Rick Zullo talks about bridging the digital divide in legacy industries by supporting founders with experience. Authentic relationships with industry experts is important, not just a rolodex of CXOs.
Rick Zullo talks about bridging the digital divide in legacy industries by supporting founders with experience. Authentic relationships with industry experts is important, not just a rolodex of CXOs.
Highlights:
More details at https://podcast.sure.ventures
A lens around what is the right founder for this industry, that goes above and beyond their resume and more to the intangibles of their relationships, their integrity, their management style, and ultimately their passion for the market, which I would say the folks who demonstrate and live, sleep, and eat the industries that they work in, you know, those are the folks that we want to back.
[00:00:27] Gopi Rangan: You are listening to The SureShot Entrepreneur,
a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision.
Hello, and welcome to another episode of The Sure Shot Entrepreneur. I'm your host, Gopi Rangan. My guest today is Rick Zullo.
Rick and I will discuss his investment philosophies and how it's different from other venture capital investors. You will learn about underpenetrated industry opportunities in various sub segments that Rick focuses on. You will also learn about how he invests in seed-stage startups, what kind of characteristics, what kind of strengths he looks for in entrepreneurs.
Before we go into more detail, let me first introduce Rick to you. Rick Zullo is the co founder and general partner at Equal Ventures. Equal Ventures was founded by Rick and his co founder Richard Kerby, and the firm is based in New York and typically the firm invests in seed stage startups. Welcome, Rick.
[00:01:43] Rick Zullo: Thanks for having me, Gopi.
[00:01:45] Gopi Rangan: Tell us about yourself. Let's start with the different things that you did before you came into venture capital industry and how you decided to start Equal Ventures.
[00:01:56] Rick Zullo: Yeah. So, I'm one of the two managing partners of a firm called Equal Ventures. We're a $56 million seed-stage fund focused on bridging the digital divide, based in New York city.
You know, for us, that really means how do we transform legacy sectors of the economy, insurance supply chain, retail infrastructure, care economy, couple of the things that are nearest and dearest to the way that we work and live. My career really spans, you know, going through a couple of different phases.
I had worked primarily in energy and sustainability for a couple of years, both in college and shortly after ended up doing a lot of work with the Department of Energy and government agencies and utility clients. And like, while I was working at a Deloitte consulting for about five years out in the strategy and operations consulting team there, uh, got the chance to see my first bubble really blow up there.
Shortly after the credit crisis, which, you know, seeing those two things happening on the onset of my career, you know, a large credit financial crisis as well as clean tech bubble really pop certainly informed a lot of the way that that we invest today, but ended up being one of the things that really forced me into technology and understanding other high growth sectors of the economy outside of clean tech. And was fortunate to get the opportunity to join a firm called LightBank run by two of the best entrepreneurs, you know, arguably on the planet, Eric Lefkofsky and Brad Keywell, you know, founders of Groupon, Echo Global Logistics, InnerWorkings, and Mediaocean so a couple of IPOs and a close to a billion dollar exit to this, uh, you know, got the chance to join them just as they, uh, you know, we're starting a company in the industrial IOT space area that I did super passionate about.
Um, and then ultimately, you know, through the course of the four years that I worked there, got the chance to work with a handful of great companies, either as a board member, companies like Snapsheet and Benchprep, or as an investor at companies like Excel, Battery, Catalytic, RiskMatch, or as an angel investor in companies like Rigup, to really hone and improve that thesis and ultimately bring that to New York, where I got the chance to be an investor for LightBank and starting a New York office there before starting what is now Equal Ventures, which has just been a phenomenal experience to really take that next step as an investor and be a founder myself in building a organization that I think is the truest form of investing for me as a person.
[00:04:19] Gopi Rangan: This is very interesting. You've given a very colorful description of your career, and I see that with your experience at consulting and working at other firms and making very sound investments, you've built a broad array of experiences.
I'm really curious. At Equal Ventures, what's your investment philosophy? And how is that different from other firms?
[00:04:43] Rick Zullo: Our firm, one of the things that that I really like to think, uh, that that we pride ourselves on is, is being a student of, uh, not just, you know, the broader economy, but of other investment perspective.
