Oct. 10, 2022

Fintech Venture Investing with Lucas Timberlake


Lucas is Co-Founder and General Partner of Fintech Ventures Fund, an early-stage fintech, and inusrtech-focused venture capital fund. He has spent his entire career in financial services in various capacities, including venture capital, private equity, and investment banking. He received his BA from Columbia Unversity.

https://www.fintechv.com/

Transcript


 00:02

Josh Wilson
Good day, fellow deal makers. Welcome to the deal. Scout. This show is so fun for me because I go on a hunt for deals. I'm a deal guy. I love deals and I love talking with deal makers and learning about different types of deals. You're going to hear me say deals, deals a lot in this show. There's a lot going on in the world of real estate and venture capital. I wanted to go kind of find people who are making major investments into real estate based technologies and such. I went out to LinkedIn and I found a guy named Lucas and he's going to share some of the things that he's learned along the way. Lucas, welcome to the show. 


 00:42

Lucas Timberlake
Thanks for having me. Great to be here. 


 00:44

Josh Wilson
Yeah man.


 00:45

Lucas Timberlake
Right. 


 00:45

Josh Wilson
So, Lucas, tell us, who is Lucas? 


 00:50

Lucas Timberlake
My name is Lucas, no relation to Justin, even though there is the last name in common. I have co founded a fintech focused venture fund, aptly named Fintech Ventures. We've been around since 2016, but have really been investing in earnest since 2019. We're investing at the earliest stages of fintech and insure tech. So what we call precedent and seed. We're investing anywhere in terms of 250,000 to 750,000 in preceding companies and anywhere from 300,000 upwards towards a million into seed stage companies. One of the areas that we're most interested in is real estate and how you can use certain regulations to go about syndicating larger transactions for anyone, regardless of their accreditation status or personal net worth. So that's us in a nutshell. 


 01:56

Josh Wilson
Yeah. Super cool. I love what the industry did. Somewhere, I think it was like around 2015 is when this 20 15, 20 16, is when we started to see a movement towards investments. Right. In the past, certain investments were only open to accredited investors. Right. There was this major gap between what people can invest in. Why don't you share kind of the storyon of what you saw and how you took that opportunity and ran with it and now you guys are in some amazing investments. Why don't you share that story? 


 02:34

Lucas Timberlake
Sure. It was actually in 2012 when something called the Jobs Act was passed. Without getting too much into the nitty gritty of it. It basically allowed for companies to raise money under something called Reg A plus. And then under Regf. Which really allowed you being the company to go out and solicit money from anyone. Essentially within certain rules and regulations for not only your own company. Also to put into projects such as real estate debt or real estate equity. Really, we saw the first companies come 20 14, 20 15 into the space, and more recently, I'd say really within the last two years, since, COVID we've seen a lot of other companies start to come into the space when it comes to real estate, or to wine, or to collectibles, you name it. It's been interesting to see, having been some of the first investors back in 2015 into a few companies that were using the Jobs Act to raise money for real estate, what's transpired and how there's been, like I said, a renewed interest in the space really in the last two, three years. 


 04:00

Josh Wilson
This is so good, let's peel that . You're seeing, and you're right back way in 2012 things started to progress, but you saw an interesting change that happened. People weren't making investments crowdfunding and investing in technology and real estate, and you guys saw that and you made your own investments, but you saw something happen in COVID, like during the time frame of COVID where people were investing in collectibles. What the heck did you see there live? Explain this. This is fascinating. 


 04:33

Lucas Timberlake
It's been interesting and I'm still trying to point my finger to one catalyst. I'd say people had more time on their hands as they were working from home. A great portion of the population received stimulus checks where they were putting it into investments in GameStop or AMC, or Bitcoin, Sheba, Coin, the list goes on. Others were finding platforms that were providing alternative uncorrelated assets to bitcoin into the stock market. We saw a rise in platforms that were offering investments in sports cars and sports cars, for instance, let alone companies that came to the space. They were offering fractional ownership in rental properties or Airbnbs, you name it. And so this concept. Like I said. Reggae plus Reg. CF have been around for years. But we really saw. Like I said. That second wave that came passcode 2020 in terms of investors being interested. And New York seeing with inflation. 


