Melanie Nabar

Bio

As Principal at Volition Capital, an award-winning growth equity firm recognized as 'Top Growth Equity Firm of 2024', Melanie Nabar brings nearly a decade of expertise in high-growth SaaS to the investment landscape. Volition Capital, actively investing since 2010 with a $675M fund, is known for its selective investment approach, partnering with a small number of founder-owned, capital-efficient businesses. Melanie has a proven track record of leading and supporting transactions totaling approximately $160M of the fund, instrumental in driving success across a diverse portfolio.

Melanie's portfolio includes standout high-growth SaaS companies like ABCS Insights, Zenarate, HAAS Alert, Halos, and Digital Onboarding. Volition's strong track record includes portfolio companies frequently recognized in the Inc. 5000. Melanie excels not only in sourcing and executing investments but also in fostering robust post-investment relationships that drive sustainable growth and value creation.

Currently serving as a board member for Digital Onboarding and board observer for ABCS Insights, Zenarate, HALO, and HAAS Alert, she provides invaluable strategic guidance on acquisitions, executive hiring, financial planning, and scaling operations in competitive markets.

Intro

Melanie Nabar, a partner at a growth equity firm managing a substantial $675 million fund, elucidates the nuanced dynamics of investment in this enlightening discussion. Central to our conversation is the understanding that while many investors seek a rapid 3x return within a short timeframe, Nabar and her firm adopt a more patient approach, aiming for a 5x return over a longer horizon. She highlights the importance of capital efficiency and emphasizes that founders must diligently assess their investors, as the fund's lifecycle and objectives can significantly influence the trajectory of their partnership. We delve into the critical elements that elevate a company from the multitude of options available, focusing on market opportunity, innovative management teams, and a compelling vision. Ultimately, this episode serves as a vital resource for entrepreneurs seeking to navigate the complexities of securing investment and scaling their ventures effectively.

Conversation

Melanie Nabar, Principal at Volition Capital, a notable growth equity firm, shares her insights into the intricate dynamics of venture capital investment in a compelling discussion with Jothy Rosenberg. With a focus on long-term investment strategies, Nabar elucidates her firm's unique approach to sourcing and selecting companies, emphasizing the importance of capital efficiency and strong unit economics. Unlike traditional growth equity firms that may seek quick returns, Nabar's firm targets a more ambitious 5x return, necessitating patience and a deep understanding of the market landscape. This episode delves into the rigorous process of evaluating potential investments, whereby Nabar reveals that her team scrutinizes hundreds of companies for each investment made, highlighting the critical factors that elevate some startups above the rest. She discusses the significance of market opportunity, founder capabilities, and the necessity for a compelling vision that aligns with market demands. Furthermore, Nabar advocates for founders to diligently research their potential investors, recognizing that the longevity of these partnerships often surpasses that of personal relationships. This discussion is a treasure trove of wisdom for entrepreneurs navigating the complex world of fundraising and scaling their businesses.

Takeaways

• Melanie Nabar emphasizes the necessity for founders to diligently research potential investors, as this partnership often extends beyond the typical business relationship.
• A first-time investment fund typically seeks immediate returns, which may pressure founders to raise additional capital prematurely, affecting their strategic decisions.
• Investors like Melanie's firm examine hundreds of companies before making a singular investment, underscoring the competitive nature of securing funding in the market.
• To ensure success, it is crucial for startups to combine ambitious visions with sound capital efficiency, as these elements attract investors and foster long-term growth.
• Promoting a top-performing sales representative to a leadership position can lead to detrimental outcomes if not carefully considered, as individual success does not guarantee managerial capability.
• The longevity of the investor-founder relationship can often exceed that of personal marriages, highlighting the importance of compatibility and shared goals in business partnerships.

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Hello. Please meet today's guest, Melanie Nabar.

We can be a little bit more patient in our investments because we want to see that 5x plus return. We're not looking for the typical growth equity firm. We'll say they want 3x in three to five years.

We're looking for 5x plus and we're willing to be investors for longer to get there in great companies.

For every check my guest today writes, she looks at hundreds of companies. Hundreds. So what makes one rise to the top? Melanie Nabar is a partner at a growth equity firm running a $675 million fund.

And in this episode she pulls back the curtain on how investors actually think, what makes them lean in, what makes them pass.

And the thing that almost no founder understands, that the fund number behind your investors money secretly shapes whether they'll push you to raise, to sell or to wait.

