December 1, 2024 • 38 mins
Episode Summary
In this episode of On Boards, Joe and Raza welcome Marc Schneider, an accomplished e-commerce and fintech executive with decades of experience building and scaling mission-driven companies.
Marc shares his entrepreneurial journey, including his tenure as co-founder and CEO of Zebit, a transformative e-commerce and fintech platform, and his current role as an Operating Venture Partner at Ulu Ventures.
The discussion dives into governance challenges in venture-backed startups, the evolution of boards from early-stage to IPO, and how founders can effectively leverage board expertise. Marc also discusses Ulu Ventures' commitment to supporting diverse entrepreneurs and shares insights into his innovative role as an “active” board observer and mentor to founders.
Key Topics Discussed
1. Marc Schneider’s Career Journey
- Background and Passion for Mission-Driven Companies: Marc’s journey began with his personal experience of financial hardship, which inspired his work at Zebit to provide credit-impaired consumers with fair access to products without interest or penalties.
- Key Roles: From managing customer service operations at ProFlowers to leading Zulily and founding Zebit, Marc’s career has been defined by innovation and scaling impactful businesses.
2. Zebit’s Business Model and Mission
- Zebit’s Unique Value Proposition: Providing underserved consumers with fair, interest-free payment options for e-commerce purchases.
- Challenges: Operating efficiently without typical revenue streams like interest or penalties, while predicting customer payment behavior with data-driven models.
- IPO Journey: Zebit went public on the Australian Stock Exchange (ASX) to access liquidity, even though the process posed significant challenges, including valuation issues and market unfamiliarity with its business model.
3. Board Governance in Startups
- Evolution of Boards: Marc discusses the progression of boards through funding stages, from limited investor involvement in early rounds to more structured and diverse boards in public companies.
- Lessons for Founders:
- Understand the dual role of investors as board members and stakeholders.
- Take an active role in shaping board dynamics and agendas.
- Prioritize chemistry and diverse perspectives in board composition.
4. Ulu Ventures and Supporting Diverse Entrepreneurs
- Ulu Ventures’ Mission: Backing women, minority, and diverse entrepreneurial teams using decision analytics to assess investments.
- “Active” Board Observer: Marc’s role involves mentoring founders, facilitating board discussions, and bridging gaps between management and governance.
5. Lessons Learned and Giving Back
- Persistence and Adaptability: Marc’s reflections on navigating challenges, from startup struggles to delisting Zebit, emphasize resilience.
- Mentorship and Legacy: By supporting young ent
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:05):
Hello and welcome to On Boards, a deepdive at what drives business success.
I'm Joe Ayoub and I'm herewith my co-host, Raza Shaikh.
Twice a month, On Boards is a place tolearn about one of the most critically
important aspects of any company ororganization; its board of directors
or advisors with a focus on theimportant issues that are facing boards,
(00:28):
company leadership, and stakeholders.
Joe and I speak with a wide range ofguests and talk about what makes a board
successful or unsuccessful, what it meansto be an effective board member, and
how to make your board one of the mostvaluable assets of your organization.
Before we introduce our guest today,we want to thank the law firm of
(00:50):
Nutter McClennen & Fish who againsponsored our On Board Summit last
month in their beautiful conferencecenter in the Boston Seaport.
They've been incrediblepartners to us in every way.
We appreciate all they'vedone to support this podcast.
Our guest today is Marc Schneider.
Marc is an e-commerce and fintechoperations executive with a history
(01:14):
of driving revenue and profits and fordelivering extraordinary results as well
as devising effective, viable actionplans for complex business issues.
Marc was the co-founder of Zebit,a mission-driven e-commerce and
fintech company where he served aspresident, CEO, and a board director.
(01:36):
He is currently an operatingventure partner with Ulu Ventures,
the largest Latina-led seed stageventure fund in Silicon Valley,
which invests in women, minorityand diverse entrepreneurial teams.
In that capacity, he has served amongother roles as an active board observer
(01:59):
for companies in which Ulu has invested.
Welcome Marc, and thank you forjoining us today on On Boards.
It's great to have you as a guest.
It's a pleasure.
I appreciate the invitation and Ilook forward to the conversation.
Thanks.
So, we thought the introduction was prettygood and then I saw something online by
(02:20):
one of our favorite podcast guests, LisaThompson, who introduced us to you, and
I'm going to read it to you to kind of leteveryone know just how special you are.
Quote, "if you aren't looking toscale, if you aren't willing to look
in the mirror and make the neededchanges to excel, if you're thinking
(02:43):
incremental instead of radical, thenyou're not ready for Marc Schneider."
So, with that very humble introin mind, can you give us your
background that's led you to havethis pretty unusual set of skills?
That'd be my pleasure.
And yeah, I want to thank Lisa for thatkind comment relative to my background.
(03:03):
I've known her for almost25 to 30 years now.
Time is passing pretty quickly.
I'm a 30-year operator with the last18 years in venture-backed startups and
my history actually combines everythingfrom starting as a consultant for the
World Bank, Inter-American DevelopmentBank and working abroad to going back
(03:25):
and getting my MBA and then goinginto what I would say is hands-on
operational management consulting witha firm that no longer exists, but that
was Champion Hammers Reengineering,the organization group at CSE Index.
I went into private equity and workedin Mexico City, so learned a lot about
fundraising there, came back, started abusiness for a former SEC chairman who
(03:48):
is in charge of all of the corporatefraud victim trust funds, and then
fast forward to 2006, I finally got anopportunity to go into e-commerce and
moved out to California with a companycalled ProFlowers or Provide-commerce,
leading their customer serviceoperations, and eventually being on
the M&A integration team with LibertyMedia to look at all the-commerce deals.
(04:09):
Spent about four years doing that,and then afterwards, was one of the
first 10-plus employees at Zulily Baby,Moms and Kids, fast-growing e-commerce
event organization and then movedback to San Diego to be in fintech,
where I was managing a company calledGain Credit, managing 350 people in
India with the UK customer base anddoing lending to subprime consumers.
(04:33):
And it was really there that I thinkI found my passion for what I wanted
to do and how I wanted to makechange and I started a company called
Zebit with a co-founder of mine.
We spun it to Gain Credit, which wasan e-commerce and fintech company that
was focused on changing how 100 millioncredit-impaired consumers can buy
(04:54):
what they need, pay overtime withoutinterest fees or penalties of any kind,
a transformative kind of mission-drivencompany to change the lives of people
that are plagued with a trillion dollarsof interest fees and penalties, and
they can't get out of the cycle of debt.
So, thank you for the background.
I'd like to talk about Zebit, a companythat you co-founded, ran, served
(05:17):
on the board and in which you werevery involved for quite some time.
It is a mission-driven company, whichI think is your passion, and I think
it'd be great to talk in a littledetail about what it was, what happened,
and then we'll talk about what thegovernance was like for that kind of
late-stage investor-backed company,
(05:40):
Sure.
So, I was with Zabit for seven years.
Think of it as pre-seed to seed,to A to B, and then eventually took
it IPO on the Australian Exchange.
It went through all the different phasesof growth and the transformations of
inheriting a board as a VC company, whichyou have little choice in who actually
comes on your board, but you definitelyhave a choice in terms of how you manage
(06:03):
that board, the information you givethem and how you make it successful.
What was the value proposition of Zebit?
What was it that drove youto work for seven years to
make this company successful?
Yeah, so I grew up in animpoverished kind of background.
I supported my disabled mothersince I was 15 years old.
I went through financial crisis,everything from homelessness to eating
(06:26):
government cheese, food stamps atUniversity of Pennsylvania, et cetera.
And I always thought there was a highercalling in my life that I wanted to
fundamentally change the lives of otherpeople, maybe to substantiate that
we're not all captive by our histories.
Hmm.
That's fantastic.
So, what was the proposition withZebit that would allow people
(06:49):
to kind of emerge from the kindof situation you experienced?
Yeah, so what my co-founder and I sawthat was happening in the United States,
100, 000, 000 people trapped by a cycleof debt because they had bad credit.
Now, a lot of them had bad creditbecause they made poor decisions, but
a lot of them had bad credit becausemaybe they made a poor decision and
because of the financial instrumentsthey were able to get a hold of, the
(07:12):
interest fees and penalties continueto add up, so they never get out of it.
