Ian Rountree, founder of Cantos Ventures, shares an insider view on his 40+ investments focused on frontier technology. He talks about the experience of angel investing as a better education in venture capital than an MBA degree.
Ian Rountree, founder of Cantos Ventures, shares an insider view on his 40+ investments focused on frontier technology. He talks about the experience of angel investing as a better education in venture capital than an MBA degree.
Ian Rountree: [00:00:00] The same Kleiner Perkins fund that had Google in, it had segway in it. But no one gives a flip that segway was in that fund because Google returned 10,000 decks. And that's a dramatic example, but that's more or less how it plays.
Gopi Rangan: You are listening to the shore shot entrepreneur
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. Welcome to the shore shot. I'm your host Gopi Rangan today's guest is Ian Roundtree. The founder of Cantos specie Cantos is an early stage venture capital firm focused on frontier technologies.
In today's discussions, we will hear from Ian about his journey into venture capital through [00:01:00] FinTech. We will talk about opportunities for frontier technologies to transform legacy industries. We will specifically talk about details, investors like Ian. At early stage deep technology startups. Ian, welcome to the show shot entrepreneur.
Yeah.
Ian Rountree: Great to be here. Um, I'm glad you're doing this.
Gopi Rangan: Tell us about yourself.
Ian Rountree: So I I'm originally from Florida, grew up in south Florida, the son of a single mother. My dad passed away when I was young. He was from North Carolina. So I have a deep Southern roots. My mother, however, grew up in the Philippines, Tokyo and the bay area.
Her family is mostly up here. So I, I grew up the child. Mother working in the public school district and a low income neighborhood. And my father was a Marine and of course he passed away earlier, not in combat, but my aunt had married a very successful venture capitalist out here. And so I grew up [00:02:00] kind of between these two worlds, spending my summers with them in San Francisco and getting some exposure to the tech world.
And then. Spending, you know, most of the school year and, uh, solidly middle-class family in south Florida. So a child of two coasts. And then I went to school in Tennessee, lived there for 10 years, working in healthcare consulting and at a nonprofit before I moved out west. So that's, you know, we can go into how I got into tech, but that's kind of the high level.
Gopi Rangan: Oh, that's great. Looks like, uh, although you grew up in south Florida, you always have this loyalty for the west.
Ian Rountree: I did. Absolutely. Yeah. Although my 10 years in Tennessee gave me enough of a, of a Twain that that is
Gopi Rangan: how did...
Ian Rountree: so I, um, have always been motivated, I think, because I was exposed to the top 0.01% out here by way of that part of my family, but grew up, you know, Kids who are getting in trouble [00:03:00] or doing bad things or not being, doing bad things and getting blamed for it. Hard circumstances. I was always driven to bridge those two worlds and more broadly by creating a positive change with my limited time here on the planet.
So I originally thought I was going. To be a doctor, it started pre-med and then it was just to add, to focus on the individual problems and wanted to think a bit more high level, just because my thinking is a bit Marcus stalled and moved to political science, specifically international relations thinking I'd go on to work at the UN or who or something, but ended up getting frustrated by how slow moving those organizations are.
By my own fault, just too impatient for it. And so I ended up working for a nonprofit after school became frustrated there, the limited scale and came to understand incentives a little better understood then that if you could solve problems in a cashflow positive manner, [00:04:00] then. You could act quickly have scalability and maybe people make money along the way.
In which case you recycle it to the next thing you create this positive resonance. And so I became very interested in social enterprise and impact investing knew then that I needed some exposure to the for-profit world. Ended up getting a consulting job in healthcare, back in Nashville, where I had gone to school.
Was there for about two years, or we were a hybrid of management consulting and software implementation realized that though our staff reflected a focus on the former, the impact was largely derived by the ladder, which was a smaller team of software engineers. And then a couple of us on the project would specialize on that.