So, you know, we look at a lot of those firms that are investing in mobile apps or product experts or, you know, technology experts. And we think that there's been a robust ecosystem of investors, founders, and kind of service providers built for that. As As we look at what we think is a new innovation phase it's really focused on not technology development, but technology deployment, you know, we think it's actually a really fundamentally different exercise. You know, if you're going to try to figure out how you modernize and transform the oil and gas value chain, or if you're looking at insurance, you know, what are the solutions that really are needed to modernize a lot of that infrastructure and elevate that industry or if we're looking at something like senior care and child care and some of those care dynamics that we discussed earlier, what are the solutions that that market needs? And we think that really requires more nuanced knowledge of those industries because it's so incredibly complex. Um, so as we look at those industries, we feel like we need to not just be technologists and not just kind of have, uh, the best practices of Silicon Valley.
But we need to borrow from other investment philosophies, uh, because we're not just focused on creating kind of technology value and defensibility, but it's really thinking about production. How can we leverage technology to make these industries more efficient or to improve the quality of life for individuals?
And that requires a lot of the same disciplines that, you know, I've seen from the private equity school of thought when I worked at LifeView, you know, as well as from the value investing principles that I saw at Columbia Business School. And we've tried to meld that together with both the venture experiences that I've had working at a couple of different firms at various different stages, as well as my partner's, uh, you know, venture experience that he's had working at growth stage with IVP and more traditional early stage venture in Venrock: two of the most stalwart firms in venture capital.
[00:06:44] Gopi Rangan: How do you do that? What kind of technologies do you prefer? Or are there certain types of industries? You touched on care and a few other things. What's your preference?
[00:06:53] Rick Zullo: So there's probably three segments to that. When we're looking at industries, there's four C's for us.
We want CATALYSTS, you know, we think about COMPETITION, uh, we think around CONNECTIVITY, uh, and we want COMPLEXITY. So, you know, we're looking at the industries that we think have the most cataclysmic change, you know, that are going to create basically tailwinds for the next couple of decades, that if we're on the front of that, you know, we're going to be part of a really successful transition into that.
And, you know, uh, there's a couple of industries that we've already highlighted and we'll certainly talk more broadly about that as a firm, you know, but these are big, huge portions of GDP, um, that touch every aspect of our lives, that we think are just going through really cataclysmic change right now.
We want to make sure that we're identifying industries that are significantly complex so that we are compensated for the time that we spend researching and understanding the nuance of those. You know, so you wouldn't see us in kind of things that have surface level complexity. We want the things that are hard.
We want the things that are complicated. We want the things that the standard one-size-fits-all approach doesn't work for. That's where we shine. We also want to avoid competition. We want to go to places that we think are under penetrated from a venture perspective because that's where founders need us the most.
And, you know, being in those sectors really enables us to develop a pool position to be a leader. And we think that's extremely important from a differentiation perspective. And, lastly, they need to be places that we already have organic connectivity to. If I told you that I'm a healthcare expert or a real estate expert, that's just not true. But, can I pull up a bunch of fortune 500 executives in the trucking and logistics landscape, or, in the insurance landscape? You know, you better believe it.
And we think that that level of connectivity really enables us to provide a lot of value to the entrepreneurs, which the entrepreneur class here is also what we would believe represents a little bit of a different point of view than the myopic perspective of what the stereotypical entrepreneur is in the traditional Silicon Valley sense.
So, uh, we've backed founders from geographies that most investors have never invested. My first six investments at LightBank we're in six different States. Our first five, six investments at Equal Ventures are in three different geographies. We think that's the future. We think the future of entrepreneurship is going to be more dispersed. But we also think it's going to be more democratized. So the reality is, you know, we think that this is also a very different type of founder than an existing test. This isn't someone who is born with a computer in their hand when they were six years old hacking away. You know, that can be the case for folks who are going to redefine these industries, but technology has just become so much addressable to the mainstream. A lot of these industries require such nuanced knowledge, deep relationships with folks in those industries that we think that it kind of bucks the trend of the prototypical entrepreneur that the, the pattern recognition of Silicon Valley firms is really reinforced.
So, we think the future of entrepreneurship is going to be more dispersed in that. And part of that is the industry nature of what we invest in enables those founders and those companies to be closer to their customers and that's extremely important. But we also think it's gonna be much more democratized. So it's not the typical founder that went to a certain set of schools and certain set of background experiences.
A lot of the founders that we've backed and had success with have never worked at startups before. They come from industry or someone like Kabir Sayed from RiskMatch, you know, his company was based in Greenwich, Connecticut. He was in his late 40s. He wore suits. There were a lot of venture investors who said, this guy is not going to be a great founder.