So, we wanted to basically give subprimeconsumers the ability to buy what
they need, think about it as Amazonfor the underserved and pay back over
six months without interest fees orpenalties or paying four times the value
of a product in order to get afloat.
(07:34):
That's pretty challenging thing todo in terms of the business model.
How was that business model built formaking that successful for your customer?
Yeah.
So, we had a very strong setof investors that had a lot of
conviction in this business model.
So, the first thing is if you can'tcharge interest fees or penalties,
or you can't charge 400% APR, and youcan only make your money through the
(07:58):
product margin, you have to make theoperation extremely automated, efficient,
and not tie up your working capital.
So, on the e-commerce side, we had anoperating model that was a 100% dropship.
So, think 120 suppliers, 25 productverticals, no inventory, no warehouses,
no cash going into tying stuff up thatyou would sell like on sale, et cetera.
(08:23):
Fundamentally on the fintech side,we focused on how do we build a big
dataset to model the propensity topay for a customer that we already
know is a 550 or below FICO score.
We know they're bad credit, but howdo we build data within our site to
be able to predict whether they'll payus back on that first order or not?
(08:44):
So, one of the things you told us isthat FICO doesn't tell us why someone has
bad credit and why they didn't pay back.
How did you figure out who those peoplewere that might be worth taking a risk on?
Well, FICO, if you get a report, it'lltell you where all the defaults happened,
but it won't necessarily tell you howto fundamentally separate the goods from
(09:05):
the bads within the defaulted people.
And so we figured what we had to do wasif I present a fair deal, if I give a
consumer something that they can neverget, let's say a 0% credit facility in
the form of store credit to buy the thingsthey need to support their family at fair
prices where they can structure theirpayments over six months that correlate
to when they get paid and how they getpaid, maybe they would raise us in the
(09:29):
payment hierarchy and think about, "I'mgoing to have a store credit line that
grows with me and all I have to do isshop responsibly, pay this company back
over time, and then I get access, justlike everybody else, to fair products and
float, or credit, I'll put my share ofwallet all my transactions in with them."
(09:49):
it was a hypothesis, Joe, thatwe had to prove that could work.
That was the bet.
Right.
So, how do you go about proving it?
Yeah.
So, what we did was webuilt a closed marketplace.
So.
We would underwrite you, so it'sour customer, we're the-commerce
merchant, we acquire customerseither through B2B relationships,
(10:10):
B2B to C, or direct to consumermarketing, bring them on our site.
We have two bites to the apple.
We bring people in, we validate theirincome, their identity, et cetera.
We bring them into our marketplace,and then we tracked all of the consumer
behavior happening in the marketplace.
So, if you didn't have a username andpassword, you couldn't get in, and we
modeled that behavior for a first-timecustomer, repeat customer and a customer
(10:34):
that was on the platform for a longerperiod of time of the propensity to
repay back, and so this is everythingof what they're looking at, how fast
they go through, are they loading theircarts up, are they trying to overextend
their line, even though they have a storecredit line, and we're watching that
first payment, which is also balanced bywhat we call a down payment at checkout.
So, we're making them put a littlebit of skin in the game, structuring
(10:57):
their payments, and then over time,the model is building what is the
right consumer behavior that leads toa lower bad debt on the first order.
What we found was, once somebody passedor has paid off their first order,
their bad debt goes down by like 50%.
So, let's say 20% of the people defaultafter six months, that bad debt on
(11:18):
their second, their bad debt as acohort goes down to like 10%, they're
on our platform for three or four years,they actually look like the three of
us super prime customers who don'tdefault on their debt, but really their
underlying credit score isn't changing,their behavior with the company is
So, this is the reverse of thedebt cycle that people face.
(11:39):
It's a virtuous cycle that they get into.
That's correct, and it's a very,very difficult cycle to get out of.
And so how did we prove it?
But we never pulled FICO, but wecan do what's called a retro append.
So, we took our customers after sevenyears, the ones that have survived and
continue to buy with us and consolidatetheir purchases and we pulled their
credit file, and we wanted to see atour time-based analysis when they came
(12:02):
in and seven years down the road, hastheir underlying credit profile changed?
By and large, it didn't.
They were 550 FICO scores, even thoughwe didn't use it, but we could pull
it, on a anonymous basis, and sevenyears later, they were still at 550.
But to us, they look like 850 FICO scores.
So, what did that say?
They valued the product.
(12:23):
They saw a fair deal.
They saw that they were working inunison with a mission-driven company
that was actually trying to changetheir lives, whether it was a birthday,
emergency purchases, Christmas holiday,et cetera, who else, or where else
would you be able to get a 0% creditfacility that grows with you and
all you have to do is not abuse it.
So, essentially you gather datathat really supported the initial
(12:47):
proposition based on what youhave observed from their behavior.
Yes, the data came over time of buildingwhere you have millions of customers
coming in, millions of applications,millions of orders, millions and
millions of order attempts, and thenseeing the repayment curves and then
using real machine learning modelsthat are actually trained to understand
(13:09):
what we call an efficient frontier.
So, what is the trade off between whatyou put down the risk of that order
and the willingness of the organizationto accept a certain level of bad debt?
You obviously can't get rid of baddebt, but you won't approve anybody,
you won't take any orders, so there'salways that trade off of where the
business is and how the algorithms areworking to get to the financial goals.
(13:30):
So, one of the things you said youdid, which is probably not typical
for most of the people that arelistening to On Boards, is list your
company on the Australian market.
I assume that was to generate capital.
Why Australia?
I would probably sayit was a survival move.
So, new business models that are not wellunderstood by venture capital tend to have
(13:55):
a harder time raising capital over time.
When you have a company that is a complexbusiness model that intersects between
e-commerce and fintech, the number ofinvestors that understand that actually
gets smaller and smaller in the funnel.
I bet.
And so, looking at Australia, we werelooking at potentially selling the
(14:15):
company, trying to raise private capitalin a Series D or going public, and there
was a wave, buy now pay later, eventhough we weren't buy now pay later, a
four-payment model, was going overseas.
The Australian Exchange waslike the NASDAQ of the 1990s.
You could be a hundred milliondollar revenue company and
raise money and have liquidity.
(14:35):
That was always a challenge for us.
I mean, our investors stood behindus, put money into the company, but we
needed to get access to more liquidityso we didn't have to keep constraining
the growth of the company every time Ihad to go out and raise capital, which
would take longer and longer to do.
The other thing is subprime consumers,unfortunately, aren't that popular unless
you're charging them interest fees andpenalties, and if you look at what's
(14:58):
going on, a lot of those companies,their valuations are pretty depressed.
So, I went to Australia to find liquidity.
Marc, you went through the journey fromseed to Series A all the way to that IPO.
Talk a little bit about theboard and the evolution of that
board through that journey.
So, when I started Zebit.
(15:19):
I wasn't the CEO.
I was actually thechief operating officer.
And after about a year, there wasa change and I was made the CEO.
So, typically when a VC firm is founded,pre-seed doesn't really have a board.
You might have a board advisory,maybe an observer, but no real board.
When you get to seed, you mayor may not have a board as well.
Really depends on whatyour investors want to do.
(15:39):
When you get to an A, you have aboard, and the board is typically
composed of your main investors.
You don't have a choice who's put there.
You don't really have a choice of whetheryou get along with them from a chemistry
perspective, whether you have the sameexpectations of how you want to run
the board, the governance, et cetera.
So, for first-time founders, it'svery difficult to understand what am I
supposed to do and how am I supposed tonot anger my investors that are on the
(16:01):
board while I'm trying to be the CEO.
So, it's a big learning journey thatI'm also, by the way, trying to pass
on to our new CEOs in Ulu's portfolio.
But the board started with basicallyinvestors, and then the investors
typically will add an independent orso that are related to that investor.
So, what you have is a board compositionthat is pretty much investor focused,
(16:23):
that's supposed to wear the dual hat.
When I'm in the board meeting,I'm a board member, I'm supposed
to take off my investor hat.
And then when I leave the room, I'man investor, and it's a careful and
delicate balance for a CEO or even amanagement team to understand how to
navigate that and how to understandthe line of demarcation between is
the board managing me or is the boardmanaging the company or am I managing
(16:45):
the company, am I managing the board?
As you get to different series, newboard members are typically added, and
then when you get to a public board,obviously, especially in Australia, we
had to add, to our benefit, independentsthat were representative of the Australian
market and Australian stakeholders.