We get into capital efficiency, the hiring mistake that burns founders over and over and why you should diligence your investor as hard as they diligence you because that relationship can outlast a marriage if you're going to raise money. Listen to this first, here's Melanie. Well, hello Melanie and thank you for joining the podcast.

Hey, Jathy, thanks for having me.

Simple, simple context setting question. Where are you originally from and where do you live now?

Yeah, I am from Westford, Mass. Which is north of the city and I've been in Boston since college.

I went to Babson College, graduated about 10 years ago and now I live in South Boston.

Oh, I, I, I go over and give a talk at Babson every fall. One of the, one of the entrepreneurship classes. It's, it's, it's, it's kind of fun.

Fantastic. Yes. Yeah, they have very unique entrepreneurship classes over there.

Yeah. And, and so other than going there, tell us what your path from, from, from there to venture capital was.

I'm, I'm, you know, you didn't, I don't think you just jumped right in, did you?

No, I didn't. And I, I won't say that. When I was, you know, seven, imagining my career, I was saying I'm going to be an investor.

I actually started by working at a few different startups in Boston during college. It was one of the jobs you could get where they would, they would pay you and you know, you need to make money as a college student.

And I had exposure to the world of SaaS back when that was new and innovative and kind of fell in love with the technology landscape, startups, quick growth, innovation. And as I came to thinking through what I wanted to do in the future. I thought, you know, hey, the startup life is amazing.

But as a person straight out of school, I felt like I needed to get my legs under me and learn a little bit about, you know, what is best in class. Before I was at a company trying to drive that.

And so I went into investment banking, focused on technology, helping software companies when they were ready to sell.

So theoretically that's, you know, the portion of a life of a company where you are hopefully at your best ideally and got to see kind of what those companies looked like. And then I ended up working on the other side of a minority transaction with a growth equity firm and learned a little bit about what they did.

They liked, you know, my focus areas and so they brought me on to what I would refer to as kind of the buy side where you're looking at investing in companies and you really get to be a part of that journey. So I've been in the world of growth equity now for about seven years.

Do you see yourself jumping to the other side of the table ever?

I don't. I think originally I thought when I started my career, you know, that was the goal.

But it is a lot of fun to be involved in multiple companies during that exciting phase of scaling. And so, you know, I like to think I'm involved in six companies right now.

I like to think that I get to be a part of six growth journeys instead of just one. And uh, it's a whole lot of fun.

So with a $675 million fund, that sounds like a series A stage fund, is that right?

Yes. Yeah. So we'll do series A or series B sometimes. It just depends on the capital history.

It could be a 50, 60, $70 million Series A, it could be a $15 million Series A or it could be a series B based on just the journey and the path of that company.

And so if they're coming in to talk to you about a series A, presumably they have proven product market fit. And that's, I'm sure, something you're looking for proof of.

Exactly. Yes. We like to say, you know, what we are not good at is helping you find product market fit.

We like to come in when companies have dozens of customers, there's some semblance of journey and go to market. But hey, it could still be founder led sales. Maybe you have one or two sales reps that are driving things.

It may just be one core product and you have plans to build out, cross sell products. And what we are good at is helping companies in that scaling journey.

So say from 5 million in run rate ARR revenue, however the monetization works to goal is to be 100 million plus and we're helpful in that scaling journey.

And do you expect them to have really solid unit economics?

Yeah, go ahead. Yeah, I'd say we are more capital efficient, focused than some other firms.

So we like to see companies with strong unit economics if, if it's not profitable. That's because hey, we're investing for long term growth. We want to land these customers now.

We think they're going to have strong lifetime value versus what it costs to acquire them. So it makes sense for us to be maybe burning some capital.

And sometimes that's the reason folks raise, other times it is because they actually want to take some chips off the table, take some liquidity themselves.

Maybe they're entire net worth is tied up into their business and the company's reached, you know, very valuable scale could be for product development. So the reasons vary but we do like to see strong unit economics.

Typical investors are seeing dozens of of potential investments before they pick one.

When you look at, you know, the financials, the team, how big the market is, what rises to the top of the list for you in terms of selecting one that you're excited, most excited about and gonna, you know, sort of bring forward as an investment potential.

Yeah, and I'll take your dozens of companies for every one investment and add a 10x multiplier. You know, we look at hundreds of companies for every one investment we're making. So there's a lot that goes into rising to the top of the stack.