And I said, Gosh, this is where all the, uh, you know, few lines of code can create so much value in a very important industry. I want to spend more time on that. Not being an engineer knew that it was going to be more on the support side and ended up through my cousin, getting connected to the first [00:05:00] employee at what was then called social financing.
Now better known as sofa and. Joining them part-time while I was still in consulting and then just going all in. I quit my consulting job and moved in with my uncle and their guest bedroom. Eight years ago. Um, and I ended up working full time at sofa when they were. And
Gopi Rangan: where was that? Was that in the Silicon valley?
Ian Rountree: Oh, it was San Francisco. Yeah. So it was still in the Presidio. And we worked from a little office. There were about 12 of us originally. And so it's surreal to me to see the billboards and, you know, the new Rams chargers stadium is going to be so far stadium, which I can still hardly.
Gopi Rangan: It's fascinating to hear the story all over from Florida, Tennessee, and as you experimented different things, political signs and other things.
And eventually you came to Silicon valley and giving out loans, student loans, and that's one area. And how did you bridge from there? Frontier technology, deep technology.
Ian Rountree: That's a good question. So I knew that [00:06:00] from 10 to a hundred people and wanting to get into investing, which I started doing in very small increments.
When I was at sofa, you know, I was meeting all these interesting entrepreneurs and my family wanted me to go to business school. Look, I I'm refinancing business school loans. I can tell you the value prop is a little different than when you went, you know, 30 years ago, it's much more expensive and I'm here in the thick of things.
And if I know I'm interested in Metro capital and why don't I just take my savings and I was going to put toward business school and make 10 small angel investors. And I'll blow through all my savings, but it will be one third, the cost of going to business school, I can keep generating income and they'll learn specifically about what I want to learn.
And I'll probably even worst case scenario if I lose it all, which I probably will because I didn't really know what I was doing. And I didn't have a big enough portfolio to cast a broad net. I'd probably still be a different kind of app. When I try and get an associate gig at a VC job. So it made sense to me.
All of my family was not having a
Gopi Rangan: clever way [00:07:00] to think about education.
Ian Rountree: But yeah, I mean, you have to, we have to rethink education, but that's another topic again, my mother is an educator, so that's part of my background too, but I knew getting into investing that I could do one of two things. I could either follow FinTech downstream, or I could continue seed investing.
In which case I might make some FinTech investments, but I also needed to keep looking for that new, new thing. Technology-wise and I chose the latter mostly because then. What I'm interested in, but also because it meant I could start with a smaller fund. And as I was, you know, angel investing or I say cherub investing, cause they were tiny checks.
Let me tell you, I couldn't participate in these later rounds. I mean, as soon as the company took seed funding from an institutional VC, it was out of my league and they wouldn't take my, you know, $10,000 checks. I was writing.
Gopi Rangan: What types of topics do you focus on these days
Ian Rountree: For your investments? If you look at my portfolio page, it seems all over the place, but we're going to, we're going to rework that to [00:08:00] paint it in a timeline.
And there you'll see that I began investing in FinTech and then I moved to these other verticals in SAS. And then I started saying, you know, okay, Once we've juiced. Most of what's available in those industries. Based on this technology, we have to start looking out at the frontier of the innovation curve because innovation and economic progress tends to happen in fits and spurts, or if you will, a step curve or, or maybe even an S curve.
And I think of that in terms of these infrastructure jumps and then application layers, and you can trace this. All the way back to the printing press if you want. But in more modern terms, if we think about the integrated circuit and networked computing and then the internet and the worldwide web, and then AWS and mobile and, or I should say cloud and mobile and going forward, we might get more advances along [00:09:00] that information technology timeline.
I began to look broader in what those infrastructure changes might look like, not just in advanced computing. So there you've got maybe quantum computing or even DNA based computing of a company called catalog. That's working on that. And crypto is interesting because it's along that information technology curve, but I'm very interested in what's happening alongside that in biology and new materials and energy, um, and triangulating that with an economic.