Marc, a few importantpoints that you highlighted.
(17:06):
So, as you mentioned, when youtake investor money, you may not
have the choice of who comes onas the board member or members.
So, I think for founders, it really is,think about the choice of which investor
you're taking, because that will resultin the board, if you do have a choice.
I think the second thing you highlightedis that even though investors are
(17:29):
trying to compose a well-composed boardwith some management representation,
let's say, two board members andtwo investor board members and maybe
additional observers and one independent,are they truly an independent?
Think founders are alsoadvised to have a say on it.
(17:50):
At least, that it should be amutually-agreed board member,
even if it's an independent.
How then did your late stageboard work in all these important
decisions, and maybe talk a littlebit about your experience and support.
I think you highlighted earlierthat it's also the founder's job to
(18:11):
make the best out of their board.
So, maybe talk a little bit about thataspect of your later stage boards.
Well, I think that, depending ifyou're a first-time founder or a serial
founder, you get to wear the battle scarsand understand what you did wrong in
interacting with your board over time.
(18:31):
And so, for me, I took a veryactive management approach.
I wasn't the chairman of my board, but Iran the board meetings and I facilitated
our chairman's agenda, prepared thecontent, the decision making, the
frameworks, and then really deferredit to him to run the meeting, but I
was basically providing the informationneeded, the decision we were trying to
do, coordination with outside counsel,and then the board meeting would
(18:52):
discuss the matters at hand and vote.
I think there's two thingswe should separate here.
Venture firms where the foundersactually have control over the
organization in terms of voting.
So, founders that are lucky enough tocontinue to maintain 51% have a different
point of view versus founders that getdiluted over time and the board wants
the entrepreneur to be incented, butthe entrepreneur is also replaceable
(19:16):
over time the larger the companycomes, and the entrepreneur has less
of an effect in voting because theydon't really have that capital stake
anymore, and so that's part of it.
So.
I think a lot of entrepreneursdon't know what they don't know
until they actually go through it.
I found that in leading up to theIPO and thinking about the board
(19:37):
differently, what I found was wefound very capable Australian people.
We went through an interview process tomake sure the person not only understood
board governance, et cetera, butinteracted well with the current board.
And part of that is a pro and a conbecause a board where everybody thinks
the same way doesn't necessarilybring in disconfirming evidence
(19:58):
into how decisions should be made.
And then you could potentially, I'm notsaying this happened necessarily, but
then you have board enclaves that actuallypool to toward one another and make it
even more difficult for the CEO to figureout how to get decisions that are done.
That is a great observationabout board composition.
We always talk about the importanceof diversity of perspective.
(20:21):
On the other hand, there has to bea fit and finding kind of balancing
what a fit means, but still havingenough diversity of perspective to make
the board as powerful as it can be.
That is not easy.
In any event, at somepoint, you essentially were
forced to sell the company.
What happened to make that necessary?
(20:44):
Yeah.
So, it took me two years and duringCOVID, missed an IPO window and there's
two windows that happened in Australia,but finally got the IPO to occur and
I tried to learn from all the otherentrepreneurs, the people at Credible,
Zazzle and Rivasem and other individuals,Life360, that went down to Australia.
Australians are very concernedthat American companies are
(21:06):
coming in, running and dumping.
You come, you raise money, yousell, and then the shareholders
are taken advantage of.
And so we really escrowed all ofour individuals in order to not
allow them to sell for 18 to 24months to give stockholders on the
other side of the world confidencethat we're here for the long term.
(21:27):
But the day we actually launched, oneof our holders who wasn't escrowed who
sold his fund, triggered an event thathappened to every other company, which
I tried to avoid, which was he sold.
We went from a $200 million valuation,cut by half within the first hour.
Pretty heartbreaking.
We had a 70% to a 100% year-over-yearforecast delivered against that forecast,
(21:51):
but the market never really recoveredin terms of raising the valuation
relative to our growth and expectations.
I think it was also a fact that a subprimeconsumer doesn't necessarily exist at
all in Australia, and it's hard for themarket to understand the dynamics of that.
There's actually a bad stereotypearound subprime consumers we're trying
(22:13):
to dispel, but it's hard to educatea market from 13, 000 miles away.
Bottom line is after 14, 15 months andthe opportunity to continue to raise
capital in the Australian market butat depressed prices, the board or at
least part of the board advocated todelist the company, which was a very
difficult decision to make because ittook forever to get into a liquid market.
(22:38):
And when you look at hindsight, it'salways interesting when you look back.
We were just six months ahead ofeverybody's valuations getting crushed,
not only in Australia, but in the US.
But we delisted because we'renot getting new valuation, you're
producing all of this growth overprofit, you have $3 million of
costs to maintain a public company.
The board's rationale wasit's more effective to be a
(22:59):
private company at that time.
And that whole process to delist thecompany, take care of shareholders,
go back to a private market that youalready left and now you're stuck
with a late stage stranded companythat's not profitable yet because
we focused on growth, and how toraise the last bit of capital in
order to get it to profitability.
(23:20):
The minute we delisted it, I think itkind of put the nail in the coffin of
a phenomenal company with phenomenalemployees that our customers are
raving about, and I think reallyhelped their financial lives that
doesn't really exist anymore today.
It also goes to show that that'swhat risk taking is, and that's
what a startup business is.
You are starting with somethingthat has not been proven yet.
(23:43):
You do help people and you changea bunch of people's situations.
But in the end, it may or may not workout exactly how everybody expected.
Yeah, there's a positive to this.
One of our board members, who I actuallywork for today, who's an extraordinary
leader and builder of Ulu Ventures.
She's been on my public board.
(24:04):
I asked her to come on, MiriamRivera, and they had so much
conviction in the business.
I've never seen this before.
And they actually bought onmarket after we went public.
So, they bought another couplemillion dollars to prop up the
market as well as to demonstrate thecontinued support for the business.
I could never thank her enough fordoing that, regardless of whether
(24:25):
I wanted to continue to guide hernot to do that and take additional
risk in a late stage company whenshe's an early stage investor.
But sometimes, board members surpriseyou in how much they really believe that
you're going to make an impact on theend consumers, and she is a woman who
has built a firm that is solely focusedon women, minority entrepreneurs, and
(24:45):
diverse teams who don't get a lot ofcapital, like 1.5% of the total capital
allocation of venture, and that led meto really see something from a board
member that I've never seen before andreally embracing the mission, especially
in a new market and trying to convinceother investors through her own actions.
Marc, you're talking about Ulu Ventures.
(25:07):
It's a perfect segue.
Introduce us to Ulu Ventures and whatit is about and what it invests in.
And how do they identifycompanies that fit its mission?
Yeah.
So, Ventures takes a very differentapproach to venture capital.
Miriam Rivera and Clint Korver, whoare a married couple, which is very
(25:28):
non-traditional in venture and amixed married couple, are on fund for.
They raised over $450 million-plus ofcapital, and their focus was, we believe
that diverse entrepreneurs can buildgreat businesses, and there's enough bias
in venture that does pattern matching.
So, you look like me, therefore I wantto invest in you, that, isolate and
(25:49):
alienate women and people of color
So, they started this well beforeimpact investing ever happened,
but they using a decision analyticsframework out of Stanford.
Clint is a PhD from Stanford.
He was taught under the late Ron Howardwho just passed a couple of weeks
ago, which was his mentor, and he'sbringing a probabilistic analysis to
(26:09):
looking at companies in terms of whatthey're, for us, a 10X probability
weighted multiple, and he goes througha number of different analyses to know
whether pencils that are out or not.
He's been using and refining thisframework with the investment
team, and they've had success.
They've had two to three handfuls ofunicorns in their funds, and they have
large portfolio construction, so eachof their funds could take 70 to 80
(26:33):
different investments, but really theywere trying to change the landscape
of how capital was allocated to peoplewith diverse backgrounds, believing
they bring something to the table.
Just like you guys believe, whichI believe too, diverse boards add
value to an organization as a diversepeople base inside, so do diverse
entrepreneurs who lead those companies.
(26:54):
And I think specifically for diverseentrepreneurs, we in venture also
believe that the problem solvingability and the decision making leads
to superior outcomes is another reason.
I mean, for boards, it's decision making,but for startup founders, it is about
execution and solving through problems.