And sure enough, we had a phenomenal exit with Kabir in a very, very short run. And I think that demonstrates the diversity that we can add to the landscape. Of having a broader point of view on what is a great founder, because for each one of these industries, you're going to have founders of different profiles that really fit that market.
The founder of a child care company is going to look unequivocally probably different in terms of experiences, core competencies, background that they have than someone who's going to transform the trucking industry or the insurance industry. So, we really want to take that nuanced viewpoint to make sure that we can have an understanding of: what's the right founder for the industry is based on the knowledge that we have for those industries? And certainly there are types of business models that we prefer over others, which, we're happy to talk about as well.
[00:11:08] Gopi Rangan: Yeah, I can see we are cut from the same cloth. I've had this philosophy that investors need to meet entrepreneurs where they are, versus the old school venture capital style where entrepreneurs need to come to investors. I respect many of those firms that still have that philosophy and they only invest in areas they're comfortable and typically in their own local regions. But I have invested in many different cities: New York, Boston, Cincinnati, Minnesota, Atlanta, Seatle and other places.
What do you look for in an entrepreneur when you first meet them? Maybe you could pick an example of one or two companies and show how that conversation evolved.
[00:11:53] Rick Zullo: Yeah, as I look at some of the entrepreneurs in our portfolio right now, as well as some of the entrepreneurs that we worked in the past, the contrarian bets that we've taken, the non obvious ones, you back someone like Sean Chou, who was the co founder of FieldGlass, a company that sold for a billion dollars. You know, Sean could have raised from anybody.
I'm frankly lucky and fortunate that he let me go on that journey with him and the company has performed incredibly well since, you know, but it's not exactly a contrarian bet to back someone who's been part of building a billion-dollar company before. The more difficult bets to take are the folks who have never worked at startups before but have amazing industry expertise, have in some cases a chip on their shoulder, so to speak, that they're out there to prove something, you know, but just have a tremendous amount of passion. And then, you know, as you look at them as individuals, uh, just really understand the degree of integrity and leadership that they have.
And, you know, I've been fortunate to work with a handful of entrepreneurs that I just think are really, really great demonstrations of that. If you look at the teams from Vetteri or the team at RigUp or the team at RiskMatch, you know, uh, across all three of those companies, which, you know, um, two of those had very successful exits and RigUp is currently valued at $2 billion.
In none of those companies the founders had ever worked at startups before.
[00:13:11] Gopi Rangan: So what strikes you in those conversations when you first meet them?
[00:13:15] Rick Zullo: So, you know, in all cases, they're kind of longstanding relationships that you get to know and see someone evolve over time. For RigUp, I was fortunate to go to business school with Mike and he was just one of these guys who was absolutely incredibly intelligent, had the opportunity to go to Ivy league schools, but decided that he was going to go walk on to the Texas A& M football team. You know, he's the type of person who, you know, could, uh, argue in class with other folks and go toe to toe with anybody who was, you know, in the value investing program and going to go work at a hedge fund, like Jana Capital Partners or Appaloosa, you know, and do so with a tin of Copenhagen, you know, on his desk right in front of me.
He, he just perfectly fit and had come from the bones of the oil and gas industry, you know, really knew that, you know, he was going to persevere based on his intellect and passion and experience from relationships that he had, if they had the proper funding and support. I think as I look at Brett and Adam, you know, very, very similar yet, you know, folks who were incredibly passionate, incredibly hardworking, had incredible insight, knew the industry but really struggled to raise capital.
You know, got the chance to get to know those guys, work with them, and eventually, you know, be one of the first investors in that company. You know, you look at Kabir, all very similar story. These companies struggle to raise money because it's harder to understand the nuances of the staffing industry and oil and gas industry or the insurance industry.
But, you know, taking the time to really understand those, you know, I really think enables you to have a lens around what is the right founder for this industry that goes above and beyond the resume and more to the intangibles of their relationships, their integrity, their management style, and ultimately, their passion for the market; which I would say, the folks who demonstrate and live, sleep and eat the industries that they work in, those are the folks that we want to back.
[00:15:07] Gopi Rangan: So with people who you have a past relationship and you have an existing relationship, there's time for you to pick up on things, form an opinion. Is that typical among the investments that you've made? Like how many investments have you made with Equal Ventures so far? And how many of them are on founders who you or your partner have known for a while?