The view that makes sense is the difficulty which I can go into, but I've now zoomed out a bit cast a broader net. And so I have investments in therapeutics as well as in FinTech.
Gopi Rangan: So I see that over the years, you've made more than 40 investments in startups, especially in front of your technology. In deep technology.
It's very difficult to raise the first round of funding when there's so much needs to be proven in terms of technology products. And most people don't understand these type of [00:10:00] technologies that are so forward looking. How do you make decisions? Maybe you could give one example and kind of walk through your thought process on how you made the decision to make.
Ian Rountree: Yeah, and it's, it's always evolving. If you're not learning, then you're dead. You know, so it is different today. And I'll describe that because I think it's, it's a bit more useful. So again, if we spoke to the technology curve, but if we zoom out in terms of economics and business building and investing in those businesses, you have to think of businesses at their core as organizations whose purpose is to produce returns above their cost of care.
Or that new technology allows you to have network economies, network effects in your business. And once that flywheel spins very hard for a competitor to catch up. So that's why technology is important, but it's only important to the extent it gives you an ability to produce returns above your cost of capital and defend that [00:11:00] over time.
So I've seen that. Maybe most electrically in a portfolio company of ours called Sonya gin, which is using synthetic biology, CRISPR, CAS based to produce enzymes that are making hydrogen peroxide and a couple other chemicals in many more chemicals. Plant waste from corn syrup, essentially that we make from oil today.
Now they can make those chemicals at a lower cost than the petrochemical plants can not to mention. They're also bio-based, but you know, let's pretend that's beside the point. Again, going back to the economic value equation, they can make those chemicals in a miniaturized bioreactor that could fit in, you know, a small warehouse.
Whereas their competitors, the petrochemical plants are these a hundred, $500 million facilities. And so this miniaturization allows them to have a more [00:12:00] disparate production base, thus lowering their logistics costs. And that technology is. Not only better at the unit basis, but it enables a new distribution model that the incumbents can't compete with just because they can't miniaturize their plants.
And so that technology that creates a new business model makes them doubly valuable. And those are the types of quote, unquote deep tech or frontier tech startups that I'm most interested. Is not just the technology or technology sake, but technology allows a new business model or perhaps it creates some network effects that make that company much more valuable in the long run, because investors are willing to pay a lot more for that type of business.
Gopi Rangan: So de-carbonizing the chemical industry. That's a big mission. That's a very bold mission. How do you evaluate an opportunity like this? Like what stage do you meet companies like solar? Jen, what
Ian Rountree: do you look. Oh, as early as possible, because I think if you're playing [00:13:00] the early stage game appropriately, it is in large part probabilistic.
The reality of venture returns across time is that the vast majority of the returns are produced by a very small percentage of the companies that is the power law of venture capital returns is frequently referred to, but I learned this viscerally because in my angel portfolio of 11 company, Going back to 2012.
Now eight years later, seven of those companies are dead too, or, you know, continued to raise funding. You know, moving along it, maybe two, three X, the 10th one is sitting about four or five X and about to achieve profitability. And I'm very optimistic about maybe it returns. You know, most of the portfolio, the 11th is sitting at close to a hundred X is profitable, doing $50 million in revenue and growing two and a half, three times year over year.
So it doesn't really matter what the other 10. [00:14:00] That is across time in the top performing venture capital portfolios. There's some effect that looks like that. The same Kleiner Perkins fund that had Google in it had segway in it. But no one gives a flip that segway was in that fund because Google returned 10,000 decks and that's a dramatic example, but that's more or less how it plays out.
And so you have to embrace that and lean into the risk and instead ask. What happens if everything's right, can this produce the type of return, such that it trivializes every other company in the portfolio, and then just the hard truth of venture capital returns, because it means at times, you know, an entrepreneur might know that a venture capitalist doesn't maybe care as much about their business as the one that's starting to take off.