(27:15):
Marc, another thing that we learnedwith Ulu Venture, has board observers,
including yourself, that go into theboardroom and teach entrepreneurs
and help entrepreneurs earlystages on what it is about boards.
Talk a little bit about that andhow that you believe improves the
(27:36):
value and output for Ulu Ventures.
Let me say that Ulu Venturesis all about testing.
It wants its companies to test and iterateand scale and get their proof points.
Ulu Ventures is also testing on a new wayto do founder approach or founder support
that almost mimics a little bit of privateequity in terms of hiring somebody like me
(27:57):
to run the founder support program, whichis inclusive of, let's say, low cost,
high usage platform elements, discountsto marketplaces, jobs, et cetera.
But also aligning my expertise with afounder need, whether it's strategic,
operational, cash flow managementor capital raise, how do we move
the needle, raise the probability ofsuccess that they can raise a Series A.
(28:19):
Most of our companies are seed stage.
One of the opportunities that I've had,which I'm very thankful for, is the
opportunity to join as a board observer.
Now, I'm more invited than placed.
Ulu doesn't place me at a company.
I have to be invited or introduced.
It's like the vampire enteringthe house, so the investment
partner that sits on the board.
(28:41):
The investment partner sits on theboard, sees a strategic need to add my
capability set, introduces me to theentrepreneur, I have a conversation with
the entrepreneur and what's happenedis the entrepreneur has actually
invited me to be a board observer.
So, this has happened multipletimes for like four companies
now in a very short period.
I think my relationship with them, thevalue add I can bring to them based on
(29:02):
the challenge, and then they want to beable to hear a different perspective.
And my role is always in combination sofar with an investment partner, and as the
investment partner who sits on the board,he has to play the traditional board role.
I do not.
I'm supposed to observe.
I tend to observe and I listen, butI also have the ability to chime in,
(29:23):
in a respectful way, that brings anoperational or strategic perspective that
maybe the board member wants to say, butit crosses that line of being a board
member versus being part of management.
But so far, it's worked out well.
So, the fact that the CEO hasinvited you basically enables you to
act differently than board membersand basically act differently than
(29:46):
most board observers because I'mcalling it active board observer.
That's what gives you the okay to do it.
I think so.
I think it's a bridge.
One.
It gives me a mentorship opportunity tohelping a first-time founder understand
how to manage the conversation with theboard, the agenda, the decisions, the
things you're asking the board permissionfor where you don't have to ask them
(30:09):
permission, the information you're givingto them without actually derisking that.
Board members want an efficientunderstanding of what's going on in
the business; what are the risks,what are the mitigations, what
do you want from me, what are wedeciding, how do we move forward?
A lot of CEOs don't know howto structure that conversation.
So, it gives me an opportunity to mentorthem outside of the board meeting through
the projects that I'm working with them onas well as bridging some of the questions
(30:32):
and perspectives that are typically moredelicately handled or aren't necessarily
surfaced in a board meeting that shouldbe asked at that point in time, because
otherwise it wastes a lot of cycles.
You can go from board meeting to boardmeeting to board meeting and still
not get the answer to the questionbecause nobody's willing to kind of
say, "Why are we doing it this way?"
(30:54):
And so, yes, it empowers me a little ina professional and respectful way to be
able to bring to the forefront to tryto accelerate a lot of this stuff for
our founders, because there's two thingsthat are the enemies of our company,
time and cash, and so from an operationsperspective, if I see a clear line
of path, I'm not surprising anybody.
I think I could help facilitate that.
(31:15):
Like I said, so far, I think it'sworked out well because I know what my
place is, but I know what's value addedand I know what's just distracting.
One very important distinction is thatstartup founders often have advisors
or advisory boards or informal mentors,but a key difference here is that in
this type of a role, you are inside theboardroom as well, where an advisor that's
(31:39):
offline or a separate meeting would haveto get that secondhand or something,
and you are also more of a board coachas well and teaching the founders
how to make a best off their board.
I think you've welldefined an active observer.
It is really a different role.
(32:00):
It is.
And I think it's groundedin a couple of things.
One, the CEO and the rest of the boardhave to trust that I'm coming from
a good place, that I'm authentic.
I'm transparent, and I don'topine on things that I have
no clue what's going on.
It's not about me talkingin a board meeting.
It's about me adding valuewhere strategically I think it
would be helpful for the companystakeholders and of course, the CEO.
(32:21):
But I think coming from that placeand building that trust, which from
my management consulting days, within15 minutes of walking in a new client,
you have to establish who you are,why you're there, how are you going
to add value, build some sort ofculture and trust with the team and
then prove it through your actions.
So, I tried to do that by having sessionsbefore any kind of board observer
(32:41):
meeting that I'm invited to in theinitial time, understand their business
in detail; the operating drivers, theirforecast, what their objectives are,
what they're struggling with, the profileof the board members who are on there.
So, I try to come in with a comprehensiveplan about where I can slot value in to
help that CEO and help that board getto the outcome, which is for us pretty
(33:03):
simple, get to the next capital raise.
Because if you get to the nextcapital raise, you've raised the
odds of success overall for an exit.
You learn to live for another day.
So, you're part of an experimentto see if this role works in the
way that they hope it will work.
How's it going so far?
(33:24):
I think it's very hard toprove tangible results.
How's it going so far?
I fully enjoy workingwith these entrepreneurs.
I feel like I'm a call center wherepeople are calling me at Saturday,
Sunday night, Sunday morning, my termsheets in, I'm running out of cash.
I need help with this forecast, butI think that one of the things that
brings me pleasure is I never had thatas an entrepreneur and as one that's
been in multiple startup companies,so it's a way for me to give back and
(33:48):
feel like I'm personally adding value.
Now, the value to Ulu will be, thecompanies that I get to participate in,
because I can't force myself in, theyget to that next capital raise, and so
if I had to answer you today, there'sone company that I've been working with
and coaching the entrepreneur for thelast year, got to know the founding
team, it's a medical device company.
(34:09):
Well, they got a lead term sheet.
So.
If I asked the entrepreneur, did I helpyou do that, I just got off the phone
with him and talking to him about it,he would say, "I probably couldn't have
gotten there without your guidance."
Especially navigating; well, whatdoes this mean, how do I go to
investors, how do I negotiatethis, how do I get another one.
So, there's a lot ofsteps that build there.
(34:30):
But I think so far it's workingand I applaud Ulu's ability to
put funds to help founders in avery different and distinct way.
We'll see.
I think we need probably another yearor so to see whether we want to continue
to invest in this way, but I think thelong answer is, I think it's working.
I think it's a brilliant experiment.
(34:51):
I did notice that on theirwebsite, they refer to you as
the champion of persistence.
And I have to say, I can't think ofa characteristic that would be more
important in what you're doing than justpersistence, because it's a long road,
which must have so many moments where youjust don't know if it's going to work.
(35:14):
Yeah, it's a marathon, startups are amarathon when you're the CEO and you
have everybody's payroll on your back.
You have to do sprints, but you haveto take the long game, and look, I
know I don't know everything, but I'vebeen through a lot of the different
passages and caverns and bridgesand dark places and feelings that a
lot of our entrepreneurs are goingthrough, and I'm not a therapist.
(35:36):
Pretty much, this is kind of a point ofview and you have to make the decisions in
order to get there, but it's a phenomenaljourney to be a founder and go through
this and whether you succeed or fail,you're learning something and hopefully
you're learning something about the peopleyou're employing, the customers you're
serving, the boards you're interactingwith, and the people you trust to be
your thought partners along your way.
(35:57):
How do you think you have madea difference for the young
entrepreneurs with whom you've worked?
That's a really interesting question.
Look, I'm a humble, humbleperson, but I derive all my energy
from the people I work with.
I think I'm making a difference becausethey keep calling me and emailing me
for the next step and the next stage.
(36:18):
Look, this, originally, I came overto Ulu to be an EIR, an entrepreneur
in residence, to start a new company.
I never expected to be in the roleI'm in, and I'm very grateful for it.
I think that entrepreneurs, I thinksome, if they get to an x-ray would
like to see me inside of their company,but I think I'm delivering a lot of
value to a lot of different people.
I just hope that through that, when theybecome successful, or even if they're
(36:41):
not successful, when they get to my ageat 55, and a lot of these people are at
28, 30 years old, they will think abouthow to give back to the entrepreneurs
below them in terms of what theylearned, and so I'm extending myself.