And the companies we're working with are thinking the same way about their investors. But for us, things that bring excitement. As I'm looking at an investment, one of them is the market opportunity.

So is it a company that is disrupting a large legacy market?

Whether it's creating a new market, I want to believe that the tailwinds are on the company's side from a sector perspective and that there is some strong differentiation at least today in what the company is doing and how it's going about it that is providing stronger ROI than the existing strategies today. So that's rule number one. But that could give you 75 companies that you're looking at that maybe fit that description.

And then a big piece of it is the founders and management teams. Nowadays it is faster than ever, especially with some of the models coming out as recently as this past week.

It is much easier to build a product and so you need management team that is going to stay agile, they're going to stay innovative, they're going to stay close to their customers and figure out what they need, how they can provide more value at any given time. Because even if there isn't a ton of competition today, there will be in the future.

And so we're really betting on the people who are at the helm because we're minority investors, we're not running the business to drive that long term defensibility. And then of course there are the things that help us build conviction in the businesses.

You know, base case or downside case, where you know, hey, our underwriting is rule number one, don't lose your money. You can feel good about that.

If a founder hasn't raised a ton of capital but has done a lot despite that, you can feel good about that with really strong retention or expansion dynamics and customer bases. And then we also look for folks that have really big visions.

So another piece of that helps the companies rise to the top is a very clear vision that aligns with how the market demands are rising. And that's a big piece of the puzzle as well.

So we're looking for strong fundamentals, but really big vision, great team in an exciting market opportunity.

Do you guys tend to like to lead or do you like to join an existing syndicate?

Yeah, so we always lead, we're always the lead investor. There's been cases where we'll do, you know, work with co investors. Obviously we're happy when existing investors want to take their pro rata.

That can be a really great sign about their confidence in the business. But we want to lead the round. We want to write, you know, minimum check sizes of really 20 million 50, dip down to 15 million. As a lead investor,.

Since you're focused on series A, as you said, are you, have you established like strong relationships with the seed investors in town so that you're creating a little bit of a trusted funnel of deals for yourself?

Yeah, so historically about half of our investments have been bootstrap companies that have never raised capital before.

And so a lot of our strategies for finding these companies has been, you know, block and tackle, reaching out to founders, trying to find proprietary companies that maybe are under the radar for other firms. And then we also have been continually building relationships with folks that are at the seed level.

Of course it's helpful if you, you trust the investors that are currently on the cap table and you can, you know, for them it works great because they want to bump in their valuations. For us it works great. Because there's a market opportunity.

I will say because we tend to like companies and founders that are a little more capital efficient sometimes.

We don't necessarily align with some of the, you know, the high flyer VCs or seed investors that are thinking, you know, we should raise as many rounds as we can.

We're investing in, you know, hundreds of companies and we need one to be that power law, you know, billion, 10 billion plus outcome to return the fund, you know, in converse. We are focused on concentrated investments. We're only investing in about 15 to 20 companies in a portfolio.

Of course we've had some really great 10x, you know, plus outcomes.

But we aren't expecting, you know, one company is going to make up for five, 10 companies that we're going to lose our capital on that might, you know, go out of business where it's not great for the founder doesn't work out. We want to help founders achieve those big dreams without kind of risking them along the way.

And so the concentrated fund creates some nice alignment.

So you, you, you made it sound like you guys are the ones that find the companies that you're sourcing them yourselves. Does that mean that, you know, there's not a stream of, you know, incoming requests from founders to, you know, to pitch to you? I, I mean, I.

Nobody tries, nobody's silly enough to do cold calling of a VC that doesn't work. We all know that.

But there can be nice warm introductions, not necessarily from those seed investors, but from just someone else that, you know, you know, and then knows, you know, knows them.

So, hey, it's great when it happens, it happens. Sometimes there's definitely deal flow that'll come, you know, through connections in the market or founders that we work with.

And that's a beautiful thing. But most of our investments come from, we have, you know, all of the team.

We all consider ourselves as sourcing investments from partner down to analyst. We're canvassing the market, we're attending conferences, we're talking to as many founders as we can, reaching out for the most part to them.

Because the reality is when you think about, you know, seed investments and VC investments, a lot of that the founders are reaching out to the VCs.

That flips when you start to think about growth equity because a lot of times these companies are now at a stage where you actually don't necessarily need capital.

