Mat Vogels (00:10)

Hey everybody, welcome to another episode of fundraising where we interview top early stage investors and ask them all the questions that you as a first time fundraising founder might want to know going into the fundraising process. Cause as the name entails, fundraising is not at all much fun. But somebody who is fun, a friend of mine used to be a local, Carl Radden is now in sunny California. Ethan Austin of Outside VC, happy to have you on for

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little fireside Q &A today to go through some of these questions. Let's start maybe really quickly with a little bit more about the fund. What do you invest in average check size? Anybody that might be interested probably wants to know some of those details.

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Ethan (00:51)

Sure, thanks for having me first, Matt. I appreciate it. So Outside BC, we are a $15 million fund. We're investing first checks into outsiders, outsider founders, investing into financial inclusion and climate. We're doing 250k to 500k checks.

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Mat Vogels (01:07)

And then you mentioned early stages there, like how early is too early or what phase or traction there?

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Ethan (01:12)

We're usually a first check-in, sometimes second check-in. So we've made 28 investments in Fund One, Fund Two. We've made four so far, and we've been a first or second check-in in all of them. Two of them have been pre-launch. One of them was post-launch with a little bit of traction, with a little bit of revenue. I'd say more often than not, there's no revenue when we invest.

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Mat Vogels (01:32)

Yep, a

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lot it. First check in to outsiders is such a good way to frame it too. Because as we know, there's, there are a lot of those, not everybody has access to the tier one funds in some of these places. So I've always thought that was such a great model. Let's dig a little bit into you first, your solo GP in this. So without you, outside VC does not exist. So why did you choose to get into VC? And then maybe more specifically, why did you choose to start a fund on your own?

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Ethan (01:59)

Yeah.

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I was a founder for a very long time. Most of my career as a founder and we, my co-founder and I were outsiders and we ultimately would build something that would affect millions of people's lives and help create a new category with a thousand companies that followed after us. And so like we helped build something that was pretty significant. And as outsiders, no one backed us for the first two and a half years. Like no one wanted any part of us. And eventually

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you know, we were backed by tier one investors when it became a little bit more obvious and we had insiders, you know, the first people that backed us, we were in the first class of tech stars, Chicago and this, the founder tech stars, David Cohen invested. He introduced us to all these tier one VCs and then it became much more obvious to them that this was a thing. and so like I'm building the firm I wish existed when I was a founder. And I think of all the people that, you know, we ended up saving about 10,000 lives on our platform. And in the first couple of years,

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I think of all the people that died, all the people that, because we were subscale, because we were just bootstrapping. And so I think there's a lot of really talented outsiders out there who don't have access to VCs and not access to the right folks. And so I'm starting the firm I wish existed when I was a founder, because I think there's a big opportunity there.

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Mat Vogels (03:12)

Absolutely,

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I love that answer. One of the common questions that we got was a little more peek behind the curtain from a founder's perspective. They wanna know what is the best part about being a VC and what is the least favorite part about being a VC?

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Ethan (03:25)

Yeah.

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I think the best part about being a VC, I call myself a friend, bastard. My KPI is how many weddings do I get invited to by my founders? And especially writing a first check in when you believe in folks before anyone else believes, you end up with a special relationship with people. I am still very close with the people who first believed in me 15 years ago. They're still like my mentors, not just in VC, but like in life. And I'm the same way, hopefully, with a lot of the founders I've worked with. I call myself a friend, bastard.

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Mat Vogels (03:30)

investor.

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That's cool.

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Ethan (03:53)

And the two KPIs I care about, how many weddings do get invited to? So far I have two from founders. And how many of the founders end up as LPs in my fund, which I think is a dozen right now. And so I think it's cool to just build relationships long-term with great people. Like lot of these are going to work. A lot of them aren't going to work. But getting to be on the journey with people is the best part. Worst part, yes, worst part too. Worst part, so when you're not a VC, nobody wants to talk to you.

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Mat Vogels (04:02)

That's so cool.

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And the worst part, yeah.

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Ethan (04:16)

And when you become a VC, you're the same person, and all of a sudden, everyone wants to talk to you. And you said, I'm a solo GP. So it's literally just me at this firm. And you want to be talking to a lot of people, but triaging is really, hard. I've got three kids. I run this thing solo. You're wearing 40 different hats. And it's just like being a founder. It's just hard to.

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Mat Vogels (04:17)

You

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Ethan (04:38)

get everything done every night. Matt is a wizard in terms of automating everything. those of us who do not have Matt's wizardry are just constantly triaging, feeling like you're just barely staying above water all the time.

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Mat Vogels (04:50)

Yep. It is hard. That kind of goes into the next question here. Very similar. What is something that you wish founders knew about what it meant to be a VC? Because I think at the surface, founders assume that it's all glory. You're going to parties. Everybody wants to talk to you. It's like you're famous basically. But what are some of the things that maybe you wish more founders understood about what it meant to be a VC?