I'm extending my mind, my time, myauthenticity, and also my emotional
support to these entrepreneursbecause they deserve to have
(37:04):
somebody help them along the way.
Well said Marc.
And I think the ultimate thing is thatmoney is fungible in venture, being
able to help and support the company isthe only real thing that distinguishes
one investor from the other, and Ithink it's a tremendous privilege for
(37:25):
folks like us to be able to do that.
Amen.
Marc, it's been greatspeaking with you today.
Thank you so much forjoining us on On Boards.
It's been a pleasure.
Thanks, gentlemen.
I appreciate it.
And thank you all for listening to OnBoards with our guest, Marc Schneider.
Please visit our websiteat OnBoardsPodcast.com.
(37:47):
That's OnBoardsPodcast.com.
We'd love to hear your comments,suggestions, and feedback.
And if you're not already asubscriber, please be sure to
subscribe at Apple Podcasts, Spotify,or wherever you get your podcasts.
And remember to leaveus a five-star review.
Please stay safe and take careof yourselves, your families, and
your communities as best you can.
(38:09):
We hope you'll tune in forthe next episode of On Boards.
Thanks.
Hello and welcome to On Boards, a deepdive at what drives business success.
I'm Joe Ayoub and I'm herewith my co-host, Raza Shaikh.
Twice a month, On Boards is a place tolearn about one of the most critically
important aspects of any company ororganization; its board of directors
or advisors with a focus on theimportant issues that are facing boards,
(00:28):
company leadership, and stakeholders.
Joe and I speak with a wide range ofguests and talk about what makes a board
successful or unsuccessful, what it meansto be an effective board member, and
how to make your board one of the mostvaluable assets of your organization.
Before we introduce our guest today,we want to thank the law firm of
(00:50):
Nutter McClennen & Fish who againsponsored our On Board Summit last
month in their beautiful conferencecenter in the Boston Seaport.
They've been incrediblepartners to us in every way.
We appreciate all they'vedone to support this podcast.
Our guest today is Marc Schneider.
Marc is an e-commerce and fintechoperations executive with a history
(01:14):
of driving revenue and profits and fordelivering extraordinary results as well
as devising effective, viable actionplans for complex business issues.
Marc was the co-founder of Zebit,a mission-driven e-commerce and
fintech company where he served aspresident, CEO, and a board director.
(01:36):
He is currently an operatingventure partner with Ulu Ventures,
the largest Latina-led seed stageventure fund in Silicon Valley,
which invests in women, minorityand diverse entrepreneurial teams.
In that capacity, he has served amongother roles as an active board observer
(01:59):
for companies in which Ulu has invested.
Welcome Marc, and thank you forjoining us today on On Boards.
It's great to have you as a guest.
It's a pleasure.
I appreciate the invitation and Ilook forward to the conversation.
Thanks.
So, we thought the introduction was prettygood and then I saw something online by
(02:20):
one of our favorite podcast guests, LisaThompson, who introduced us to you, and
I'm going to read it to you to kind of leteveryone know just how special you are.
Quote, "if you aren't looking toscale, if you aren't willing to look
in the mirror and make the neededchanges to excel, if you're thinking
(02:43):
incremental instead of radical, thenyou're not ready for Marc Schneider."
So, with that very humble introin mind, can you give us your
background that's led you to havethis pretty unusual set of skills?
That'd be my pleasure.
And yeah, I want to thank Lisa for thatkind comment relative to my background.
(03:03):
I've known her for almost25 to 30 years now.
Time is passing pretty quickly.
I'm a 30-year operator with the last18 years in venture-backed startups and
my history actually combines everythingfrom starting as a consultant for the
World Bank, Inter-American DevelopmentBank and working abroad to going back
(03:25):
and getting my MBA and then goinginto what I would say is hands-on
operational management consulting witha firm that no longer exists, but that
was Champion Hammers Reengineering,the organization group at CSE Index.
I went into private equity and workedin Mexico City, so learned a lot about
fundraising there, came back, started abusiness for a former SEC chairman who
(03:48):
is in charge of all of the corporatefraud victim trust funds, and then
fast forward to 2006, I finally got anopportunity to go into e-commerce and
moved out to California with a companycalled ProFlowers or Provide-commerce,
leading their customer serviceoperations, and eventually being on
the M&A integration team with LibertyMedia to look at all the-commerce deals.
(04:09):
Spent about four years doing that,and then afterwards, was one of the
first 10-plus employees at Zulily Baby,Moms and Kids, fast-growing e-commerce
event organization and then movedback to San Diego to be in fintech,
where I was managing a company calledGain Credit, managing 350 people in
India with the UK customer base anddoing lending to subprime consumers.
(04:33):
And it was really there that I thinkI found my passion for what I wanted
to do and how I wanted to makechange and I started a company called
Zebit with a co-founder of mine.
We spun it to Gain Credit, which wasan e-commerce and fintech company that
was focused on changing how 100 millioncredit-impaired consumers can buy
(04:54):
what they need, pay overtime withoutinterest fees or penalties of any kind,
a transformative kind of mission-drivencompany to change the lives of people
that are plagued with a trillion dollarsof interest fees and penalties, and
they can't get out of the cycle of debt.
So, thank you for the background.
I'd like to talk about Zebit, a companythat you co-founded, ran, served
(05:17):
on the board and in which you werevery involved for quite some time.
It is a mission-driven company, whichI think is your passion, and I think
it'd be great to talk in a littledetail about what it was, what happened,
and then we'll talk about what thegovernance was like for that kind of
late-stage investor-backed company,
(05:40):
Sure.
So, I was with Zabit for seven years.
Think of it as pre-seed to seed,to A to B, and then eventually took
it IPO on the Australian Exchange.
It went through all the different phasesof growth and the transformations of
inheriting a board as a VC company, whichyou have little choice in who actually
comes on your board, but you definitelyhave a choice in terms of how you manage
(06:03):
that board, the information you givethem and how you make it successful.
What was the value proposition of Zebit?
What was it that drove youto work for seven years to
make this company successful?
Yeah, so I grew up in animpoverished kind of background.
I supported my disabled mothersince I was 15 years old.
I went through financial crisis,everything from homelessness to eating
(06:26):
government cheese, food stamps atUniversity of Pennsylvania, et cetera.
And I always thought there was a highercalling in my life that I wanted to
fundamentally change the lives of otherpeople, maybe to substantiate that
we're not all captive by our histories.
Hmm.
That's fantastic.
So, what was the proposition withZebit that would allow people
(06:49):
to kind of emerge from the kindof situation you experienced?
Yeah, so what my co-founder and I sawthat was happening in the United States,
100, 000, 000 people trapped by a cycleof debt because they had bad credit.
Now, a lot of them had bad creditbecause they made poor decisions, but
a lot of them had bad credit becausemaybe they made a poor decision and
because of the financial instrumentsthey were able to get a hold of, the
(07:12):
interest fees and penalties continueto add up, so they never get out of it.
So, we wanted to basically give subprimeconsumers the ability to buy what
they need, think about it as Amazonfor the underserved and pay back over
six months without interest fees orpenalties or paying four times the value
of a product in order to get afloat.
(07:34):
That's pretty challenging thing todo in terms of the business model.
How was that business model built formaking that successful for your customer?
Yeah.
So, we had a very strong setof investors that had a lot of
conviction in this business model.
So, the first thing is if you can'tcharge interest fees or penalties,
or you can't charge 400% APR, and youcan only make your money through the
(07:58):
product margin, you have to make theoperation extremely automated, efficient,
and not tie up your working capital.
So, on the e-commerce side, we had anoperating model that was a 100% dropship.
So, think 120 suppliers, 25 productverticals, no inventory, no warehouses,
no cash going into tying stuff up thatyou would sell like on sale, et cetera.
(08:23):
Fundamentally on the fintech side,we focused on how do we build a big
dataset to model the propensity topay for a customer that we already
know is a 550 or below FICO score.
We know they're bad credit, but howdo we build data within our site to
be able to predict whether they'll payus back on that first order or not?
(08:44):
So, one of the things you told us isthat FICO doesn't tell us why someone has
bad credit and why they didn't pay back.
How did you figure out who those peoplewere that might be worth taking a risk on?