 05:41

Lucas Timberlake
Let's say over the last six. Nine months really year to date. And economic uncertainty. There's been a continued interest in the space. Especially for people looking for hedges. Against stock market volatility. Against inflation. You name it. We're seeing that whether it comes to real estate, whether it comes to wine, and like I said, to other collectibles, I mean, you could go out and buy one of the first Apple Computer and own shares in that, and people are doing that and they're interested in it. You're also seeing some liquidity come back into CRE marketing in terms of these things are getting sold and you're making 20% to 30% in terms of returns over the course of a year. There's others that are sold for less and people lose money. The beauty of these platforms is they allow you to invest anywhere from ten dollars to one hundred dollars and known shares just like you would in stocks. 


 06:34

Lucas Timberlake
You can build a portfolio and build something that's diversified. That in theory could be a nice compliment to what else you're investing in, whether it's your typical stocks, bonds, I even include crypto as a typical asset class now, just given the interest that people have. 


 06:52

Josh Wilson
Yeah. This is fascinating that the collectibles have been something that people are paying attention to. I think anytime there's volatility, it's going to create opportunity for innovation and creativity. 


 07:06

Lucas Timberlake
Right. 


 07:06

Josh Wilson
I'm looking at one of the groups that you mentioned that they do fine wine. So I can invest right now. I love wine, I'm a red wine kind of guy, but I can invest in a high end bottle. I might not be able to get a taste it, but I get to one day hanging out with my friends, be live. Yeah, I own a fraction of a bottle or something like that. Take a note, hundred year old bottle of whatever. I think that's super cool. It connects people and it becomes a part of a conversation. Why are you so interested in this world of fintech, crowdfunding, prop, tech, unique things like this, and what's maybe the most unique thing that you have seen pop up on your radar as an investor? 


 07:58

Lucas Timberlake
You talked about something that I think is interesting and it really kind of compounded the interest in it, whereas that people like to talk about what they're doing with their friends and it has become, to a certain extent, bragging rights to say, hey, I own a collection of Bordeaux futures, for instance, which is one of the solutions that this platform recently released. Or hey, I own rare Japanese Whiskies where there's only several thousand bottles of this vintage produced in the Vworldc. That doesn't stop at wine, as I mentioned. People are going in and looking at Babe Ruth, rookie cards, et, Peter, you name it, and talking to their friends, and they're already interested in sports, and now they can have a more tangible aspect of the game even though they don't see the card. Although some of these platforms allow you to go into a Soho showroom, for instance, and go view what you own a fraction of. 


 08:56

Lucas Timberlake
I think it's interesting because it really is, for lack of a better overused word, democratizing investing that's only really been available for the very small proportion of the US that's accredited investors. It's really leveling the playing field and offering the ability to invest anywhere from ten dollars to one hundred dollars in a share of something or in a loan that returns anywhere from 8% to 15% that's above market that you would be getting from a REIT or from a high yield bond even. In our view, we're interested in the fact that it really levels the playing field for retail investors to access strategies and even create their own strategies that have only typically previously been available to high net worth individuals or millionaires, billionaires, you name it. 


 09:53

Josh Wilson
Yeah. Lucas, why does that matter to you? All right, so you co founded your venture fund. Why does democratization of investments or maybe bring in some deals to the small fry. Why is that important to you or is it purely opportunistic? 


 10:14

Lucas Timberlake
Well in my view it's important because is there's certain aspects of what we do as venture capitalists where we want to create wealth for others in terms of the founders of the companies. In certain regards some of our companies have actually opened up their cap tables to allow the same investors that are buying shares of collectibles or real estate on their platforms to own equity alongside the investors such as ourselves. We have one platform for instance that's raised over $30 million from individual investors, over 5000 of them and they sit directly alongside the cap table as ourselves. I'm passionate because I want to have aligned incentives when it comes to venture capital and one way to do that is actually through crowdfunding to create ownership in the company, not just the products that these companies are opening access to. For me it's really alignment of incentives and meeting the playing field and trying to make sure that everyone is in the same boat and that's been important to me whether it's through my professional life or my personal life and both of those blend in and it's been great to be able to be part of these types of platforms from an investor. 


 11:38

Lucas Timberlake
From a board member perspective. 


 11:42

Josh Wilson
Where's home for you? Where are you guys located? 


 11:45

Lucas Timberlake
We are headquartered in Atlanta, Georgia and I am actually based in New York City where my family is from but I'm actually in Atlanta today recording this podcast and Atlanta has been a special home for the fun. We have four companies here and it's also a very interesting real estate hub and I'd argue kind of an important. You know. You could say microcosm for what a growing city in the US looks like from a lot of young people moving here for opportunities. A lot of technology jobs and we think it's interesting to build companies here as well kind of given those trends that are moving in positive directions. 