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Ethan (05:14)

Yeah, there's a lot of things. mean little VC and big VC is very different So like little VC I have a 15 million dollar fund you make money off of the fees if you have big fun You can make money without doing without really doing well You just make money on fees and little fun like you're hustling all the time because I don't make any money until companies exits ten years later, so like I think you're very much. It's very much similar to being a founder If not, if not more I stay when I travel I stay at my LP's houses. I don't stay in hotels

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I'm cheaper now than I was when I was a founder when I was bootstrapping. And so it's very much similar to that. I think more so than founders probably see. The big firms are different, but little firms are really just startups.

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Mat Vogels (05:59)

Yep,

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so true. Last question on the about you piece. What are some of the industries or sectors are you most interested right now? Obviously it changes all the time, but what's really exciting for you right now?

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Ethan (06:11)

Yeah, I mean, we invest in FinTech, financial inclusion specifically, and climate. But one thing we just announced, made an announcement today, company came out of stealth, I was telling Matt before the call, it's a company called FeltSense, and it's doing agentic AI. So they're basically a startup studio that has, instead of founders, they have agentic founders that are ideating on companies, building the companies, and then running the companies, delegating to humans to do like growth marketing.

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which is just a weird, wild world that we're kind of in right now, like little bit freaky if you think about it. And so I'm pretty fascinated by like where this world's gonna go and how fast and what that's going to look like, what it's gonna look like for people, what it's gonna look like for machines. And that's a space that I'm pretty interested in right now.

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Mat Vogels (06:58)

Yeah, it's difficult. I feel like there's no way to even predict. It's moving almost too quickly that if you try to predict it, you'll end up being wrong anyway. So let's go into the first.

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of the fundraising process here. I like to call it the get in the room as an outsider. And certainly most of the people that are listening to this. So I was so excited to have you on our outsiders. We have thousands and thousands of founders that are fundraising. Most of them do not have access to an investor, Rolodex, or even some of them don't have access to founders that have raised capital and they're doing this on their own. So this phase is all about how do you go from, have an idea, I have no connections.

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How do I get into the inbox or get into a Zoom link with somebody that could potentially give me money? But before that, what I always recommend to founders is they kind of should start to do a little bit of research, a little bit of diligence on their own on which funds they should prioritize or reach out to. Do you have any advice to some of those founders and what they should be looking for in what type of fund that they should be reaching out to? A lot of times they'll chase in logos, but sometimes that's not the right approach.

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Ethan (08:03)

Yeah, I think that's a great question. Here's how I kind of think about funds, right? I think there's, if you, and this is gonna be extremely hard for a first-time founder.

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Like if you have access to a tier one fund, you should definitely take that money from a tier one fund, right? And maybe there's questions around alignment, because they're so big and you're a little check. Like that's still a question, but like net, like how's it net out? You should probably take that check because a tier one fund signals something to the rest of the world and it's going to make the rest of your life easier from hiring to raising more capital. It's just a seal of approval that just says, I got picked by this fund.

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Absent that, is almost everyone else, every other firm offers the same halo in terms of like, do I add as a firm? Does outside VC or does any other firm that's not Sequoia or Dries and Horowitz add a halo? And the answer is no, right? And so no matter how good the brand is at a pre-seed or seed, or even like sometimes series A, it doesn't really actually add that much of a stamp of approval.

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becomes how much do I like this person? What are they going to be? Because you're to work with them for the next 10 years. And you can find out from talking to other founders, just go onto their site, go look at their portfolio, and then hit them up on LinkedIn of who those founders are. How much do I like working with them? And how much are they going roll up their sleeves for me? And I think you can do both those things by research. And who has a good reputation? Because I think those things matter. If you're not going to get a bump from the brand, how much

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to someone going to roll up my sleeves is I think the next most important thing.

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Mat Vogels (09:28)

That's exactly right. you know, there's a lot of times it's everybody's online, all VCs are trying to put a sign out there, they kind of tell you who they are. But there is a little bit of a research that you can do as a as a founder, really as a founder going into it that they can go a long way. What is the best way once they made the list? And in this case, maybe outside VC is on that list. Let's start with you first. What is the best way for a founder to get a pitch in front of you?

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And then maybe we, after that, can see if it's similar to what you would see more broadly across the VC ecosystem.

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Ethan (10:00)

So.

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I'll just be transparent around where our sourcing comes from. So Fund One, 24 of 28 companies either came from our portfolio founders referred them, our LPs referred them, our LPs or other VCs, other founders, they're all people in tech for the most part. Or I send an update out every month to about 500 people and those are all people in tech and they were referred in. So 24 of 28 from Fund One were from referrals. Fund Two, we've started to see a lot more

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inbound. I think just as the firm has grown a little bit, we're just getting a lot more inbound today. And I'm open to it. I think a lot of VCs aren't. It's a lot of work. It's like building trust. It adds another level of trust. like, especially as outside VC, I think it would be silly for us not to take inbound seriously. three or four investments from Fund 2 so far have been inbound cold outreach from founders and five of the last nine overall. So I like inbound. It's a

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lot of VCs don't, but I think in a world where you can't get a warm connection, inbounds is totally acceptable.