The good venture capitalists will distribute their time proportional. Across the portfolio and that's a covenant between the investor and the entrepreneur that has to be settled on. And I very much believe in, but the reality is that the returns are going to [00:15:00] be produced by a very small subset of the company.
And so I look for the potential upside, which is where is there technology that is. Ideally it's self proprietary, but not necessarily because the proprietary technology hopefully enables that new business model or enables network effects that makes that company defensible over time. Or as Hamilton Helmer puts, it has power that sustains that value over time and is operating in a market big enough.
That value is. Wildly disproportionate to the average cost of the investment across the portfolio. The goal being that, that single each single company could potentially return one and a half times the fund, at least.
Gopi Rangan: So when you meet, say a hundred companies yep. A subset of them do invest in, like, let's say you pick up 10% of them, depending on your ratio,
Ian Rountree: closer to one and a half percent, but yeah.
Gopi Rangan: [00:16:00] Okay. One and a half percent. So let's say you meet 500 companies and you choose to invest in the five to 10 companies among the 10 companies you expect. One of them do really make it and compensate for any losses in the other. But all the 500 of them look quite similar. At least the top hundred of them will look quite similar.
And even the top 10 that you choose to invest in, look quite similar. How do you choose the 10 out of the 500?
Ian Rountree: Yeah. And again, I should point out that it's not Tam as it exists today, you have to, you know, those were the scifi nut comes in. You have to think what the addressable market is going to be that might even be created by this technology.
The Tam today might be easy. Um, as it is for, you know, let's say quantum computing, but you have to project that forward. And so it's the future future revenue opportunity times your defensibility, which is driven by the technology and so diligence the technology. But I also have to believe that the team is [00:17:00] capable of building that future of executing on that vision.
And if they have the most mindblowing proprietary technology I've ever seen, and the market's huge. But I get the sense that the entrepreneur is not going to be able to hire fundraise and sell. Then it's effectively dead in the water. This is where venture capitalists will tell you. It's all about the team.
It's all about the team after you've answered those first couple of questions of market size and eventual defensibility. That's a nuance. That is, that is, you know, the art of venture capital was reading.
Gopi Rangan: So I hear a few things here I'll need to culminate. The first thing is of course, a defensible technology is something proprietary.
And the second thing is the future projection of the market. And you look for a large market where this product or solution the Bible and
Ian Rountree: large future mark. Yeah.
Gopi Rangan: Future market. It may not exist today. Like quantum computing is a good example. [00:18:00] People aren't buying quantum computers today, but you project that sometime in the future, there will be a huge demand.
And then once you check these two, then you go to the third one, which is what a lot of people talk about, which is team. I can this team execute and build a business. Yeah. It's a combination of art and science. Has your, has your thought process evolved in the past few years ever since you started
Ian Rountree: you betcha?
I, um, there's, I've
Gopi Rangan: made a lot of mistakes. Like I, I, if I look back my own time in the past 10 years, I learned a lot from that and I'm very thankful to the entrepreneurs that work with me. They were very patient. I'm glad that I have great relationships with. But I'm always curious to learn how your thought process and other investors like me who have been in the game for
Ian Rountree: while articulating actually came from a process of asking why I made certain investments.
Maybe I shouldn't have, or why didn't make some, I should [00:19:00] have. And the errors of commission that is the companies I invested in that have struggled are largely attributable to. My misread, the team's execution ability and that often correlates to whether or not it's their first time running a business, but not always, that is only a corollary and the data will tell you that second time entrepreneurs values are.
Higher proportional to their performance. And so it's more or less priced in, but it's very much true that, you know, you make a lot of mistakes. First time around just as I have through my investing career, entrepreneurs are running. Their first business are gonna make mistakes that entrepreneurs running their second business might not assuming they have a propensity to learn.
Um, there's plenty of people who repeat mistakes and we try and avoid those. Those are easier to see a first time. Entrepreneur is a little bit harder to judge. And so I think you have to do that. Assessing their thought processes, how they reason their business from first principles, how they set objectives, what key [00:20:00] results they're looking for, how they manage their team and how they press on hard questions, how they admit failures and seek to correct those.
