The following interview is a conversation we had with Brett Calhoun, GP at Scale VC, on our podcast Category Visionaries. You can view the full episode here: Funding the Future with Brett Calhoun, GP at Scale VC
Brett Calhoun
Bret, thanks for having me.
Brett
Feels kind of weird, right?
Brett Calhoun
Saying Brett, there’s only been one other occurrence where I had a solo call with a Brett, so this is definitely unusual.
Brett
All right, well, we’ll do our best to both navigate this together. Now let’s kick things off with just a quick summary of who you are and a bit more about your background.
Brett Calhoun
Yep. So Brett Calhoun, based in Columbia, Missouri, which is pretty unique for a VC to be based. We’re in the heart of Missouri between St. Louis and Kansas City, currently managing director and general partner at a fund called Scale VC. And we invested the idea to early traction phase and founders across North America general is fund so we will back any founders in software, hardware, tech. I would say anything in life science or bio is a little bit outside our purview though we can dive a little bit more, I guess later into exactly what we do at Scale. But prior to scale, I’ve been on the start on finance and then I’ve been on the investor and operator side, did the whole CPA route at undergrad, started doing valuation work and that was really bucketed into sell side M A litigation and intangible technology valuations for PE roll ups.
Brett Calhoun
Got into the venture space in grad school and obviously wasn’t exposed to it until then, which a lot of people in the Midwest aren’t. Had the opportunity to work with a fund investing in Missouri founders and quickly became very curious about the Was. It definitely wooed me right out the gate. I hadn’t ever experienced, I haven’t ever even heard of venture capital until grad school. So from there, obviously fell in love with backing founders who were really passionate about building their dreams and had worked with one of our portfolio companies called Patient. So I was an early employee there. It’s about a series seed fintech now and they’re also based in Columbia, Missouri. Fast forward a little bit. Worked with the Legal Tech Fund and we had started a company when I was there, I was on the founding team company called Cap Gains. So we’re building complex or software for complex tax incentives.
Brett Calhoun
So thing called QSBS, which if you’re an investor, founder, anybody that’s a shareholder of an early stage tech startup listening to this call it’s something that’s very important, that could save you millions of dollars one day in taxes. And also started a company called Charlie Mike, which were financing closing costs on VA mortgages and grew that to about a million arr in twelve months and then skip over. A few things end up at scale now, which we started two years ago with my partners Willie Schlax and Jane Malik, and that is me.
Brett
And what’s the tech landscape like in Missouri today? We haven’t had many people on the show who come from Missouri. So if you can paint a picture for us, that would be awesome.
Brett Calhoun
I mean, it’s a vibrant tech scene. Now if you compare it to like SF, it obviously doesn’t look vibrant, but there’s a lot of great entrepreneurs in the space, a lot of first time founders, a lot of founders coming out of, I would say like the tech space there really started booming probably a decade ago. So now you have a lot of early employees at those companies leaving and starting companies. So we’re in that period where it’s really starting to be a very fruitful ecosystem, especially in Kansas City, which is kind of the up and coming city in the state. And then Columbia, Missouri, which is really unique where we’re based, it’s a town of about 120,000 people. And what a lot of people don’t know is that two of the top 25 YC companies actually came out of Columbia, Missouri. So one being Zapier and the second being Equipment Share, which is the company my partners in scale started.
Brett Calhoun
Both of those companies are multibillion dollars now and Equipment Share is multibillion in revenue. Other companies that come out of Columbia are like Carfax Beyond Meat, Veterans, United Home Loans, so a handful of multi billion dollar companies. And I think one thing that a lot of people don’t recognize from Missouri is because a lot of founders there just have a ton of humility and tend to fly under the radar and to move away from preps. And so a lot of the cool stuff happening in Missouri tends to not get picked up by TechCrunch and other news sources because they just don’t care. But it really is a growing and vibrant ecosystem.
Brett
And do you only invest in companies that are based there or does it not matter? The location of the teams based in.