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Mat Vogels (11:04)

Is there a way that they can stand out in that process? And I'm sure that you're getting dozens, hundreds of those a month, and I'm sure you go through them, but what's something that they can do to maybe better, have a better chance of getting seen?

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Ethan (11:18)

Yeah, I think there's a couple things. I think thoughtful inbound is great. And like, mass, I'm sending this out to everyone, is awful, right? Like, I sometimes say like, my best and worst, you know, deal flow comes from inbound. And like, the thoughtful inbound, someone's really like, written a thoughtful note and like, calls you out specifically and says, hey, like, I really believe in this thesis or like, I really understand, like, you're more inclined to want to work with that person.

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than just pitching. They're not just pitching what they do and how great it is, they're saying, here's why want to work with you.

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And you can tell that's thoughtful and not just went out to a thousand folks. So I usually say really short or really long, right? If you, if you do something really short, cause people are getting so much and they've limited bandwidth, it's, it's like, okay, you're respecting their time and you get three bullet points. And it's like all really impressive traction or whatever it is. Like, wow. I should probably talk to them for really long. You tell some crazy long story and you catch them in the right moment. Usually that's going to fail, but like you catch them in the right moment and they actually read it and they engage with it. And they're like,

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wow, this is a really interesting story. You stand out from everyone else who just writes the same medium length thing that gets looked over.

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Mat Vogels (12:23)

Yep,

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I completely agree. So there's like the messaging aspect of it and being standing out that way. Let's say in the pitch deck itself, because oftentimes that's one of the best ways to carry your story forward. Is there a metric, a slide, something that stands out to you more than others? A lot of times when I ask this question, VCs say that, you know, they open up a pitch deck and they scroll to wherever this spot typically is, and they look for this one particular thing.

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Do you have that and if so, what is the one or two things that you are looking forward or looking for? Yeah, being a pitch deck could be in a memo or however way they're submitting that to you.

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Ethan (13:00)

Yeah, I mean, I think a lot of people, invest in.

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So early on investing in teams. Right. And so like, sometimes you look at the teams, like, um, you usually know that before the pitch deck, right. So like, you know, um, but the thing I would say is like, is there a slide in there that says this is our unique, unique insight? Is there, this is our secret sauce. Usually there isn't right. Most founders say they have the standard slide deck and it's like problem solution, blah, blah, blah. And those are all important things. But the end of the end of the deck, thing that you, you get from that is I understand what they do, but what

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Most investors are investing in, most investors are momentum investors. And they're not good at actually telling what a company does and the fundamentals of the company. What they're looking for is, is this company going to win and what is their edge and why do they win? And so if you can highlight those things, then you're speaking the language of VCs who are like, that helps me. That's a heuristic to a shortcut to help me understand why I should bet on this company. Cause we hear the same pitch hundreds of times, maybe not hundreds, but like 10 times. see the same ideas over

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and over and over. The only question I want to know is why is this one going to

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Mat Vogels (14:03)

And the better, the quicker you can do that, the better. The other thing that you should mention at the start of this, I should have mentioned it and brought it up. You were a managing director of Techstars too for years. There are probably few people on the planet that have seen more cold outreaches, cold pitch decks than you. So I think a lot of what you're saying here is important and people should take extra note on that.

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Ethan (14:25)

We did see a lot. I'll say one thing there, and I'd always tell everyone. I was like...

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especially with Techstars or YC or anything where you get them in batches, right? Like, so you get a bunch all at once and you'd have to go through a lot of applications. I'd always tell people, as succinct as possible and don't take up the max word count. And like people who were, you know, most people did not listen to that, right? It's like, like they want to write as much as possible. Being succinct is like a, it really is like a superpower. If you can say what you need to say and cut out, I tell all of our founders who are pitching like cut the good and leave the great, right?

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Mat Vogels (14:41)

Mm-hmm.

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No, of course not.

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Yep,

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Ethan (14:57)

and that's critical.

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Mat Vogels (14:59)

Yeah, and it's easier said than done, obviously, because everything feels so important, but that's exactly right. When you get hundreds of pitches a month as a VC fund, you need to be able to get to the important stuff. First, I saw the average, I'll have to post this somewhere. The average VC spends like seven seconds in a pitch deck, which is not very long at all. So how can you be very, very succinct in that? So seven seconds goes a long way.

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Ethan (15:23)

I'm

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I agree with that. I'll just say one thing to that end. I'll look in DocSim. VCs have to pitch too. So I'll look in my pitch deck. And my pitch deck can be 15 pages or it can be 28 pages. And whoever's looking at it will spend the same two minutes and 41 seconds. So that means if there's spending two minutes and 41 seconds on the longer version, they're really only skimming it and reading half the information. So they're not really absorbing any of it. And so the shorter the deck, the more succinct they're going to

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Mat Vogels (15:25)

now.

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Ethan (15:49)

spend

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the same amount of time on it anyway, you might as well actually give them information that they're reading and absorbing versus just skimming through it.

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Mat Vogels (15:56)

Yep.

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I love it. Similar on the pitch deck side, it was one of the more common questions. And, you know, I'm a designer by trade. And so I always appreciate kind of the answer for it. I thought about it a lot when I was fundraising. How important is it to have a well designed pitch deck or brand or website, whatever it is that they're sharing you collateral? How important is it? Is it very important? Not so important? Where does it land on your scale?