Well, FICO, if you get a report, it'lltell you where all the defaults happened,
but it won't necessarily tell you howto fundamentally separate the goods from
(09:05):
the bads within the defaulted people.
And so we figured what we had to do wasif I present a fair deal, if I give a
consumer something that they can neverget, let's say a 0% credit facility in
the form of store credit to buy the thingsthey need to support their family at fair
prices where they can structure theirpayments over six months that correlate
to when they get paid and how they getpaid, maybe they would raise us in the
(09:29):
payment hierarchy and think about, "I'mgoing to have a store credit line that
grows with me and all I have to do isshop responsibly, pay this company back
over time, and then I get access, justlike everybody else, to fair products and
float, or credit, I'll put my share ofwallet all my transactions in with them."
(09:49):
it was a hypothesis, Joe, thatwe had to prove that could work.
That was the bet.
Right.
So, how do you go about proving it?
Yeah.
So, what we did was webuilt a closed marketplace.
So.
We would underwrite you, so it'sour customer, we're the-commerce
merchant, we acquire customerseither through B2B relationships,
(10:10):
B2B to C, or direct to consumermarketing, bring them on our site.
We have two bites to the apple.
We bring people in, we validate theirincome, their identity, et cetera.
We bring them into our marketplace,and then we tracked all of the consumer
behavior happening in the marketplace.
So, if you didn't have a username andpassword, you couldn't get in, and we
modeled that behavior for a first-timecustomer, repeat customer and a customer
(10:34):
that was on the platform for a longerperiod of time of the propensity to
repay back, and so this is everythingof what they're looking at, how fast
they go through, are they loading theircarts up, are they trying to overextend
their line, even though they have a storecredit line, and we're watching that
first payment, which is also balanced bywhat we call a down payment at checkout.
So, we're making them put a littlebit of skin in the game, structuring
(10:57):
their payments, and then over time,the model is building what is the
right consumer behavior that leads toa lower bad debt on the first order.
What we found was, once somebody passedor has paid off their first order,
their bad debt goes down by like 50%.
So, let's say 20% of the people defaultafter six months, that bad debt on
(11:18):
their second, their bad debt as acohort goes down to like 10%, they're
on our platform for three or four years,they actually look like the three of
us super prime customers who don'tdefault on their debt, but really their
underlying credit score isn't changing,their behavior with the company is
So, this is the reverse of thedebt cycle that people face.
(11:39):
It's a virtuous cycle that they get into.
That's correct, and it's a very,very difficult cycle to get out of.
And so how did we prove it?
But we never pulled FICO, but wecan do what's called a retro append.
So, we took our customers after sevenyears, the ones that have survived and
continue to buy with us and consolidatetheir purchases and we pulled their
credit file, and we wanted to see atour time-based analysis when they came
(12:02):
in and seven years down the road, hastheir underlying credit profile changed?
By and large, it didn't.
They were 550 FICO scores, even thoughwe didn't use it, but we could pull
it, on a anonymous basis, and sevenyears later, they were still at 550.
But to us, they look like 850 FICO scores.
So, what did that say?
They valued the product.
(12:23):
They saw a fair deal.
They saw that they were working inunison with a mission-driven company
that was actually trying to changetheir lives, whether it was a birthday,
emergency purchases, Christmas holiday,et cetera, who else, or where else
would you be able to get a 0% creditfacility that grows with you and
all you have to do is not abuse it.
So, essentially you gather datathat really supported the initial
(12:47):
proposition based on what youhave observed from their behavior.
Yes, the data came over time of buildingwhere you have millions of customers
coming in, millions of applications,millions of orders, millions and
millions of order attempts, and thenseeing the repayment curves and then
using real machine learning modelsthat are actually trained to understand
(13:09):
what we call an efficient frontier.
So, what is the trade off between whatyou put down the risk of that order
and the willingness of the organizationto accept a certain level of bad debt?
You obviously can't get rid of baddebt, but you won't approve anybody,
you won't take any orders, so there'salways that trade off of where the
business is and how the algorithms areworking to get to the financial goals.
(13:30):
So, one of the things you said youdid, which is probably not typical
for most of the people that arelistening to On Boards, is list your
company on the Australian market.
I assume that was to generate capital.
Why Australia?
I would probably sayit was a survival move.
So, new business models that are not wellunderstood by venture capital tend to have
(13:55):
a harder time raising capital over time.
When you have a company that is a complexbusiness model that intersects between
e-commerce and fintech, the number ofinvestors that understand that actually
gets smaller and smaller in the funnel.
I bet.
And so, looking at Australia, we werelooking at potentially selling the
(14:15):
company, trying to raise private capitalin a Series D or going public, and there
was a wave, buy now pay later, eventhough we weren't buy now pay later, a
four-payment model, was going overseas.
The Australian Exchange waslike the NASDAQ of the 1990s.
You could be a hundred milliondollar revenue company and
raise money and have liquidity.
(14:35):
That was always a challenge for us.
I mean, our investors stood behindus, put money into the company, but we
needed to get access to more liquidityso we didn't have to keep constraining
the growth of the company every time Ihad to go out and raise capital, which
would take longer and longer to do.
The other thing is subprime consumers,unfortunately, aren't that popular unless
you're charging them interest fees andpenalties, and if you look at what's
(14:58):
going on, a lot of those companies,their valuations are pretty depressed.
So, I went to Australia to find liquidity.
Marc, you went through the journey fromseed to Series A all the way to that IPO.
Talk a little bit about theboard and the evolution of that
board through that journey.
So, when I started Zebit.
(15:19):
I wasn't the CEO.
I was actually thechief operating officer.
And after about a year, there wasa change and I was made the CEO.
So, typically when a VC firm is founded,pre-seed doesn't really have a board.
You might have a board advisory,maybe an observer, but no real board.
When you get to seed, you mayor may not have a board as well.
Really depends on whatyour investors want to do.
(15:39):
When you get to an A, you have aboard, and the board is typically
composed of your main investors.
You don't have a choice who's put there.
You don't really have a choice of whetheryou get along with them from a chemistry
perspective, whether you have the sameexpectations of how you want to run
the board, the governance, et cetera.
So, for first-time founders, it'svery difficult to understand what am I
supposed to do and how am I supposed tonot anger my investors that are on the
(16:01):
board while I'm trying to be the CEO.
So, it's a big learning journey thatI'm also, by the way, trying to pass
on to our new CEOs in Ulu's portfolio.
But the board started with basicallyinvestors, and then the investors
typically will add an independent orso that are related to that investor.
So, what you have is a board compositionthat is pretty much investor focused,
(16:23):
that's supposed to wear the dual hat.
When I'm in the board meeting,I'm a board member, I'm supposed
to take off my investor hat.
And then when I leave the room, I'man investor, and it's a careful and
delicate balance for a CEO or even amanagement team to understand how to
navigate that and how to understandthe line of demarcation between is
the board managing me or is the boardmanaging the company or am I managing
(16:45):
the company, am I managing the board?
As you get to different series, newboard members are typically added, and
then when you get to a public board,obviously, especially in Australia, we
had to add, to our benefit, independentsthat were representative of the Australian
market and Australian stakeholders.
Marc, a few importantpoints that you highlighted.
(17:06):
So, as you mentioned, when youtake investor money, you may not
have the choice of who comes onas the board member or members.
So, I think for founders, it really is,think about the choice of which investor
you're taking, because that will resultin the board, if you do have a choice.
I think the second thing you highlightedis that even though investors are
(17:29):
trying to compose a well-composed boardwith some management representation,
let's say, two board members andtwo investor board members and maybe
additional observers and one independent,are they truly an independent?
Think founders are alsoadvised to have a say on it.
(17:50):
At least, that it should be amutually-agreed board member,
even if it's an independent.
How then did your late stageboard work in all these important
decisions, and maybe talk a littlebit about your experience and support.
I think you highlighted earlierthat it's also the founder's job to
(18:11):
make the best out of their board.
So, maybe talk a little bit about thataspect of your later stage boards.
Well, I think that, depending ifyou're a first-time founder or a serial
founder, you get to wear the battle scarsand understand what you did wrong in
interacting with your board over time.
(18:31):
And so, for me, I took a veryactive management approach.