 12:43

Josh Wilson
Yeah, super cool as you're making these investments and watching these companies grow which is super cool and I love seeing progress, I love seeing businesses grow. I'm an entrepreneur through and I love seeing these things. What has been one of your most memorable deals that you've been a part of live as you got involved and you saw something happen you're like that was one of my favorite deals. 


 13:11

Lucas Timberlake
It's interesting because it's never fully linear path and that's been quite interesting to see. If you kind of look at let's say ranking all the companies in terms of their progress it would really look like a bunch of spaghetti all over in terms of a lot of them would be going down and then coming back up where someone start and come back down and that's the fortunate when it works out and unfortunate when it doesn't work out and in most cases it doesn't work out when it comes to startup investing in terms of the returns. I have a favorite deal that is, like I said, a company that we invested in called Ground Floor back in 2016. It was the first deal that we did from our fund and it was allowing people as one of the first movers to have the ability, regardless of accreditation status, to invest in real estate debt that was bought back by a hard asset being a single family home. 


 14:18

Lucas Timberlake
That means that you could invest in a loan that was helping a home flipper go out and renovate a home and then sell it. This company was one of the first movers when it came to offering securities under Reggae Plus and actually one of the first issuers to do so using certain regulatory advantages in the state of Georgia. They actually moved the company from North Carolina to Georgia in order to set up this structure. I've enjoyed it, like I said, because the company we invested into it in 2015 and then the company went out and subsequently has raised over $30 million from, like I said, 6000 other investors, has 200,000 investors in the platform and has allowed people to invest nearly 900 million into real estate debt. Now they're coming up with several other equity products that can get into at a later point but it's going to allow people to actually invest alongside real estate developers for some pretty interesting types of projects and returns as well. 


 15:30

Lucas Timberlake
That one has a soft spot in my heart, not just because it's the first deal that we did, but also because it really comes into this theme of democratizing investing because it allows people to invest in debt that they issue and curate on their platform, but also is allowing people to invest in the equity of the company. You've seen some recent successes and I hope that this company will be one of them in terms of companies that were crowdfunding and have IPOed and or been acquired and created wealth for people that they may not have otherwise expected. And all this comes with risk. Of course I have to say this is not an investment advice but we're seeing this wave even 89 years post the location of the Jobs Act of people earning venture type returns regardless of whether they're accredited or a VC or an investor in a VC fund. 


 16:34

Lucas Timberlake
I think that's fascinating and I don't think that's going away and I think it's really just starting. That's kind of one of the deals that I'm most interested in because it's creating potential wealth for people in the future. 


 16:50

Josh Wilson
Lucas Timberlake not related to Justin, however, that would be cool. Can you dance like him? 


 16:56

Lucas Timberlake
I cannot dance. The one story that I do have, there's probably two. Not to get too much off topic, but since you brought it up, is that the nurse that delivered me in the hospital, her last name was Timberlake, no relation. People will slip in conversations and call me Justin and I don't mind it. The most interesting thing has been when they actually put it in an email and write it because subconsciously I thought you would figure out that you'd be writing the wrong name. It's funny because you'll get a few apologies saying, hey, I'm sorry, I didn't mean to do this. I wasn't joking and I don't take it personally but it's a compliment, right? Yeah, exactly. Awesome. 


 17:45

Josh Wilson
Well, I think we should start taking dancing lessons. Maybe not together, but we'll do some dancing lessons and then we should have a dance off you Timberlake versus Timberlake to regain the one and only best dancing Timberlake ever. 


 17:57

Lucas Timberlake
Yeah, I mean I could make some DC cliche or Pond related to what I do as a dance, but I'll spare you from that and I'll take some lessons and maybe in a year or two get back to you. 


 18:12

Josh Wilson
All right, sounds good. Back to deals as a VC, right? Kind of give us for people listening going I really don't understand the VC model. We had someone just the other day ask me, hey, I want to get started at investing. I was like, okay, here's a few books, listen to podcast show but give us an overview, high level overview of the VC model for people who aren't familiar with it. 