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Ethan (16:21)

I think this is a better question for like what is your subconscious like subconsciously think is probably very important or not, you know, maybe not very important but like You know

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It's a sliding scale. you're a multi-time exited founder, it probably doesn't matter at all. Your slide deck can look, it's just bullet points. I've invested in bullet points. And when you're not, I think it's a signal to people. again, people are looking for signals. It's not about what your company does, but it says to me, potentially, subconsciously, if they take this seriously, they probably take other things very seriously too. If they're this detail-oriented around this, they're probably super detail-oriented around product and go to market.

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Mat Vogels (16:36)

So true.

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Yeah.

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Ethan (16:57)

and all the other things and aspects of running their business. like, you know, I don't know on a scale of one to 10, maybe a seven, you know, it's not like do or die, but I think those things matter.

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Mat Vogels (17:05)

Yeah, I think the problems I see on some sides are founders spend too much time trying to make them pretty or beautiful when it doesn't matter as much. But then I also see founders on the other side where they don't spend any time at all making it feel like it's easy to understand and read and parse information. So obviously it's a middle ground with all of that.

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Ethan (17:24)

I will say, I do tell founders this, say like, text is the new deck, right? So your deck, everything looks pretty in it. If you go to a demo day, go to Techstars or YC Demo Day, every single company looks good. like, I want to invest in all of them. Like they all sound amazing. Anything you write in a deck looks great. And so like it's...

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I always say send receipts, right? After you share the deck, if you somehow get their phone number, text them what's going on real time with your customers. Text them like the reviews you're getting from customers and so like real time what's going on, not the pretty thing that's in the deck because every deck looks great.

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Mat Vogels (17:57)

Yep.

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Yeah, I think that's a, that's a great point. It kind of gets into the, the next phase of the process. Let's say that they caught your eye and you're ready to have that first meeting. So this is kind of the phase of you're in the room. How do you take advantage of maybe the only 30 minutes that you might get with a VC during the, the first meeting, but flipping the table a little bit from your side on the VC side.

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what are you looking for in that initial founder meeting? And in a way it's what's a green flag that you're looking for, a trait, a characteristic, something that they're gonna tell you that you need to hear in that first meeting or learn that's gonna make you more excited to go and carry the process forward.

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Ethan (18:37)

Yeah. I think in the first meeting, you're building rapport as much as anything. People invest in people that they like. And the idea is not to say that ideas are not novel, but as a VC, you hear a lot of ideas that all sound the same. Most people who have a good idea, there's 10 other people thinking of that same good idea at the same time. And so people invest in people that they enjoy being around. And I would.

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ask questions of the VCs, right? Like, just pitching the whole time, but actually building rapport.

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you, they might walk out of the meeting being like, still don't understand this or this. I want to have another meeting, but I really liked Joe. I really liked Sarah. I really liked them. Like I'd be eager to talk to them again. And I think, you know, it's the same as sales. It's like shutting up. Right. Like, you know, you got two years in one mouth, right. And so like sitting there and letting people talk about themselves, VCs all want to talk about them. Everyone wants to talk about themselves and let them tell war stories of what they did when they were founders. like, and they feel good about themselves. They laugh. They come out of the.

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Mat Vogels (19:25)

Yeah.

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Mm-hmm.

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Ethan (19:39)

feeling good about that meeting and wanting to have another. So, you know, what do I look for in a first meeting? Like for me though, it's like I always want to find out what the founder's origin story is. Why are they doing this crazy thing? Like starting a startup is insane. You know, especially people who had opportunity costs and left, you know, jobs that were well-paying or whatever they were doing. Why are you doing this thing? Because that tells me a lot about their character, who they are, and are they going to make it? Are they going to last?

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Mat Vogels (19:47)

Hmm.

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Yeah.

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Is it really important during that first meeting to schedule a next meeting or like how pushy should founders be in keeping the ball going forward? I feel like a lot of times those calls end, sometimes there's no agenda, a lot of times it's like pieces of information that they were gonna send afterwards, there's some follow-up pieces. Is there anything that at the end of that you should be?

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you know, in a point where you've already booked something, is that too pushy? I get a lot of those questions from founders.

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Ethan (20:31)

You know, I, because I have to pitch too, I am not, I'm not pushy enough probably. I'd say if you're able to do that tactfully.

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and you're like smooth at it and it doesn't feel pushy, yeah, that's amazing to be able to book, you know, if you have your calendar out, like when's another time like, you know, we could book this or have two dates out. If you can do that smoothly, amazing, because like the thing you're fighting against is not like am I interested in this company, it's like distraction. VCs get so distracted with all these deals coming in, it's not even deals, it's like I have a family vacation coming up, I have X, Y, or Z I need to do. All these other things get you distracted and you get less and less interested.

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If you've ever heard the saying, time is the enemy of the deal, keeping the ball moving is the most critical piece to your fundraise. So if you can pull that off tactfully, yeah, I would do it. I'm such a bad salesperson, can't do that, not very smooth, but I would if I could.