Brett Calhoun
North America would love to expand it internationally, but as you know, small teams, so we have bandwidth. Love supporting founders locally, which obviously we have the capacity to do that. We’ve unfair advantage fund in Columbia. We’ve got a great partnership with the University of Missouri and their endowment invested in us. Actually going to launch a student accelerator on campus over there and help support student. It’s been a lot of great alumni come out of University of Missouri. It’s generally primarily untapped. So talking about University of Missouri, it’s a whole system. So there’s four main universities underneath the system and one of them is like Missouri S and T, which is where Jack Dorsey came out of. And then University of Missouri, there’s a handful of people. Obviously equipment Chair had a couple of founders from Azoo zapier Goodleep, Hayes Barnard, who’s one of the top 400 richest people in the US.
Brett Calhoun
Or 4000, I can’t remember, don’t mark me for that one. But we primarily invest across North America. We don’t really have geo barriers.
Brett
And can you tell us a bit more about scale VC and the size of the fund and any of the other investments that you’ve made that our audience may know about?
Brett Calhoun
Yeah, so we’ve only been around for two years, so a lot of our investments have not really come to fruition. We’re basically on Fund One, which is kind of our dip the toes in the water first fund was friends and family. We put essentially like an SPV together and deployed that over twelve months into about 20 companies writing small checks. Fund two is $5 million. We have 34 LPs. University of Missouri Endowment Shelter, Insurance. And then we’ve got a handful of successful operators from the Missouri area, kansas City to St. Louis. We write fifty K to one hundred and fifty K checks. And then our product really is capital plus support. On the support side, one thing that makes us unique, obviously, is that we’re in if you, if anybody ever mentioned the fund in Columbia, they’re going to know who it is. But from a support perspective, there’s like this growing trend for the platform.
Brett Calhoun
Know you help founders with network effects and resources and getting intros to certain like, we can do that and we can do that for people in Columbia, Missouri and get them access to folks in NSF to New York, to Miami, to Washington, or we can help do that with people in New York City or San Francisco. But the unique level of support because everybody that’s somewhat getting us becoming a saturated market. The unique level of support is the fact that we have a lot of really successful operators who are financially involved and personally involved on an intimate level and want to because they’ve created generational wealth for themselves and how they want to help other people do the same. And we’re talking for example, my partner Willie, who’s him and his brother started Equipment Share and he’s grown the product team there to a few hundred people.
Brett Calhoun
And that entails building out the largest equipment rental marketplace in the world. Construction management software, robotics, telematics, which allows us to cover software to hardware and be deeply involved in the customer and product discovery journey founders are taking. And not just from an investor’s perspective of being able to learn from Osmosis, have pattern recognition from investing in companies, but from pattern recognition from hiring 10,000 people, building teams of thousands, and raising billions of dollars and launching multiple products. And so Willie has really dedicated a lot of his time and so have a lot of other founders around the table who are advisors. If you look on our website, I don’t want to mention all of them, but that has really given us an edge and how we can support companies. And a lot of people don’t believe it at first, but when you see somebody at that caliber, you feel like it’s more just for marketing, but it’s not.
Brett Calhoun
Our team is extremely responsive, and we do it right here at Columbia, Missouri.
Brett
And I’m sure over the course of your work, you’ve interacted with some amazing founders and operators. Are there any patterns you see in terms of the traits and skill sets that these entrepreneurs and operators have?
Brett Calhoun
Definitely. So I think it’s being able to there’s a few things. One, something I’ve kind of been hung up on lately is this word paranoia. And it can be kind of like a love hate relationship. But I think people who are extremely paranoid about their customers and their product and trying to get that last like 1% correct are always the best founders. And there’s different reasons why that is. It could be your personality type. It could be like you have a chip on your shoulder, you come from Missouri, you’re going to prove everybody wrong, and you’re never going to stop until you’re done. And so you’re completely paranoid about what you’re doing. There’s a reason why paranoid about being the best. And it doesn’t matter if there’s already a successful company in the space or investors are questioning your mode or whatever. It’s like you’re going to be successful regardless.