 18:40

Lucas Timberlake
My suggestion to people, and we have seen a company, like I said, that has raised money using this structure and on several of these platforms which I am not affiliated with, but there's platforms called Republic Seed Invest, we funded that allow you to invest in startups and invest anywhere from $100 to several thousand dollars to create your own portfolio of venture investments. In my view it's a great way to learn and create a diversified portfolio and become your own venture capitalist because they give you a fair amount of data to do your own diligence and don't necessarily for regulatory reasons recommend certain investments over others. You kind of have to make your own choices. That would be my piece of advice when it comes to becoming your own angel investor or mini venture capitalist, whatever you want to call it. Because in venture capital it's all about creating a diversified portfolio with the understanding that let's say if you invest in ten companies anywhere from, let's say five of those up to 78 may only give your dollar back or only not even give your dollar back. 


 20:05

Lucas Timberlake
You're really investing in, let's say ten companies with expectations that the top 20%, 30%, it really depends on the stage and how you're investing. The top 20% in terms of the number of deals. Let's say the top two to 3% of the companies are going to drive the majority of the returns and you're really looking for anywhere from three to five times returns on that invested capital. Let's say you invested $$10.01 into ten startups. You were expecting two to three of those startups to give you an aggregate $30 to $50 back in terms of your returns and the rest will, like I said, either give you the dollar you invested in back over some period of time or more than likely not even give you that dollar back and the investment will go to zero. That's kind of really how we look at venture capital and it's one of the few businesses when it comes to investing where you're really going to be wrong considerably more than you are going to be right in terms of a number of deals that you do. 


 21:14

Lucas Timberlake
That's a very important distinction that I live to make when you look at that versus private equity, versus putting your money in an index fund. The ability to create above market returns if you get it right is considerably higher. 


 21:35

Josh Wilson
That is such an important factor going into it. For a VC group, knowing, let's say we're going to make ten investments, we know that two to three of them may return our money back and maybe with them five x three X return, seven of them might not make it right. It takes a certain kind of person to get into venture capital. Being a GP on a fund and seeing this kind of success and failure. What does it take to be a good VC from your opinion? 


 22:12

Lucas Timberlake
It's a great question and I think one of the toughest things to balance is actually the relationships you develop with the founders because it is a marriage. You're going to be in the trenches with these founders for ten years, if not longer and you don't even know really for years sometimes whether you have made a good investment and the founders put their blood, sweat and tears into these companies and it is sometimes difficult to separate that from making rational investment decisions. I'd say really being able to have a certain degree of compassion for founders but also be able to make decisions in a vacuum, that is what makes a venture capitalist good at their job. That is very hard to do as well because at the stage of investing that we're doing, we're investing in people that we think we can work well with and we spend a lot of time thinking about the fit between our partners and the management team because we need to have a degree of trust and mutually aligned incentives for the next ten to twelve years. 


 23:34

Lucas Timberlake
I'd say that is kind of one of the hardest parts that if people are able to do that makes them good at their jobs. The other part that can also be conflicting is pattern recognition as well. You need to be able to realize why companies have worked in the past in similar instances and why they have failed as well. Like I said, even if you have the best conviction ideas when it comes to this, more likely than not because of the math that I went through earlier, you are going to be wrong. You will hope that you have found several companies that will give you above market returns because of the homework and because of the ability to recognize patterns of previous successes and apply them to new transactions, that you will get those two to three winners that will return the majority of your fund. 


 24:32

Josh Wilson
I love this compassion for the founder and the ability to make tough decisions because it's a relationship based thing. I've heard this before and anytime I hear it from a founder, I cringe. When they're raising money, we do pitch days and crap like that, right? When they're like, I want an investor who will show up with a million bucks and then leave me the heck alone and let me run with it, I'm like, doesn't work that way, right? Why not? 


 24:59

Lucas Timberlake
Yeah. I think there's two ways to approach it. Which is interesting because at least the way I look at it. And others will honestly disagree. That I take what I call the Peter Active approach. Meaning that I'm not going to step in day to day and micromanage from a board seat perspective. If a founder comes to me with a specific problem or specific issue that they're working on. I'll be up for all hours of the evening to help them work on that problem and make sure that I can help in the best way possible. In my view, that's better than just trying to micromanage as well. It goes to the founder to bring you a certain issue or problem before it actually becomes something that's irreversible or very difficult to undo. That's kind of one way that I look at it. In terms of having an investor that's not terribly active, honestly, I don't really see that as working. 