Maybe you're, you have break even in line of sight, maybe you are even profitable, but you're growing quickly and there could be opportunities that you're thinking hey, if I had capital, I could go after them and I could make the pie so much bigger.

And so we try to build relationships over time so that when that thought process kicks off, you know, we're one of the firms that a founder thinks about and we have a good relationship. Already on.

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One thing that I've seen that catches even some experienced founders by surprise is not understanding what the life cycle of an investor's fund is. Yeah, and they run into, you know, sometimes it's seven years, sometimes it's longer, maybe 10. But I've never seen it longer than that.

And if, if you hit that and, and things aren't going fantastically, you know, the LPs can come in and put a lot of pressure on and say we want this fund to be finished. Is your goalpost out there at about seven years or what is it at?

Yeah, it's a good point overall too. Like broader than the question you're asking is the reality that investors are running a business.

And so as a founder that's going to work with an investor and have them on the cap table, you really do need to understand how those investors are making money, how their business works. So I'll answer your question, but maybe a few others that are within the same realm.

You know, as a founder, the things I would be thinking about when working with an investor is what fund number is it? Is it a first time fund? Is it a second time fund, Is it a sixth, seventh fund?

Because how that fund is going to operate in order to continue to raise future funds is going to depend on where they are in their actual journey as a business. So a first time fund, they're going to need to mark up their investments before they raise their next fund.

That means they're going to push their portfolio companies to raise capital that especially if the companies are doing well, so they can put a mark. Maybe there's no liquidity, but put a mark that says these companies are worth more than when we invested and they'll want to do that pretty quickly.

So you're going to get some pressure to raise capital. Just know that maybe if you don't want to raise more capital, you may not want to work with a, you know, first time fund, a second time fund.

They're going to want to get liquidity quickly because in order to raise a third fund, you need to have actually distributed capital. You can't just have markups. You need to start actually distributing cash back to investors in a higher amount than they originally gave you.

And that means that they may try to get their companies, some of them, to sell earlier on so that they can get some distributed capital and raise capital.

And then when you get into funds that are in their third, fourth, fifth, sixth, if they've done well and they've had good returns, theoretically those funds can be a little bit more patient. So this comes back to your question about, you know, how long is your fund cycle?

So our funds are 10 year funds, which means from a business perspective, we are earning management fees from our LPs, which, you know, keep the lights on in my office for 10 years, 10 year life cycle of that fund, after which we don't necessarily have to close out the fund, but we were not earning management fees on it any longer. So there's two things to think about. One is the fund life cycle. Two is how patient the LPs will be.

So because we are in our fifth fund and we've had really great returns historically, even if we're beyond that 10 year mark, we've proven to our LPs we can return capital, they're already very happy in those older funds that are, you know, maybe beyond that 10 year mark. And so if it's not the right thing for the company, we don't necessarily need to push it to sell.

We've been in companies for 13, 14 years, which is obviously beyond our fund cycle. And some of those have been some of our best returners. So we can be a little bit more patient.

And that's only because we've had good returns and many funds historically to make our LPs a little bit more patient.

You've described how you guys operate, but could you kind of put in a, in a nutshell, what makes you different from the other VC firms in Boston and maybe elsewhere as well?

Yeah, I think a lot of it is there's two segments. One is our underwriting philosophy is a little bit different and that impacts how we act on the board and what we want from our portfolio companies.

And then Two is we are focused on being aligned in all segments of the business. So I'll get into a little bit about what that means.

So on the first front of underwriting, we are underwriting for, you know, 90% chance we're not going to lose our money. That means we are concentrated investment investors. Most founders don't have hundreds of companies they're running at a given time.

Unless you're Elon Musk, you're probably running one at a time. And so being a concentrated fund is about as aligned as we could get to being a founder who has kind of a portfolio of one at a given time.

The other piece of our underwriting is we look for 1 in 3 chance that we could see the company 5x plus. That means we want to work with folks who have big visions.

We won't back a founder that's saying, hey, in two years I want to sell or a year I want to sell. Sometimes there'll be instances where people do and that is the right thing to do.

But we want the vision to be there and folks to be kind of going for that big vision. And so that tends to align with a certain set of founders that are looking to disrupt industries as well.

And then we can be a little bit more patient in our investments because we want to see that 5x plus return. We're not looking for the typical growth equity firm. We'll say they want 3x in three to five years.