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Mat Vogels (21:24)

And I

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feel like I never, my dad used to tell me like you should never make a decision in the room, which I think is true. Cause sometimes the momentum is high and everything feels good. And then afterwards, you know, two days later, you're in that second meeting and you're like, I really want this one? So sometimes I like a little bit of space. The one thing I'll say is that if you are a founder, as long as you make it very easy to book another meeting, VCs will, will, will take the initiative if they really like what you're doing. So just make it a kind of a clear path.

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Ethan (21:46)

Mm-hmm.

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Mat Vogels (21:49)

We talked about the good things, the things you look for. Are there any red flags that come about during those initial meetings that kind of send you in the opposite direction?

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Ethan (21:59)

Yeah, I particularly don't like jargon. So I, you know, this is what jargon does. What? No, it's like, even not even that that's that's that's not great either. But what I mean was like industry jargon. And so like, I think when people assume that you know a lot about their industry, it

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Mat Vogels (22:05)

Synergies synergy. Yeah

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Ethan (22:19)

It sets the person on the other end up for looking stupid. And no one wants to look stupid. And if you go back to what we talking earlier about people invest in relationships and people, you want to feel good. You want to make that person on the other end of it feel good. if you've ever heard of the grandmother rule or the 10-year-old rule, explain what you do in simple terms as if a fourth grader has to go then explain it to someone else. When you start to use jargony words that only you know and people deep in your space know,

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It shows a lack of empathy, I think, and a lack of self-awareness and awareness for this is how you're going to treat your employees too, or other people around you. It's my personal pet peeve. I just don't like jargon.

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Mat Vogels (23:00)

Yep.

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I agree with that. yeah, no jargon. Be honest, all the things that that that your your parents would have taught you as a young age can still carry forward today. So you're still kind of in this phase of, I don't know, the back and forth, you're kind of dating a little bit, there's a little bit of back and forth. Are there things that you want founders to ask or think founders should ask maybe not to you specifically, because you want them and it's a good signal for you. But you think it's important for

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founders to ask of their VCs before going into some of these deeper stages of the relationship.

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Ethan (23:33)

Yeah, there's a couple things. mean, one of them is self-serving. What I do is I tell every founder, I give them the list of our entire portfolio of founders, and I say, reach out to any one of them.

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And like, not all of them are going to say the exact same thing, but if you reach out to enough of them, I'm pretty positive they'll all say great stuff. And so it's, it's a bit of a sales tool for me, but I would ask VCs, like it's a two way street, diligence is a two way street. I would be asking for references or, or not even asking and just like going on LinkedIn and finding the people that they've invested in. What does this person like to work with? I think that's really important. The other thing I'd ask, and I think this is something you should ask is like how big their fund size is.

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because the fund size matters a lot in terms of alignment. And if you want to have a $10 billion exit, amazing. $20 billion exit, amazing. If you don't and you're working with a big fund, they need that type of exit to move the needle. And if you're not looking to have that type of exit or like, $100 million exit would be great. that's an amazing exit for me. That's nothing for a big fund. That can't move the needle. So finding that initial

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alignment and making sure that you're aligned there I think is really critical because some founders only find out later that they're not aligned with their VC and don't don't think about asking that the onset.

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Mat Vogels (24:50)

Yeah,

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so true. What is a common mistake before we jump into the next phase, the diligence phase and pushing it over the finish line? Are there any other common mistakes that you see founders make in the initial meeting, a little bit of back and forth? Is there building some momentum into the round? What are some no-nos? Maybe not even mistakes, but things you see that end up backfiring.

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Ethan (25:10)

Yeah, two things. I can think of a couple things. One, most founders spend too much time on the narrative and the deck. Fundraising is 100 % about momentum. It's about getting investors to have FOMO. It's about scarcity. it's about tricking. I say tricking nicely, tricking investors, that's probably a bad term because you don't want to do anything ever deceitful.

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But stacking the odds in your favor, right? That's a better way of thinking about it, of doing the prep work ahead of time.

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to give you a better chance to create momentum in the round. So instead of taking onesie Tuesday meetings, you know, for, for a month at a time, stack all of your meetings, 20 meetings, all to start within like three or four days, because then you can start to leverage momentum and you have reasons to follow up with those investors. Say like, this next investor, you know, we're moving to IC. Like, would you want to have another meeting? If you have nothing to add about the momentum of the round, usually the answer is like, yeah. Like let's schedule.

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in a month or you know and if it's like this is moving along yeah let's talk tomorrow it's a completely different answer and so I think the best founders run a tight tight process and I've seen that over and over again seen it with founders I saw it when we were back in crowdfunding saw like tens of thousands of campaigns and they can have the exact same story exact same everything and one person did a lot of planning ahead of time and one person just went out to social media

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blasted

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it on day one and one person will raise 10,000, one person will raise 100,000. The person that did all the planning ahead of time to create momentum in the campaign, they did better. So it's not about the deck and narrative, it's really about the process and most people don't actually know that. And so, you know, thinking about that process and putting the time in ahead of time, that's what matters more than anything, I think.