[00:15:28] Rick Zullo: Yeah, I would say the average length of relationship, you know, with us and the founders that we worked with is honestly years. This is one of the beauties of being able to start a firm having been investing, you know, my partner's been an investor for eight years. I'm coming up on eight years now as well.
We've had the chance to know strong operators in the ecosystem for a long time, and being embedded in these industries, we get the chance to know and come across folks that we want to work with down the road. And I think, you know, that's made some of those investment decisions easier and able to go faster.
But make no mistake, when we're meeting a new entrepreneur for the first time, we're not the type of firm that's putting down a term sheet by the end of the week. One of the investments that is demonstrating a lot of promise for us is a case where you had two founders who worked together for eight years at an insurance company called Sun Life. They were extremely high performers in that industry. They left their jobs that were high paying jobs to go start a company that provided software to employee benefits brokers, really seeking to transform a lot of the efficiencies and in that value chain.
And frankly, really struggled for several years. But was fortunate that we got connected to them through some industry insiders that we knew who believed in the product and believed in the team, you know, we probably spent about 10 months getting to know that team. We spent a lot of that time helping them think through pivoting the company, which as we look at where they are today versus where they were, when we initially met them, they were a SaaS company selling software to empoyee benefits brokers. Today, their service is completely free to employee benefits brokers, and they're monetized as a marketplace, and they are just having tremendous success.
So you know, we love the opportunity where we get the chance to know a team kind of play a part in helping inform a very early vision, tweak it and refine it and really rolling up our sleeves to help those founders take the next big step at the business.
So we're confident that that company is going to have a lot of success moving forward, but it was really one that the entire venture industry ignored them until what is now seeming like a much more obvious investment opportunity.
[00:17:39] Gopi Rangan: Yeah, I remember in our past conversations to you mentioned that you almost like to incubate the business and you want to form that investment thesis drill down on the opportunity to uncover nuances and build a business around it and along with it find the right kind of CEO and management team to come together.
Uh, I think that's sort of what you did with Gerry and we are both investors.
[00:18:04] Rick Zullo: We have indeed incubated companies and Gerry is one of them that we're very proud of. Farron's a founder that I've known for many years. And as we were going through the process of researching the space felt really compelled. There's few people who understand the elder tech and long term care industry better than Farron Blanc. As we kind of try to validate that hypothesis with him, he got so excited that he wanted to be a part of building that company.
That said, our general strategy is we are investors first and foremost, and there will certainly be opportunities that we find so compelling and so timely that we'll incubate companies and both Ven rock and LightBank have had success with incubating companies in the past.
And hopefully we will demonstrate success in doing so with Equal Ventures, but for us, when we're investing, we know that the founders are the stars of the show. And I think that's incredibly important. What we like to do is really just be the service provider. So, you know, I think this is where, you know, spending five years living on planes as a consultant, really informed my point of view on how we want to work with entrepreneurs that, you know, we understand they're the ones doing all the hard things.
They're the ones making the tough decisions on hiring and they're the ones betting their careers on the line, which is absolute love working with founders because in many ways they're heroes in their own right. Our role is to really help them kind of take things to the next level, which if we can go and say, well, maybe instead of a SaaS strategy, you try a marketplace strategy based on other things that we've seen work well in the market,
that represents our ability to bring some of the best practices that we've seen Work in other sectors that have similar conditions or bring concepts that we validated with our network experts and take two founders who are already great and take them really to that next level, by giving them a few pieces of targeted advice that we feel really confident in. When we find that our vision of what is a compelling playbook for that industry maps well with that the founder has, the founder brings their own inspiration to, you know, that's when we have our greatest success.
[00:20:09] Gopi Rangan: So what can founders do, especially in the first few days, few weeks and few months of building that relationship?
How does that help you evaluate them?
[00:20:19] Rick Zullo: Honesty and self awareness. I look back at forming our relationship with Ryan, the CEO of WatchHour, you know, Kabir, the CEO of RiskMatch, or Brett and Adam from Vettery. Those were all kind of long processes that it took for us to get to know each other.
In all those cases, I'm not sure if we ever had an investment deck. They were never pitching us. And, you know, that's what I love about those relationships. We got the chance to know each other. They were extremely upfront about the challenges and opportunities of their businesses, and authentically looking for advice.