We're looking for 5x plus and we're willing to be investors for longer to get there in great companies. And then we've also built out a bunch of resources and strategies that are focused on being aligned with our, our founders.

So we're minority investors and we're not going to push, hey, this is the playbook you need to take. We're going to. Instead, we built out resources in certain areas. We've said, hey, these are pain points.

As companies are in their scaling mode, things like recruiting, we have recruiters in house. They're not paid on placement. They get paid based on the returns of our funds.

So they want to see good outcomes and creates alignment in when they're bringing in executives that you need to round out your management team. We have an advisory board of founders who've been there, done that.

An example would be like Neeraj Shah, who's president or CEO and founder of HubSpot. And they actually can invest in our funds. They don't pay us management fees. Instead, they give us time to help our portfolio companies.

And so that creates alignment because they want their money to grow. We want our portfolio companies to grow. Founders want their portfolio companies to grow so they can tap those resources.

And then we have folks like operating partners on go to market, operating partners focused on financial strategy to really try to round out where companies might need help.

And so for us, it's really one the philosophy we go, go big, but don't risk the boat along the way and also stay aligned with our portfolio components.

By implication, from the way I asked the question, you're saying that makes you different because the other firms are not doing those things, is that right?

Yes. And there are variations of people who might be doing pieces of it, but I think some of what we do is unique. Our underwriting is definitely unique.

Most growth equity firms will say they're looking for a 3X in three to five years.

There's a persistent statistic that's been out there for a long time. As long as I've been doing startups sit for 37 years, I've done nine, had two with exits over a hundred million.

And that statistic that never seems to Give is that 8 out of 10 startups fail.

Yeah.

And I can attest to that too, because I've done nine and I've had two with good outcomes, and I'm not. And I'm not doing a tenth. But still, nine is pretty close statistic. Yeah, exactly. So.

And there are a lot of reasons for it, and I'm not going to state this silly one that everyone throws out, which is, well, they ran out of cash.

No, I would say that the root cause that I've observed talking to literally hundreds of founders is that there's not a deep understanding on the part of the founder or founders of what the priorities at each stage should be and what they should be focused on to the elimination of all else. And so one of this is a little side thing, but one of my missions with my book and this podcast, your episode number 116 of this podcast, Lucky 116.

Yeah, yeah. And a set of online materials that I've been developing is to try to.

Is.

Is try to flip that statistic that I'd like to see 8 out of 10 startups succeed. Now, of course, I'm a startup founder, so I try to have big grandiose visions. And that's one that might seem unrealistic, but. But my.

My focus is to get people to focus on the right things at the right times and to, you know, put those blinders that horses have on so they don't get distracted by Other things. And, and I, I'm sorry, that was a long question to get to the real question, which is.

And so if you agree with that, are the things that you were just describing designed to try to help make that happen? Are there other things that you're doing to try to help make sure that the founders have that education?

Because I'll say this, and I think even Babson, I don't think, teaches that, teaches people what to focus on when they're operating the startup.

Yeah, it's a great question and a very true statistic. And there's a lot of reasons before we get involved that a company may fail, startup may fail because we're coming in.

Like, getting to 5 million in ARR is not an easy task. Like, there's a lot that doesn't go right for many people before that.

And I think some of those reasons you've listed, maybe it's not focusing in the right place, maybe it's timing of the market, maybe it's a lot of times founder dynamics, like, that's a big one, early stage for startups. But once you get to that, you know, 5 million ARR, our theory, and a lot of the resources we've built are exactly for that.

Let's skip some of the mistakes that other folks have already made over and over again, and let's give you resources to solve some of the big problems that trip up other companies so that you can get to that big scale, that exit that disruption a lot faster. And some of the things that trip founders up in the scaling phase. One is priorities, to your point.

So we often do annual planning sessions where we get the executives together, we force, you know, honest candor. We need to look at the problems in the face, not hide them. You know, underneath the blanket.

We need to focus on talking through the opportunities, the problems, and ultimately get to a set of KPIs that the management team is tracking themselves to during the year. Like, what are the key initiatives they're going to do? And let's measure them and let's make sure we're hitting them.

Let's not operate completely blinded. Of course, we may decide some of these initiatives six months later are not necessary. We need to pivot.

It's not set in stone, but we try to give them the toolkits for actually thinking through, running kind of a mature organization from a process perspective, which you don't necessarily need in the earlier stages or, or most people don't have it. So maybe you need it, but you don't have it. And these are run by an operating partner who was a CEO himself.