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Mat Vogels (26:49)

Yep, I love it. All right, let's say that we're fast forwarding a little bit. There's a lot of interest in the round. Checks are kind of coming in. This is that final weird phase that if you're lucky enough as a founder to get to it is exhilarating. It's also very stressful. And sometimes it leads to not necessarily poor decision making, but you're going to feel probably pressured and rushed, especially if you're oversubscribed and all these things.

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But let's talk about your diligence process specifically really quick. For outside VC, what does it look like when you have the conviction and you're just going through diligence? you wanting to, in this case, they don't really have customers because they're too early. Are you wanting to talk to people that know them? Are you doing reference checks? What does your diligence process look like at outside VC?

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Ethan (27:32)

Yeah, I will always do off list references. I won't ask them for references. Those people are obviously going to say nice things about them. I go on and do our comic connections on LinkedIn. Like, can I talk to that knows this person? 100 % of the time, I'll do that. I will, when I can, talk to customers and ask customers. If it's a consumer app, I'll go on the app and play around with it. I will do as much.

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as I can to kind of verify the things that people say. And I'll say this just from a diligent standpoint. Your ability, rounds sometimes stall out when there's this believability gap. Everything looks amazing in the deck. Your pitch sounds amazing.

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And especially, you know, as if you're, if you're pitching someone cold, if you don't have a warm intro that makes, you know, trust even harder, right? Like, it's one layer out. And so in order to close this believability gap, I always tell founders. You should have your data room prepared like early with everything that people are going to need to close the gap between what you say and what the VC believes. And it's you close that gap with third party verifications, whether that's

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You've done a call yourself so people, VCs might want to do a customer call and you're going to schedule that, it's going to take time. That slows down the deal, right? That's going to take weeks to get people on calls. You don't want to use your best customers. You don't want to bother them. If you can record calls ahead of time and do recorded calls with like 20, 30 questions that you think that VCs are going to want, then you have a recording of that. You can send that out on day one. It's usually probably good enough at the first stages. You know, these aren't series A diligences.

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like to like get people over a line. So the more you have ready ahead of time, and this goes back to the planning, like the better you're going to do because it keeps momentum going versus stalling out again stalling out distraction all sorts of my kid's birthday all these other things are what kill deals. If you don't give people any no gap no air like air gap right like no no room at all to to like lose momentum then you're in a better position. So I always think third party.

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verifications, that's testimonials, whether it's customer calls. Anyone who can verify that the things that you're saying are true adds a lot of credibility and closes that delta, that believability delta, that is the thing that really slows down lot of deals. ⁓

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Mat Vogels (29:45)

Yep,

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absolutely.

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I mentioned it earlier, but you know, obviously a nice problem to have, there will be times and I always feel like it's more common than not. You either, um, are going to be a successful fundraiser or not. And if you are and do close your round, it's probably going to be oversubscribed, even if it's just one check oversubscribed. So there's going to be a decision that you as a founder have to make to figure out who's going to be on the cap table and who isn't. This is what I mentioned. You're to get some pressure, a little bit of elbows. It's not a fun place to be in, um, even though it sounds like it's a good place to be.

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What advice would you give founders as maybe they're making that choice of who to keep on and who to perhaps not give the opportunity to come out of their cap table? What should founders be looking for in those checks, those investors and so forth?

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Ethan (30:32)

Yeah, I mean...

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Yeah, if you're in that position, which you might be, there's a couple things. You can reward the people who came in early, your first believers, right? And give them allocation. If you don't do it as like who committed first, you come down to a position where like, you're likely gonna reward a lot of people that came in first. And then the people that are coming in at the end, then you have to kind of make a hard decision around like the last 25%. Some people are gonna get cut.

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that point, I think you're really saying like, who's gonna add the most value? And who would I want to work with? And how you make that decision.

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You might have, let's say you're a prop tech company, you might, you know, are they an angel that has specific, you know, industry experience? Like, are they going to lead in for me? Oftentimes, you know, you cut out the VCs and take a bunch of angel checks. Angels work harder for you than VCs. And sometimes just have more connections, right? Like I'd take five angel checks sometimes over a single VC check potentially. And so, you know, who's gonna lean in the most and add the most value?

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Mat Vogels (31:29)

Mm-hmm.

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Ethan (31:40)

And you want to have different folks in your quiver. And on your team, some person's going to be a finance expert. Another person is a super connector. You have different people on your team. if you're in this luxury of being in this position, which most people aren't, you can kind of say, what do I need? I have this person. He's the advisor person. Or she's the advisor person can give me industry advice. this person's go-to-market master.

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Like, I want that. So you're not going to go to the same people for all of your advice. If you're trying to build out your team, who do you not have on your team already?

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Mat Vogels (32:11)

Is there a common mistake that you see founders make when they're making maybe that final decision or picking and choosing?

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Ethan (32:16)

Yeah.