I wasn't the chairman of my board, but Iran the board meetings and I facilitated
our chairman's agenda, prepared thecontent, the decision making, the
frameworks, and then really deferredit to him to run the meeting, but I
was basically providing the informationneeded, the decision we were trying to
do, coordination with outside counsel,and then the board meeting would
(18:52):
discuss the matters at hand and vote.
I think there's two thingswe should separate here.
Venture firms where the foundersactually have control over the
organization in terms of voting.
So, founders that are lucky enough tocontinue to maintain 51% have a different
point of view versus founders that getdiluted over time and the board wants
the entrepreneur to be incented, butthe entrepreneur is also replaceable
(19:16):
over time the larger the companycomes, and the entrepreneur has less
of an effect in voting because theydon't really have that capital stake
anymore, and so that's part of it.
So.
I think a lot of entrepreneursdon't know what they don't know
until they actually go through it.
I found that in leading up to theIPO and thinking about the board
(19:37):
differently, what I found was wefound very capable Australian people.
We went through an interview process tomake sure the person not only understood
board governance, et cetera, butinteracted well with the current board.
And part of that is a pro and a conbecause a board where everybody thinks
the same way doesn't necessarilybring in disconfirming evidence
(19:58):
into how decisions should be made.
And then you could potentially, I'm notsaying this happened necessarily, but
then you have board enclaves that actuallypool to toward one another and make it
even more difficult for the CEO to figureout how to get decisions that are done.
That is a great observationabout board composition.
We always talk about the importanceof diversity of perspective.
(20:21):
On the other hand, there has to bea fit and finding kind of balancing
what a fit means, but still havingenough diversity of perspective to make
the board as powerful as it can be.
That is not easy.
In any event, at somepoint, you essentially were
forced to sell the company.
What happened to make that necessary?
(20:44):
Yeah.
So, it took me two years and duringCOVID, missed an IPO window and there's
two windows that happened in Australia,but finally got the IPO to occur and
I tried to learn from all the otherentrepreneurs, the people at Credible,
Zazzle and Rivasem and other individuals,Life360, that went down to Australia.
Australians are very concernedthat American companies are
(21:06):
coming in, running and dumping.
You come, you raise money, yousell, and then the shareholders
are taken advantage of.
And so we really escrowed all ofour individuals in order to not
allow them to sell for 18 to 24months to give stockholders on the
other side of the world confidencethat we're here for the long term.
(21:27):
But the day we actually launched, oneof our holders who wasn't escrowed who
sold his fund, triggered an event thathappened to every other company, which
I tried to avoid, which was he sold.
We went from a $200 million valuation,cut by half within the first hour.
Pretty heartbreaking.
We had a 70% to a 100% year-over-yearforecast delivered against that forecast,
(21:51):
but the market never really recoveredin terms of raising the valuation
relative to our growth and expectations.
I think it was also a fact that a subprimeconsumer doesn't necessarily exist at
all in Australia, and it's hard for themarket to understand the dynamics of that.
There's actually a bad stereotypearound subprime consumers we're trying
(22:13):
to dispel, but it's hard to educatea market from 13, 000 miles away.
Bottom line is after 14, 15 months andthe opportunity to continue to raise
capital in the Australian market butat depressed prices, the board or at
least part of the board advocated todelist the company, which was a very
difficult decision to make because ittook forever to get into a liquid market.
(22:38):
And when you look at hindsight, it'salways interesting when you look back.
We were just six months ahead ofeverybody's valuations getting crushed,
not only in Australia, but in the US.
But we delisted because we'renot getting new valuation, you're
producing all of this growth overprofit, you have $3 million of
costs to maintain a public company.
The board's rationale wasit's more effective to be a
(22:59):
private company at that time.
And that whole process to delist thecompany, take care of shareholders,
go back to a private market that youalready left and now you're stuck
with a late stage stranded companythat's not profitable yet because
we focused on growth, and how toraise the last bit of capital in
order to get it to profitability.
(23:20):
The minute we delisted it, I think itkind of put the nail in the coffin of
a phenomenal company with phenomenalemployees that our customers are
raving about, and I think reallyhelped their financial lives that
doesn't really exist anymore today.
It also goes to show that that'swhat risk taking is, and that's
what a startup business is.
You are starting with somethingthat has not been proven yet.
(23:43):
You do help people and you changea bunch of people's situations.
But in the end, it may or may not workout exactly how everybody expected.
Yeah, there's a positive to this.
One of our board members, who I actuallywork for today, who's an extraordinary
leader and builder of Ulu Ventures.
She's been on my public board.
(24:04):
I asked her to come on, MiriamRivera, and they had so much
conviction in the business.
I've never seen this before.
And they actually bought onmarket after we went public.
So, they bought another couplemillion dollars to prop up the
market as well as to demonstrate thecontinued support for the business.
I could never thank her enough fordoing that, regardless of whether
(24:25):
I wanted to continue to guide hernot to do that and take additional
risk in a late stage company whenshe's an early stage investor.
But sometimes, board members surpriseyou in how much they really believe that
you're going to make an impact on theend consumers, and she is a woman who
has built a firm that is solely focusedon women, minority entrepreneurs, and
(24:45):
diverse teams who don't get a lot ofcapital, like 1.5% of the total capital
allocation of venture, and that led meto really see something from a board
member that I've never seen before andreally embracing the mission, especially
in a new market and trying to convinceother investors through her own actions.
Marc, you're talking about Ulu Ventures.
(25:07):
It's a perfect segue.
Introduce us to Ulu Ventures and whatit is about and what it invests in.
And how do they identifycompanies that fit its mission?
Yeah.
So, Ventures takes a very differentapproach to venture capital.
Miriam Rivera and Clint Korver, whoare a married couple, which is very
(25:28):
non-traditional in venture and amixed married couple, are on fund for.
They raised over $450 million-plus ofcapital, and their focus was, we believe
that diverse entrepreneurs can buildgreat businesses, and there's enough bias
in venture that does pattern matching.
So, you look like me, therefore I wantto invest in you, that, isolate and
(25:49):
alienate women and people of color
So, they started this well beforeimpact investing ever happened,
but they using a decision analyticsframework out of Stanford.
Clint is a PhD from Stanford.
He was taught under the late Ron Howardwho just passed a couple of weeks
ago, which was his mentor, and he'sbringing a probabilistic analysis to
(26:09):
looking at companies in terms of whatthey're, for us, a 10X probability
weighted multiple, and he goes througha number of different analyses to know
whether pencils that are out or not.
He's been using and refining thisframework with the investment
team, and they've had success.
They've had two to three handfuls ofunicorns in their funds, and they have
large portfolio construction, so eachof their funds could take 70 to 80
(26:33):
different investments, but really theywere trying to change the landscape
of how capital was allocated to peoplewith diverse backgrounds, believing
they bring something to the table.
Just like you guys believe, whichI believe too, diverse boards add
value to an organization as a diversepeople base inside, so do diverse
entrepreneurs who lead those companies.
(26:54):
And I think specifically for diverseentrepreneurs, we in venture also
believe that the problem solvingability and the decision making leads
to superior outcomes is another reason.
I mean, for boards, it's decision making,but for startup founders, it is about
execution and solving through problems.
(27:15):
Marc, another thing that we learnedwith Ulu Venture, has board observers,
including yourself, that go into theboardroom and teach entrepreneurs
and help entrepreneurs earlystages on what it is about boards.
Talk a little bit about that andhow that you believe improves the
(27:36):
value and output for Ulu Ventures.
Let me say that Ulu Venturesis all about testing.
It wants its companies to test and iterateand scale and get their proof points.
Ulu Ventures is also testing on a new wayto do founder approach or founder support
that almost mimics a little bit of privateequity in terms of hiring somebody like me
(27:57):
to run the founder support program, whichis inclusive of, let's say, low cost,
high usage platform elements, discountsto marketplaces, jobs, et cetera.
But also aligning my expertise with afounder need, whether it's strategic,
operational, cash flow managementor capital raise, how do we move
the needle, raise the probability ofsuccess that they can raise a Series A.
(28:19):
Most of our companies are seed stage.
One of the opportunities that I've had,which I'm very thankful for, is the
opportunity to join as a board observer.
Now, I'm more invited than placed.
Ulu doesn't place me at a company.
I have to be invited or introduced.
It's like the vampire enteringthe house, so the investment
partner that sits on the board.