They said, "what would you do in this circumstance? Here's what we're thinking." And sometimes they'd say, "Rick, I think you're wrong" but sometimes they'd say, "Rick, I think you're right." And, you know, I think we weren't always right. We're wrong, actually in fact, a lot more than we're right. That is the job of being a venture capitalist. But it's true. Yes, being able to have really good structured debates, you know, about strategy and making a two way conversation, I just think is so important. And, you know, frankly, it's something that the venture ecosystem has lost a little bit.
[00:21:20] Gopi Rangan: You said it really well. There's a lot of misunderstanding, because of TV shows and things like that, where entrepreneurs go out and pitch and investors sit back in a fancy chair and give them scores and somehow sometimes even harsh comments. That's really not how it works in the real world in venture capital.
There's a lot of collaboration, building chemistry. And the reason why the chemistry happens is because of the honesty and self awareness that you mentioned. Some of the best entrepreneurs I've worked with have that self awareness and the honesty really helps bring out all the challenges and you put it out on the table and you discuss.
That makes it a lot easier. You said it, a lot more articulately than I've heard before. We're going deeper and deeper on some of the interesting topics here. You covered a lot of territory. You started with your own background starting with consulting, working at other firms, and investing in geographies that other venture investors don't go, and you kind of kept that philosophy going forward with Equal Ventures.
The way you focus on legacy industries to transform those industries with digital solutions. That's quite interesting where you like to work with entrepreneurs who have a lot of nuances and understanding of a certain domain and they've marinated in that space and the way they think is very different from some two kids in a garage trying to build a website platform by themselves without much experience in the industry.
Uh, you talked about these complex industries which have so many different, uh, aspects to it. Being a student of that broader economy is how you look at it and I like that phrase. You've been quite humble. You say that you don't have a lot of pedigree, but I see you do, including your business school, but I understand what you're saying that there's a lot of bias towards pedigree and brands, and we don't need to do that.
And there are very good investment opportunities in the asset class actually favors people who come with hunger that matters more than pedigree.
[00:23:11] Rick Zullo: I think our strategy works for us, and that's not to say that we're not going to back, you know, founders who come from those schools or those type of pedigrees. We just want to make sure that our viewpoint of what a founder can be and what a successful founder can be is a very broad definition and a very nuanced one.
[00:23:30] Gopi Rangan: I like the way you finished some of your comments that founders are the heroes and VCs are in a service provider business and you look for honesty and self awareness. I want to transition to the next part and ask you about community leadership activities that you're involved in. Which non profit organizations are you passionate about and why?
[00:23:55] Rick Zullo: Yeah, so community and thinking about broader impact is something that's incredibly important to, you know, both my family as well as our firm. My partner, Richard Kerby has been, you know, just a tremendous leader for diversity in the venture and broader tech ecosystem. He's been championing organizations like Stealth Mode, which is a online offline organization for African Americans in tech, you know, that's probably about 1500, 1600 people strong now. He's been extremely involved in various mentorship organizations, and we've made that a part of Equal Ventures. Every summer we bring on an individual from a historical black college and university. And we think that's a great way to increase top of the funnel for diversity and broader venture tech ecosystem.
On the personal side, outside of the broader tech and venture ecosystem, my wife is a cancer survivor. Her mother has been battling pancreatic cancer for the last year or so. Pancreatic cancer is certainly one of the most terrifying diseases that you will find out there and, uh, organizations like Jimmy V and others are doing incredible work for funding cancer research.
And then lastly, you know, I think it's important to think locally. One of my favorite organizations that I've been involved with over the last couple of years is an organization called Social Venture Partners, which has various chapters across the country.
They don't have a chapter in New York city for some reason, but while my wife and I were in Chicago, we were both partners with them and their, uh, social venture philanthropy organization where, you know, we'll actually take board seats and organizations, uh, the members actually put up their own capital to fund transformation of nonprofits, to enable them to get to levels of sustainability, and having sustainable impact.
[00:25:39] Gopi Rangan: Well, thank you so much for sharing your time and your insights. It's great to see that both at home with your wife and also at your firm with your partner, you're actively involved in many community activities. And your insights that you shared today will be very useful for entrepreneurs. I wish we could talk more and keep keep this going, but we're up at time.
Will I look forward to working with you and collaborating with you on more opportunities like Gerry?
[00:26:06] Rick Zullo: Looking for that as well.
[00:26:10] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast. I look forward to catching you at the next episode.