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I mean, the common mistake is like, you don't think you're going to be in that position. And so you're, you're communicating. It's usually a communication problem. You're usually communicating to people like, yeah, if you commit, like you're just so freaking stoked that someone's committing to your round. Like you've, you've basically given them allocation already. And all of a sudden you end up over subscribed and you're like, Oh, well this person really doesn't have that much value. But like, I already, I already said yes, cause they were early. So like, I guess I'll take that person. And it's a much less valuable, like lower ad value at check than someone who came

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in later and you wish you could kind of do it over. And so like the thing to do is communicate like, Hey, we're taking allocations now. We're taking commitments now, taking interest right now. And at the end, we're going to figure out, you know, and sort through allocations and just communicating that early lets the investor know, Hey, just cause I soft circled and I committed, you know, conditionally doesn't mean that I'm going to get a spot. And so I think everyone is understands that as long as it's communicated where people

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get salty is where they think they got a spot and then they got cut out because someone better came in months after them who when this person already like you know came in when there was like a higher risk you know scenario so I think it's a bit it's a communication issue.

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Mat Vogels (33:30)

Yeah, I wish that I would have known that it was okay to tell VCs like I'm taking commitments right now, which just means I want to know how much you're looking to invest. I'm going to put it on the shelf where I'm collecting all these and then we're going to make a decision, you know, on this date. It's so it's totally an option. And I think a lot of VCs kind of respect it because then it also feels like, you they've done their job. They don't have to chase you or figure out are we in are we out? It's all you're right. Communication is king in that in that whole process.

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All right, last phase is the after fundraise. So let's say they've done everything that we've said, they closed the round, checks, money's in the bank account, everybody's celebrating. How should founders think about the relationship and maybe even in this case, your relationship with them personally, after you've written the check, the round is closed, set the expectation for what Outside VC does, but then maybe more broadly of what they should expect across their cap table with other investors.

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Ethan (34:25)

Yeah, outside VC after we come in, it's different for each, you know, we've led a handful of rounds in companies and we send an onboarding document to all our founders and say, this is what the experience is gonna be like. I didn't know when I was a founder. We had a firm that basically, after a year and a half, they kind of ghosted us. Not ghosted, but they stopped being as...

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helpful, right? And I was like, what the F, dude? know, had conversations with the guy. He's like, look, and I didn't understand it. Like, people have a lot of, we have this many portfolio companies.

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after year and a half, have to kind of slide off, right? And just because of the math, I have 60 new portfolio companies and they're going to need more help. And so I need to be helping them year and a half in, most companies have raised the next round. And so those investors that new investors that are coming on are filling, you know, the lion's share of that relationship and those work. If he had told me that upfront, it would have been helpful. But I got that like a year and a half in being like, why, why, why, why are returning my calls anymore, man? You know? And so I say that upfront with

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Mat Vogels (35:18)

Mm-hmm.

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Yeah, yeah.

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Ethan (35:25)

founders and I say like like hey we're gonna be best friends and we're gonna be best friends forever like I hope you invite me to your wedding the personal relationship is gonna extend forever I'm gonna be my most work for you the first 18 to 24 months right and I set the expectations upfront because I'm a solo GP and you know I've got you know just too much work to do otherwise and so you know I say the important thing if you can is is get off email and move to text so I sent 30

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900 text messages with my founders last year. And ⁓ if you move to text, just deformalizes. It's not a word, but it makes the relationship far less formal than if you're on email. What is the least formal communication modality you can use that you're just engaging with this person so that you're on the same level and there's no power dynamic, there's no reporting to this person? It's like asking for help. Help me think through this. Help me be a thought person.

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Mat Vogels (35:53)

Wow.

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Ethan (36:18)

partner, what should I be doing here? That's what I would do is how quickly can you move to text.

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Mat Vogels (36:23)

Yep.

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What's another mistake that you see founders make after they close their round? They have money in the bank account a lot of times, the first time maybe ever. Are there any mistakes that you've seen founders make in the first months after fundraise?

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Ethan (36:37)

Classic one. Here's what you should do. You should gather everyone up and you say, here's like...

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Here's what we pitched. Here's what we really think. Here's the reality. It's going to be off. Everyone knows it's probably more aggressive what you pitched than the reality. You should level set and say, here's what we want to accomplish for the year. Here's what we're hoping to do, almost like a state of the union. And you should get people on a call. You should get all your investors on a call. No one does this. So you'd be the rare founder that does this. Yeah, but get people on a call. Get them all aligned.

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Mat Vogels (37:04)

Never seen that, yeah.

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Ethan (37:07)

and get people excited. The other investors love seeing who's in the room. I have one set of founders, they'll do a quarterly call. And it's great. All of us who are in the realm, we love seeing each other on the call. Investors, don't hang out with each other all that often, so it's fun to see each other. It creates camaraderie, it creates goodwill. You get a lot more nuance than just in the updates. You hear the stories behind the stories. You hear the stories behind the bullets. You don't just get the headlines, get like, you just understand

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Mat Vogels (37:16)

Mm-hmm.

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Ethan (37:32)

and have a better sense and feel for that company. That's a best practice, I think. No one does that. To be top.

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Mat Vogels (37:35)

Yeah. Yeah.