They're not your board coming in and telling you what to do. They're really more moderated sessions.

We're not, you know, just defining the goals, but we try to give resources like that will do go to market specific versions so that people have a set of constructs to kind of operate in once they get to that scaling phase. Optional, but a lot of folks use this. Another example is mis hires. You waste a lot of money on missed hires.

Let's say you bring in your first CRO, they're going to want to bring in a whole team. You're going to need to give some time for people to ramp. Maybe that CRO is not the right hire, going to waste a lot of money.

To your point, you might, maybe you've run out of money. Like that could be a bad place to be. And so that's part of why we built out this recruiting team and house who is aligned.

They know our companies, they know they're, you know, coming along the journey. They know some of the things we need to solve for with that hire.

They're not just looking to get paid once you hire the person and they stay for six months. And then the other place is also just as a board member. There are certain mistakes people make over and over again.

And sometimes what doesn't work for one company will work for another. So we are not forcing people to not take these steps if this is the right one and they have conviction. But we'll kind of push a little bit.

And that's, that's really the role is, you know, hey, okay, you're going to hire your best sales rep who has produced sales 75% of your bookings last year. They're going to be your head of sales. Well, let's talk about that.

I would say that, you know, one in 10 times that works because sometimes your best performer at an individual contributor level is not necessarily a leader. Obviously sometimes it works because that's where heads of sales comes from in the first place.

But we want to talk through like the risk that you are taking is that this person is distracted because they need to ramp a sales team.

If the team doesn't ramp either because you hire the wrong sales reps or because that leader might not be the right leader, you're going to be stuck holding the bag because there's nobody to produce 75% of your net new anymore. And so that's an example of where we may push back to try to skip some of those mistakes. Again, sometimes it's the right move.

And if a founder has conviction, like, who are we to say that that's not the right move in this case?

But we'll kind of present differing opinions so that when founders are taking those steps, they are not operating blindly with, you know, what was their first thought, which is, oh, we need a head of sales. This person's done so great. We should promote them.

And so I think a big piece of bringing on a partner, especially at the growth equity level, is really bringing on somebody who can help you skip some of those mistakes. And I will say, like, for growth equity, you know, you're not looking to. It better not be 2 out of 10 anymore.

You know, at the worst it should be, you know, one out of 10. That doesn't work out. And so it is a different stage of a company. But I think our goal is to make it go from.

I would say on an industry perspective, it's probably 2 out of 10 or 3 out of 10 still fail. Our goal at our firm is for us to make it so it's. It's closer to 1 out of 10 instead of a 3 out of 10.

Hi. The podcast you are listening to is a companion to my recent book, Tech Startup Toolkit how to Launch Strong and Exit Big.

This is the book I wish I'd had as I was founding and running eight startups over 35 years. I tell the unvarnished truth about what went right and especially about what went wrong. You could get it from all the usual booksellers.

I hope you like it. It's a true labor of love. Now back to the show. Oh, that's. That's a pretty amazing statement. That's a pretty amazing.

And again, a lot of folks don't make it to that 5 million ARR. So your stat holds. It's just a different stage.

Yeah, yeah, yeah. Okay, so I have one more question because we're at a good point here. This has been great.

And so I talk about grit a lot with founders, and they all have to have it to be successful. And the words that I use around grit are resilience and stick to itiveness, determination, and most of all, courage. And. And I.

And on this podcast, all 115 episodes before you, I can attest to the fact that the answer to the question that I ask a founder, where does your grit come from? Has led to amazing stories where sometimes people will say, I've never told anyone this, or I've never even told this to my wife.

And I said, I said well, you know, this podcast is not secret, okay? And people have burst into tears. It's unbelievable.

Do you think grit applies as well to people like you that are investing in and working with these sorts of companies, these sorts of people on a daily basis? And, and if so, where does your grit come from? And you don't. Please don't cry.

I don't. I won't cry. I promise. Absolutely. You need to have grit to be an investor as well. You are along that founder journey alongside them.

And so there's going to be days where all of a sudden you feel like, oh, my gosh, all my investments are struggling, like, what's happening? And you need to just push past it, look the problems head on, help your companies to navigate them.

And, you know, who knows, six months later you're like, wow, all my companies are doing so great. It's not a perfect journey along the way. So you need to be resilient. And finding great companies is not easy.