Brett Calhoun
And then also pairing that with thoughtfulness and the ability to execute. So I think there’s a lot of very thoughtful founders, very intelligent, smart, they can have a mental map on how they’re going to delight customers, but it’s really finding the equilibrium of the ones who cannot just have that mental map or thoughtfulness, but can execute on it and do it quickly and be completely paranoid all the time about it. Those are some traits that we definitely look for, and it’s hard to test for that, especially if it’s a first time founder. There’s not a lot of track record or history to look on. And that being said, it’s even second time founders. It’s almost like restarting again. So you have to be careful about looking at track record and it doesn’t always repeat itself, but those are a few of the traits that we’ve always keep our eye on.
Brett
This show is brought to you by.
Brett
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Brett Calhoun
Say, if you had to guess gosh, this is something I actually need to do better at. I just hired associates, so I probably take too many pitches in a month. Probably 200. I would say 150 to 200.
Brett
Wow. And in those pitches, are there any common red flags or mistakes that you see founders making when they’re pitching you?
Brett Calhoun
Yes, the ones that it takes like 20 minutes to explain to you what they’re doing. That’s a red flag. You’ve got to be able to do this in a couple of minutes. The ability to articulate is so important. And this is another trade I made. I didn’t even mention it because I didn’t want to read down a list of all the trades we look for. But being able to be technical and go deep into something let’s just say you’ve been working on this for the last 18 months, and it’s all you’ve been thinking about for twenty four seven. And your perspective on that is going to be completely different than mine. But what you have to be able to do is you have to be able to let me see your perspective in a couple of minutes. And that’s really hard to do. So the art of articulation is super important.
Brett Calhoun
That’s not just for investors with raising capital. I mean, it’s important for me. It’s like if this founder needs to go raise capital, they need to have a strong ability to articulate. But it’s also important for when you’re trying to hire somebody and you have to sell that vision. It’s also important when you’re trying to get those first customers and get people to take a risk on your product, and maybe they have to transition their entire business over to what you’re doing. And you might even have to hire consultants or do things that don’t scale and use a lot of man and woman power in the early days to onboard that customer. So I think the art of articulation gets missed a lot. And then I also think that you can see the difference. Like, if I were to talk to somebody and then let’s say we do a follow up call with my partner and somebody gets really anxious and they just completely drop the ball.
Brett Calhoun
I wouldn’t say necessarily a red flag, but it is somewhat concerning. It’s like if you get too anxious by meeting the next person on a sales call, are you going to drop the ball there with the customer? We’re constantly, always looking at personalities, styles too, and how the founders work together. I think those are really important. We only be on Pedigree. It’s not just about were you ex Google or X? Apple? Or did you go to Harvard? And like, what are your traits, habits and characteristics that are going to really make you successful in the long term?
Brett
And given the current market today, what are conversations like with the founders that you have invested in? And what type of advice are you giving to them to help navigate, given everything that’s going on.
Brett Calhoun
So it’s going to depend this is somewhat of a case by case basis because it’s going to depend on what the founder’s background was. Are they a multifownder? Have they been successful already to now and then? What is the makeup of the team? What is your background? It also depends on the investor. Are you looking for the flashy logos? Does that really matter? Because the founder’s background at the precede stage, you could easily raise a pre product, pre revenue, 10 million post money cap. If you have the right background, you can woo investors and then you have the ones that’s like, they haven’t had some of those backgrounds. They didn’t have the Harvard Stanford logos or whatever. I’m just using that as a general logo for other ones to now. You’ve maybe got a little bit of traction or like you’re building the product. But it’s like we need to raise a little bit of funding so that we can service customers.