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Ethan (37:38)

you know, 20%. You know, I think the big mistake is people don't send updates enough, right? And so like, the updates should not be a burden. They should help you crystallize your thoughts, right? And stuff down helps crystallize thoughts. It should be just as much for you as it is for your investors. But what it does is like, startups are bumpy. You're gonna have ups and downs. You're gonna need these people for the future to raise your next round of capital. You're gonna need them for all sorts of things. People invest in

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Mat Vogels (37:56)

Mm-hmm.

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Ethan (38:04)

that are building relationships with them. Your next round probably isn't gonna be obvious still, right? And so it's not gonna be clear, your investors are gonna wanna go to bat for you if they've been hearing and understanding and you've been communicating well. So the common thing that happens is things go sideways a little bit or they're slow to launch and you don't communicate. And investors, for the most part, they're responsive. They're not proactive. So I always say be a squee-

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Mat Vogels (38:11)

Yeah.

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Ethan (38:30)

you will ask for stuff. Like you're gonna get more attention from your VC than other portfolio companies do if you are sending a monthly update on the clock, right? And like you're just gonna get more attention and you know it's hack to get more value out of your VC or your angel investors.

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Mat Vogels (38:47)

Love it.

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Last question. What is the most common reason that you either see or think companies fail in the long run? So obviously not as much of advice for the folks that are listening to this and raising their first round of funding, but to think long-term, what are some of those big mistakes or things that end up being the nail in the coffin?

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Ethan (39:08)

Yeah. I mean, there's by default, most, most companies fail and they, and they fail for so many different reasons. The average, right? By default, most of them are going to fail because startups are hard. You know, like I have friends who built billion dollar companies and they're like, yep. I, you know, I failed on the other eight, know, and that's just like that. You just have to get lucky.

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Mat Vogels (39:13)

Yeah, it's the average, more than the average, yeah.

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Yeah.

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Ethan (39:28)

a little bit. Like you have to be good and you have to get lucky. So like the thing I see, there's zillions of reasons, but I'll list one, is that people quit. And things are gonna get hard and the people that make it through.

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are usually the ones that stayed, they're the cockroaches, the people that stayed there long enough to catch a lucky break. Something shifted in the macro, something shifted in technology, something shifted and all of a sudden you're sitting there at the right place, at the right time, because you're still alive. And there's lots of reasons to just say, I can't do this anymore because only an insane person would continue to be doing this. And it's usually the insane people who end up

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because they just were there when the wave came and they wrote it.

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Mat Vogels (40:11)

such a good answer. Yeah, be the cockroach is is definitely great advice. All right, Ethan, thank you so much for for hopping on here. I learned a lot from listening to this. I think there's a lot of founders that they would learn a lot from this as well. I think having smaller funds on your cap table is one of the more valuable things that you can do truly because I think you'll end up getting a better selection of human beings on your cap table. Not that large funds and big checks are not important. They are. But sometimes I feel like you miss

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out on the real people that can make a difference. So thank you for being on shedding some light on that. Is there any last tidbit of information that you want to give to some of these founders and then where can they find you, follow you, get in touch and reach out if they need to.

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Ethan (40:55)

I'll share a piece of advice from my first investor. And he took a company public and helped build one of the first browsers. And he said to me, when times are good, and when he was saying this, times were great for us. were the darling of the city we were in, and everything was fantastic. We were winning all sorts of awards. He said, when times are good, don't give yourself too much of a paddle in the back.

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And when times are bad, don't blame yourself too much. And I think that there's so much truth in that, in that startups sit on a knife edge. And I have a company just now that...

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they're getting their round done and I think they'll be a billion dollar company and if they didn't get that round done they'd go to to business. It's like it's the difference the difference between success and failure is so thin sometimes and so just I think to remember that especially when times are hard and not to blame yourself too much because there's only so much that's in your control. Best way to get a hold of me

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Mat Vogels (41:32)

So close.

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Ethan (41:49)

My DMs are pretty open. not on Twitter. I quit Twitter, I guess called Axe. I quit it so long ago, I still call it Twitter. ⁓ When my first daughter was born, she's now eight. So I quit a long time ago. It's too addicting. It was before. No, I didn't quit it because of Elon. quit it because it was too fun. It was too addicting. I wasn't getting anything done. I'm pretty heavy on LinkedIn though. That's the one social I'm still on. I'm pretty open there.

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Mat Vogels (41:56)

Hahaha

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Oh wow yeah, that's a while. That was before Elon. That was even before Elon came in. No no no of course. Yeah.

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Ethan (42:15)

I will say, I don't know when this comes out, but this is February 2026. I'm fundraising myself right now, and so I'm probably not deploying much capital until Q2. We've done four investments, but I'm kind of, as a solo GP, gonna be heads down fundraising. So I wanna put that caveat out there for folks. But my DMs are open on LinkedIn, and I'm Ethan at OutsideVentureCapital.com.

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Mat Vogels (42:41)

Perfect. Ethan, thank you again. We'll touch base soon. I'm excited for people to listen to this. Yeah, absolutely. Have a good one.

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Ethan (42:46)

Yeah, thanks Matt for having me. This was super fun, man.