I think a lot of that kind of strategic thinking and team building is distilled nicely through a finance lens and Ray Dalio's principles book, which I'd highly recommend to founders, but then. Once I've maybe learned to correct for some of those errors of commission and venture capital, going back to the power of law, often your bigger mistakes are the errors of omission, which ones did you not invest in that you should have?
And some of those for me are like depression, inducing. I mean, there's just something that I completely missed. And if I look to the attribution of those errors of omission of mine, they're almost always due to sticker shock. There was some valuation, even at the seed round that I thought was crazy, but I thought it was crazy relative to my fixed perception of what a seed stage [00:21:00] valuation should be.
Not to the potential upside of the business. And that's where I started asking this question of how can I better project the potential for a business early on, such that I can flex the valuation I'm willing to pay. When I see something really special, rather than just drawing an arbitrary line valuation wise and say, I'm not going to invest in anything over that, because look, if you had invested in Shopify at the IPO, you'd be up 58.
And that's better than most venture capital returns, but you would have bought 0.001% of the company or whatever. And you would have gotten, you know, crap from your LPs or other investors for not having enough ownership, but ownership doesn't really matter. It's just a proxy. It's something we can control.
And so people tend to fixate on it. So I'm trying to control a bit more for how big can the company be, which goes back to this value equals Tam times defensively. And
Gopi Rangan: that's the difficult part about venture capital. On one [00:22:00] side, you have fear of missing out, but you don't want to have a herd mentality where you follow everybody else in the same direction.
Ian Rountree: Absolutely. Yeah. Great. And going back to Howard, Morgan's a matrix of consensus, not consensus, right wrong. You want to be right. And
Gopi Rangan: non-consent. Well, we've covered a lot of territory today. I think if we keep talking, we'll uncover a lot more things there's so much happening and there's so many interesting topics for us to discuss this.
This has been fun for me as well.
Ian Rountree: Absolutely. Yeah. You distilled it. That's that's the playbook I can retire.
Gopi Rangan: Yeah. That's your formula. And I bet the next time we talk, your formula is refined and I see that evolution in your story as well. It
Ian Rountree: hasn't that I'm not doing my job.
Gopi Rangan: I asked about community leadership.
So what is an activity that you're passionate about a nonprofit organization or some community activity?
Ian Rountree: One of the, the most multiplicative value [00:23:00] creators on the nonprofit side that I've been exposed to. And I have a heck of a lot to learn. This is not my job. I should copy out to just an interest of mine is legal aid because low-income.
People families, communities don't have access to civil legal defense. Our laws provide a public defender for criminal offenses, but they do not for civil offenses. Right. So if you're being evicted or there is a divorce case or a child custody case, if you're poor, Sol, because we don't provide you with a defender in those cases.
And there's some data that has that I'd love to see more of that implies the return to those communities of legal aid is about 21 to one. So for $1 put into legal aid, you get $21 created in that community or for that fee. That is [00:24:00] extremely compelling to me. And it's leveraged further because I believe in using these non-profits to solve.
Political holes and prove maybe to our regulators, that that should be a public initiative. So it's already 21 to one, but if we can show maybe in one community, and there's a nonprofit called Opendoor legal down Bayview here in San Francisco that works on this. And if we could prove that it works, there may be then state legislatures and the Congress eventually passed.
Civil defense as they do public defenders for criminal defense. And you've got a far more multiplicative effort because that's the type of thing that really interests me. And I wanna learn more about it if people know more about that, I'll talk to them, but open-door legal in Bayview is one that I've kept my eye on.
Gopi Rangan: This is great. And thank you so much for spending time. I really enjoyed this discussion. I think we could have gone for at least another hour and geek out on so many [00:25:00] different topics, technology and venture cap.
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