Brett Calhoun
And depending on the situation and the industry, you’re in some industries, it’s like if you don’t go out and raise two million bucks, one point five million bucks at the precede stage, it doesn’t look like you’re taking this seriously. So you have to be careful with that. But then on the flip side, it’s like, okay, if you can squeeze by with a little bit of capital now and kind of tranche your raise so you can hit certain milestones, I think that’s a good strategy to take. And maybe it’s getting a couple of customers to put in some small checks. Maybe it’s getting some strategic angels who really understand your problem and the founders that don’t have the networks for that. I right out the gate. It’s going to investors. Like, if you had like a perfect investor list, maybe you have like 20 investors. You’re like, oh my gosh, I would run to the top of a hill and scream if this person invests in my company.
Brett Calhoun
Like going to their portfolio and reaching out to their founders and saying, hey, would just love to chat and get some feedback from you. And then on the call you can talk to them about the investor and see if it’s possible. If they’re excited about what you’re doing, if they can give you intros to those funds, that’s one way. If you don’t have the network to kind of back into it. It’s not like hyper scalable. It takes time, but that’s how this works. It’s a relationship game. You don’t want to just go to market out of nowhere and just plant your flag on the ground and say, we’re raising two mountain bucks. It’s, hey, I want to tell you about my idea, our team and what we’re building. And then in six months from now, we’re going to be raising. You want to build up some momentum up to the raise to the point where people are asking you if they can invest in the company before you’re actually starting to raise.
Brett Calhoun
So it’s somewhat of a game now. In addition, let’s just say, like, you’re a precedent company. You’re a pre product, you want to raise $1.5 million. There’s pros and cons that too, because there’s a point where you can raise too much money. Because if you’ve raised too much money, in some cases you can lose. And this really depends on the person’s personality. Maybe that was like such a big win for you that you start to lose some of that paranoia with the product and the customer and you start feeling a little bit more comfortable. You start hiring a bunch of people and you’re like, well, I have a lot of money. Things aren’t working out. Let’s just pivot instead of saying like, you’re hyperparanoid and you’re going to make this product work. So there are some pros and cons to that. That’s some of the advice we give to founders.
Brett Calhoun
Take it with a grain of salt, though. That’s just from my point of view. There’s a lot of different ways you can go about this.
Brett
What about category creation? So how often do you have a founder come in and say, this is a totally new category that we’re looking to create? And if they do say that, is that something you’re on board with? Or do you prefer to make investments where it’s an established market category and they’re going to take a challenger position in that category?
Brett Calhoun
I love investing in companies that are creating new categories. I mean, obviously that’s like the biggest risk, biggest reward. It just depends on the person that’s behind the company that’s creating this new category. And at the precede stage, you can try to check all these boxes and do all this research and mental models and maybe even have an Excel spreadsheet that scores it and gives you an output. But at the end of the day, it’s like at the precede stage, you really don’t know. You could throw like ten darts at the wall and probably get a better accuracy than throwing ten darts precede startups. But yes, short answer to the question is we do like investing in category defining companies and we really have an open mind to everything. At the end of the day, what it really comes down to is like, we’re looking for awesome people to back.
Brett Calhoun
And I know that sounds like, gosh, that sounds like every VC out there. They’re always like, yeah, we’re backing, we invest in people. But it’s also at the precede stage, that’s all there really is. If you’re investing in somebody who’s creating a new market, there’s not really a market there to like, okay, it’s like Airbnb. In the early days, they couldn’t get anybody to invest in their company because they’re like, no one’s going to let people use their house. But look, they create a new market and I use airbnb all the time. So it’s really about the founders and you’re underwriting the people. Yeah.
Brett
And final couple of questions here. So are there any specific opportunities that you’re really excited about or specific markets that you want to get more involved in and you’re looking for founders in?
Brett Calhoun
Yes, I would say probably more of the boring stuff in property technology or industrials hardware technology or like where software meets hardware. We do love fintech. I kind of have a bias towards fintech just because of my background there. And I think there’s just so many awesome business opportunities in the fintech world because everybody wants money. It’s like finding your niche and then being able to market to that person uniquely. Cut out the customer acquisition costs and you make more dollar for dollar on cash. Yeah, those would be probably the four buckets. We recently just did a deal with a company in the construction space. They’re essentially like the first smart construction, contract management and procurement platform. If you go look up like, top construction management platforms, it’s all these companies that look like they were built in the 1980s, like these legacy systems. And so we’re excited about some of those more boring companies.