 26:08

Lucas Timberlake
I sometimes discourage some of our companies not to take checks from lead investors for the next round where they won't be adding value. And sometimes we end up being right. Sometimes passive money is not always great money. It can work in other situations. Like I said, for Venture, when you're building these companies for ten years and it's really leaving everything you have on the line, you really need someone that's going to be as actively involved and aligned with you. Usually that's not someone that's writing a check and going away and retreating from trying to help. Yeah. 


 26:54

Josh Wilson
What I love when I'm working with a founder or an investment group or something is I like people who put their money where this mouth is. 


 27:02

Lucas Timberlake
Right. 


 27:02

Josh Wilson
I like wealth wisdom. I want to be able to go and be like, hey, I have no clue how to crack the code on this market fit. I have no clue how to do that. What is your experience? You've invested in 30 companies similar to mine. What am I missing here? Being able to ask for help, I think is super important for a founder to be able to do and having that kind of that smart capital and then work. Hey, I see that you guys are connected with someone over there. Could you make an introduction? I would love to see if we can do something there. Right, so those are the things that I look for in a well seasoned entrepreneur. What are some red flags? Right? Those are the good parts of it. When it comes to you being a VC looking at a company and you go, I'm out. 


 27:49

Josh Wilson
Let's just say the numbers look good, the potential looks good, product, market fit, let's say all that. You look at the thing and you say, I'm out. Why would that happen for you? 


 28:01

Lucas Timberlake
Ironically, I would say that if the founder is starting a company to get rich, they're in the wrong space. If they're starting to start up, there's other ways to build wealth over time and that's honestly not starting a startup. If people are too focused on that, are focused on the exit and even try to pitch the exit, even though we're all in the business of trying to exit our investments successfully, that is actually one common red flag. The second is not studying. At least when it comes to fintech and sure tech at this point. Not studying public comps in terms of publicly traded comparables and for the most part at this point. Mainly given them the regulations of fintech. Et cetera. Just the fact that a lot of these companies are trying to disrupt banks and other asset managers that have been around for years. 


 29:01

Lucas Timberlake
You can get a pretty good sense of what your company will be doing from a unit economic perspective at scale by looking at some of the publicly traded either growth stage companies that went public recently or even looking at a bank and trying to look@their.net interest margin. If you're a lender, for instance, in most cases they're not actually going to be that different. You still need to know those types of economics. For these types of spaces, we actually spend a lot of time even if the company is pre revenue, which may sound crazy looking at uni economics when it comes to lending and insurance businesses, which we focus on primarily because we fund losses for operating expenses for these companies to grow. If a company is fundamentally unprofitable lending money or underwriting insurance policies, there really is no value in those companies, even at a startup level scale. 


 30:06

Lucas Timberlake
For what we do, which is pretty specialized, we really focus a lot, like I said, on the unit economics of the products. Because of regulations, a lot of times those are capped because of interest rates that you're allowed to charge or premiums that you can charge or ways that you can sell insurance. Et peter so those are kind of two things that we look at specifically. I'd say the third example, kind of shifting more to qualitative skills is the ability for the founder to take constructive feedback. That doesn't mean that I am always trying to be right. Sometimes I'll make suggestions or ask questions to a founder to really test how they react to someone, let's say calling their baby ugly indirectly. It's really about the way that someone responds. You don't actually want them to just say, hey, that's a great point, I'm going to go do that tomorrow, because you don't want someone just to latch on to every idea that someone has and then completely derail the focus of their business either. 


 31:14

Lucas Timberlake
That's something as well that we try to test out during our diligence is how can we work together with the founders and how do they react constructively to suggestions and feedback and what are those interactions like when we get to that point? Because it is that ten year relationship where you are going to be having these tough conversations and you want to make sure that you can have some degree of rapport on them. 


 31:39

Josh Wilson
From the beginning, I have seen healthy and unhealthy response to constructive criticism, right? So you're asking us for money. Let's be clear, right? You're asking for money, we give some constructive criticism. How should people respond? Right? I just don't want them to roll over and take all the ideas with me because that doesn't show a strong conviction of what you're working on. How should founders respond healthily and maybe what's an incorrect way to respond? 


 32:13

Lucas Timberlake
I'd say obviously visceral reactions or impulsive reactions, let's say, are the worst. In my view, ironically, if someone would say, hey, I appreciate the feedback, let me go back and think about this, and then returns to you even via email, and let's say you're on a call and they don't answer the question now and they come back, that's actually the best way to do it. They provide some pushback or some follow up points as to why they don't believe that this is a good idea, or here's where they see issues with the suggestion and you create a dialogue around it that kind of evolves from that specific moment. I say that's more important. At the same time, if someone, let's say, has reasons for passing on an investment, it's very difficult for you as a founder to come back and actually try to vonfinch someone to see eye to eye if there's kind of fundamental disagreements on the course of a business. 