You know, I mentioned that we talked to hundreds of companies for a given investment. That's a lot of conversations, that's a lot of meetings.

And, you know, of course, there's plenty that we don't think are a fit for us, but there's also times that maybe the founders don't think that we're a fit for them.

And so you need to be persistent and resilient to find those great companies and to convince founders that you're going to be the best partner for them, and then you need to go be that best partner for them along this painful but exciting journey. And I would say that my grit comes from probably a little bit of my, you know, formative years, I'd say, in where I came from and where I grew up.

So I, I, I was somebody who got a job at 13 years old. I worked at a grocery store as a cashier for, you know, from beginning of probably 8th grade till through college.

And I, you know, spent a lot of hours there so that I could get to a place where I could, you know, contribute and get to college. And I was lucky enough to have parents who could also help me. But I, you know, I graduated with good amount of debt.

I paid for my, you know, whole first year of school myself.

And I remember thinking, man, I'm going to go to every single class, because do you know how many hours of standing at a grocery store is one class at Babson College? It's a lot.

And so I learned early on, like, the value of if you go and you just make things happen, you Know, make that money whatever way you can to get to the place you want to be, which is, you know, a great school that could set you up for a career. I learned that it can work when you go out and you just make things happen. And so I think that that applies to a lot of how I got here as well.

You know, Babson is now considered like a top 10 college, which is crazy. It was not when I went there and we were a non target school. Trying to get into investment banking and finance was not an easy path.

And I was lucky enough to get a job at Heiress Partners, which is a investment firm here in Boston. Aeris was a 12 person shop. It was not a Goldman Sachs that you could easily get a job at any private equity or investment firm you wanted.

And I was able to kind of get scrappy, build relationships with growth equity firms when we were working on investments and found my way into that growth equity world. And so I think a lot of my journey has been possible because of being a little bit scrappy.

But I also am likely a good partner for companies because I've had to have some grit and get a little scrappy. And my belief is like if you go out and you just work hard, you can make things happen. And that is what entrepreneurship is.

At the end of the day it's, you've done it. I can't believe it. Nine times you've gone out, you've said I'm going to do this and you've just made it happen.

And so it's, I think it's very true and it's a good point you're making to founders that, you know, it's really all about grit in a lot of ways.

I think I'm going to have to add the word scrappy to my definition of grit from now on.

Yes, it's grit, but it's also scrappy. Just you may say get no's in a lot of ways on the traditional path, but how are you going to go around and make it happen?

Anyways, I think we're at a really good point. I think the stories you've told and the inside look at how investors think about things is really important.

And I've written about it quite a bit as, as well where I really think people who are, who are going on this journey need to make sure they understand what the business of being a venture capitalist, private equity is like so that they're putting themselves in the other person's shoes, which is always a good thing. And, and then they understand what makes you tick. And that's. And I think you helped explain that in a really nice way during this conversation.

So thank you for that.

Yeah, I could not agree more. When you're raising capital as a founder, you should be doing just as much diligence on the firm as they are on you.

Because once you're in, you're in till the end. Right. So it's a big decision.

Yeah. You know, the, the relationship is in some ways can be longer than your marriage.

Yeah, you hope not.

But yeah, I would say on average, if you were to look at the number of years of an average marriage versus an investment, like they're pretty comparable. If not, marriage might be lower.

Yeah. Okay. Well, thank you again.

Thank you so much.

And now your toolkit takeaways. First, diligence your investors as hard as they diligence you. Once you're in, you are partners to the end. A tie that can outlast a marriage.

So ask the sharpest question up front. What fund number is this? A first time fund needs markups and will push you to raise. A second fund needs liquidity and may push you to sell.

Their stage quietly shapes yours. Second, to get funded, pair capital efficiency with a big vision. Melanie's firm looks at hundreds of companies per deal.

Strong unit economics prove you won't lose their money. A bold vision proves the upside is worth the wait. You need both. Third, don't promote your best rep to head of sales by reflex.

Your top closer is often a great individual contributor to not a leader. And if it fails, you lose the leader and your biggest producer.

Now go find out what fund number your lead investor is raising from and what that tells you about whether they'll push you to grow, sell or wait. And that's our show with Melanie. The show notes contains useful resources and links.

Please follow and rate [email protected] designing successful startups. Also please share and like us on your social media channels. This is Jothi Rosenberg saying TTFN Tata for now.