(28:41):
The investment partner sits on theboard, sees a strategic need to add my
capability set, introduces me to theentrepreneur, I have a conversation with
the entrepreneur and what's happenedis the entrepreneur has actually
invited me to be a board observer.
So, this has happened multipletimes for like four companies
now in a very short period.
I think my relationship with them, thevalue add I can bring to them based on
(29:02):
the challenge, and then they want to beable to hear a different perspective.
And my role is always in combination sofar with an investment partner, and as the
investment partner who sits on the board,he has to play the traditional board role.
I do not.
I'm supposed to observe.
I tend to observe and I listen, butI also have the ability to chime in,
(29:23):
in a respectful way, that brings anoperational or strategic perspective that
maybe the board member wants to say, butit crosses that line of being a board
member versus being part of management.
But so far, it's worked out well.
So, the fact that the CEO hasinvited you basically enables you to
act differently than board membersand basically act differently than
(29:46):
most board observers because I'mcalling it active board observer.
That's what gives you the okay to do it.
I think so.
I think it's a bridge.
One.
It gives me a mentorship opportunity tohelping a first-time founder understand
how to manage the conversation with theboard, the agenda, the decisions, the
things you're asking the board permissionfor where you don't have to ask them
(30:09):
permission, the information you're givingto them without actually derisking that.
Board members want an efficientunderstanding of what's going on in
the business; what are the risks,what are the mitigations, what
do you want from me, what are wedeciding, how do we move forward?
A lot of CEOs don't know howto structure that conversation.
So, it gives me an opportunity to mentorthem outside of the board meeting through
the projects that I'm working with them onas well as bridging some of the questions
(30:32):
and perspectives that are typically moredelicately handled or aren't necessarily
surfaced in a board meeting that shouldbe asked at that point in time, because
otherwise it wastes a lot of cycles.
You can go from board meeting to boardmeeting to board meeting and still
not get the answer to the questionbecause nobody's willing to kind of
say, "Why are we doing it this way?"
(30:54):
And so, yes, it empowers me a little ina professional and respectful way to be
able to bring to the forefront to tryto accelerate a lot of this stuff for
our founders, because there's two thingsthat are the enemies of our company,
time and cash, and so from an operationsperspective, if I see a clear line
of path, I'm not surprising anybody.
I think I could help facilitate that.
(31:15):
Like I said, so far, I think it'sworked out well because I know what my
place is, but I know what's value addedand I know what's just distracting.
One very important distinction is thatstartup founders often have advisors
or advisory boards or informal mentors,but a key difference here is that in
this type of a role, you are inside theboardroom as well, where an advisor that's
(31:39):
offline or a separate meeting would haveto get that secondhand or something,
and you are also more of a board coachas well and teaching the founders
how to make a best off their board.
I think you've welldefined an active observer.
It is really a different role.
(32:00):
It is.
And I think it's groundedin a couple of things.
One, the CEO and the rest of the boardhave to trust that I'm coming from
a good place, that I'm authentic.
I'm transparent, and I don'topine on things that I have
no clue what's going on.
It's not about me talkingin a board meeting.
It's about me adding valuewhere strategically I think it
would be helpful for the companystakeholders and of course, the CEO.
(32:21):
But I think coming from that placeand building that trust, which from
my management consulting days, within15 minutes of walking in a new client,
you have to establish who you are,why you're there, how are you going
to add value, build some sort ofculture and trust with the team and
then prove it through your actions.
So, I tried to do that by having sessionsbefore any kind of board observer
(32:41):
meeting that I'm invited to in theinitial time, understand their business
in detail; the operating drivers, theirforecast, what their objectives are,
what they're struggling with, the profileof the board members who are on there.
So, I try to come in with a comprehensiveplan about where I can slot value in to
help that CEO and help that board getto the outcome, which is for us pretty
(33:03):
simple, get to the next capital raise.
Because if you get to the nextcapital raise, you've raised the
odds of success overall for an exit.
You learn to live for another day.
So, you're part of an experimentto see if this role works in the
way that they hope it will work.
How's it going so far?
(33:24):
I think it's very hard toprove tangible results.
How's it going so far?
I fully enjoy workingwith these entrepreneurs.
I feel like I'm a call center wherepeople are calling me at Saturday,
Sunday night, Sunday morning, my termsheets in, I'm running out of cash.
I need help with this forecast, butI think that one of the things that
brings me pleasure is I never had thatas an entrepreneur and as one that's
been in multiple startup companies,so it's a way for me to give back and
(33:48):
feel like I'm personally adding value.
Now, the value to Ulu will be, thecompanies that I get to participate in,
because I can't force myself in, theyget to that next capital raise, and so
if I had to answer you today, there'sone company that I've been working with
and coaching the entrepreneur for thelast year, got to know the founding
team, it's a medical device company.
(34:09):
Well, they got a lead term sheet.
So.
If I asked the entrepreneur, did I helpyou do that, I just got off the phone
with him and talking to him about it,he would say, "I probably couldn't have
gotten there without your guidance."
Especially navigating; well, whatdoes this mean, how do I go to
investors, how do I negotiatethis, how do I get another one.
So, there's a lot ofsteps that build there.
(34:30):
But I think so far it's workingand I applaud Ulu's ability to
put funds to help founders in avery different and distinct way.
We'll see.
I think we need probably another yearor so to see whether we want to continue
to invest in this way, but I think thelong answer is, I think it's working.
I think it's a brilliant experiment.
(34:51):
I did notice that on theirwebsite, they refer to you as
the champion of persistence.
And I have to say, I can't think ofa characteristic that would be more
important in what you're doing than justpersistence, because it's a long road,
which must have so many moments where youjust don't know if it's going to work.
(35:14):
Yeah, it's a marathon, startups are amarathon when you're the CEO and you
have everybody's payroll on your back.
You have to do sprints, but you haveto take the long game, and look, I
know I don't know everything, but I'vebeen through a lot of the different
passages and caverns and bridgesand dark places and feelings that a
lot of our entrepreneurs are goingthrough, and I'm not a therapist.
(35:36):
Pretty much, this is kind of a point ofview and you have to make the decisions in
order to get there, but it's a phenomenaljourney to be a founder and go through
this and whether you succeed or fail,you're learning something and hopefully
you're learning something about the peopleyou're employing, the customers you're
serving, the boards you're interactingwith, and the people you trust to be
your thought partners along your way.
(35:57):
How do you think you have madea difference for the young
entrepreneurs with whom you've worked?
That's a really interesting question.
Look, I'm a humble, humbleperson, but I derive all my energy
from the people I work with.
I think I'm making a difference becausethey keep calling me and emailing me
for the next step and the next stage.
(36:18):
Look, this, originally, I came overto Ulu to be an EIR, an entrepreneur
in residence, to start a new company.
I never expected to be in the roleI'm in, and I'm very grateful for it.
I think that entrepreneurs, I thinksome, if they get to an x-ray would
like to see me inside of their company,but I think I'm delivering a lot of
value to a lot of different people.
I just hope that through that, when theybecome successful, or even if they're
(36:41):
not successful, when they get to my ageat 55, and a lot of these people are at
28, 30 years old, they will think abouthow to give back to the entrepreneurs
below them in terms of what theylearned, and so I'm extending myself.
I'm extending my mind, my time, myauthenticity, and also my emotional
support to these entrepreneursbecause they deserve to have
(37:04):
somebody help them along the way.
Well said Marc.
And I think the ultimate thing is thatmoney is fungible in venture, being
able to help and support the company isthe only real thing that distinguishes
one investor from the other, and Ithink it's a tremendous privilege for
(37:25):
folks like us to be able to do that.
Amen.
Marc, it's been greatspeaking with you today.
Thank you so much forjoining us on On Boards.
It's been a pleasure.
Thanks, gentlemen.
I appreciate it.
And thank you all for listening to OnBoards with our guest, Marc Schneider.
Please visit our websiteat OnBoardsPodcast.com.
(37:47):
That's OnBoardsPodcast.com.
We'd love to hear your comments,suggestions, and feedback.
And if you're not already asubscriber, please be sure to
subscribe at Apple Podcasts, Spotify,or wherever you get your podcasts.
And remember to leaveus a five-star review.
Please stay safe and take careof yourselves, your families, and
your communities as best you can.
(38:09):
We hope you'll tune in forthe next episode of On Boards.
Thanks.
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