of the industry’s first and best tools from their custom-built software to sharing their deep industry insight with their publication First Round Review. In this episode, Josh speaks with Eniac Co-founding Partner Nihal Mehta on his journey from being one of the first students at Penn to get an email address to how he leveraged his early experience on the Internet to founding his first three companies - Infonautics, Half.com, and TurnTide. Josh then seized the opportunity to start First Round with Chris Fralic and Rob Hayes when the cost to start a company was decreasing, but the average venture firm tripled in size. Josh speaks to his advantage of living in Philadelphia, why they are placing big bets in New York and his perspective why it has never been easier to build a company outside of Silicon Valley. He also addresses scaling teams and the regional talent gap. He speaks to why First Round operates like a startup, continuing to improve and find new products that better serve their founders and community. He also shares why their fund size has remained consistent and how they view fund model vs fund size. Josh also shares why they left Twitter, DropBox, and Zynga on the table. If you liked this episode, please share and tag us on Twitter:  @joshk @firstround @nihalmehta @EniacVC @seedtoscale  Send comments or suggestions to seedtoscale@eniac.vc. 