Brett Calhoun
Yeah.
Brett
And final question here. What do you anticipate is going to happen in the world of venture over the next, let’s say twelve to 24 months?
Brett Calhoun
Gosh, it’s hard to say. I think over the next twelve months we’re probably going to be at the similar pace to we are now as nobody really knows what’s going to happen. You’re still in this weird limbo of like, is there going to be a full blown recession? Is there not? Are the Feds going to raise rates again? Is the housing market going to crash? Or most likely the commercial real estate market? How is that going to affect downstream people investing in funds? There’s a lot of dry powder in the markets right now, so I don’t think it’s going to be to a point where it’s like there’s no capital to raise in 24 months from now. There’s still going to be a lot of capital because people are slower to deploy right now. The next question is going to be is like beyond 24 months, what are rates going to come down and when is venture going to be?
Brett Calhoun
Is venture still going to be an attractive investment? Because why would you not go put your money into T bills at like a five and a half percent rate and then a lot of gosh, a lot of pension funds and endowments have been burned by some of those larger funds. If you look at like Tiger and maybe it was like SoftBank, they only raised like 10% of their target or something for their latest funds. So growth stage is going to hurt. I think precede early venture is fine and it’s always kind of sheltered by markets. It’s not completely sheltered, but it’s somewhat sheltered from market cycles because you’re coming in at what you hope to be the lowest valuation the company is ever going to raise at. And currently, I think it’s one of the best times ever to be an early stage investor. One, people are slow to deploy, and so you’ve got a lot of founders starting companies, which I’ll explain why I think that I’m more bullish on that than some other people.
Brett Calhoun
We have a lot of founders starting companies now, less people investing. Angel investors have really dried up. And so a lot of early stage deal terms are starting to pull back a little bit because that angel round is starting to go away. And so you have this weird in between of, like, angel and a precede round.
Brett
And then, two, there’s a lot of.
Brett Calhoun
Talent in the market because you have the biggest layoffs in tech over like a twelve month period ever. So a lot of those people that are laid off have gone out and started companies, or they’re joining companies. So you have technical talent. For example, in the Midwest, a lot of founders struggle to kind of find that there’s a lot of great operators. It’s just trying to find that technical founder to build product, and there’s a lot more of that now. So super bullish on where markets are going. I think for us, it’s like also trying to be cognizant of deal terms. So you see a lot of pre product, pre revenue, really early stage companies, and they’re raising at like ten to 20 million valuations, but then twelve months later, they’re raising at like twelve to $22 million valuation. So it’s like trying to kind of toe the line on that too.
Brett Calhoun
We don’t necessarily care too much about ownership. It’s more about backing quality founders. But there is some level of portfolio construction you have to be cognizant of. And we do smaller checks, so we can’t be doing deals that are just 20, $30 million posts.
Brett
But we are up on time, so we’re going to have to wrap here. If any founders who are listening want to get in touch with you, Bret, where should they go?
Brett Calhoun
They can email me at bret@scalevc.com or they can go to our website@scalevc.com. We have a pitch us intake form that takes about five minutes to fill out. Just kind of helps us get prepared for that first intro call. Yeah, we’re very responsive. I try to get back to every single person that emails me. Amazing.
Brett
Well, thank you so much for taking the time to chat and share some of these lessons and share more about the fund. I’ve really enjoyed our conversation and I know the audience is going to as well. So thanks a lot for taking the time.
Brett Calhoun
Really appreciate it. Thanks a lot, Brett. This was fun.
Brett
All right, keep in touch.
Brett
This episode of Category Visionaries is brought to you by Front Lines Media, silicon Valley’s leading podcast production studio. If you’re a B2B founder looking for help launching and growing your own podcast, visit frontlines.io podcast and for the latest episode, search for category visionaries on your podcast platform of choice. Thanks for listening and we’ll catch you on the next episode.
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