 33:16

Lucas Timberlake
I always recommend, when you're engaging with venture. Capitalists and sometimes you can find their viewpoints from the content that they put out or other investments they've made or their websites, you name it. Try to find people that view the world in a similar lens as you as opposed to trying to convince someone that has a fundamentally opposite point of view to see yours, because usually that doesn't work. It's really kind of thinking about those people and approaching them versus trying to convince someone, especially at the earliest stages where you don't have much data to go on. It's all really kind of your own experiences, pattern recognition, you name it. It's easier to find people that you kind of see more eye to eye with and then can have kind of debates about certain nuances, like I said over time, and kind of more thoughtful, elongated conversations. 


 34:14

Josh Wilson
So good. I love that response of, hey, let me think about this. I don't think I agree. My gut tells me this, let me go take a look at this. I'll respond back to you. When they do respond back, gorgeous. It's beautiful, right? I love that. Being a VC growing up, is that what you wanted to be when you grew up? 


 34:34

Lucas Timberlake
It was not in terms of I had several different internet growing up, actually in college I studied urban studies and eventually, for a variety of reasons, switched to urban economics and political science and then went to work at an investment bank where were doing infrastructure related debt capital markets and advisory work for cities and states across the Northeast. That was something that I was interested in given my studies. It took me a while to find venture capital and a lot of people ask me for advice in terms of breaking into the field, whether it's fintech or venture capital. Unlike other positions within finance and even technology, there is no real right or wrong story I found. And there is unfortunately, no right place. Well, you have to be in the right place at the right time and that's really how I came into the field and it's been interesting to see how others have come into the space as well because there's really multiple different paths that I've seen and there is, like I said, no clear cut way to do this. 


 36:03

Josh Wilson
So how did you crack into VC? You came from a background of investment banking doing debt for infrastructure in big cities across the Northeast. How did we go from that to PE to VC or investment banking. 


 36:17

Lucas Timberlake
I should say yes, I started off at a large investment bank for three years in the analyst program. The logical transition at that point in time is actually to go work on the buy side in terms of a hedge fund or in what I was doing, more likely a PE fund as well. I actually joined in the infrastructure fund that was buying parking companies in terms of the companies that were operating the garages across the US. We had several companies that we did a roll up with and then we're putting in mobile payment systems. Interestingly enough, after I left, some of these companies were actually sold to a large company that was operating cloud kitchens, of all things, because they wanted the leases of the parking facilities to basically go and operate cloud kitchens that we're doing DoorDash and Uber eats deliveries in a more expeditious manner. 


 37:17

Lucas Timberlake
As part of that kind of after doing this, I was actually coming down to Atlanta several times a month and long story short, met my current partner on the phone here and we started off doing deals together. We have the name aptly named Findeck Ventures Fund. We were doing early stage lending technology deals, and over time it really evolved into a partnership that now we have 20 companies in the portfolio and have built a brand that is evolving in the banking capital markets and lending insure tax bases as well. It took five years to get to this point, and it'll take us another five years to learn more about our initial investments. But like I said. It was kind of an interesting path because I don't come from a technology background per se. I do have my whole career within financial services. A lot of the background that I do have is relevant in terms of learning how to evaluate companies that are going and trying to. 


 38:41

Lucas Timberlake
For lack of a better cliche. Eat the lunch of the big banks that I used to work with and work at. 


 38:48

Josh Wilson
What's your superpower, Lucas? Live in the business, right? You and I are hanging out and we see an opportunity. I'm like, Lucas, what are your thoughts? What is your superpower when it comes to looking at deals? 


 39:05

Lucas Timberlake
I'd say it's ironically, being able to explain things quite simply, even when they're complex in terms of on a modeling basis. Et Peter and so if you think about a lot of the companies that we invest in, their modeling when they're issuing loans is quite complex. If you can't sit there and explain what is the equivalent of this lending company's net interest margin on five fingers, you're not really going to fundamentally understand the business. In my view, even if I understand lending and insurance to any details, I always like to take a step back and be able to explain it to other people. Like I said, with five simple bullet points, I'd say that doesn't necessarily make me more unique than other people. It is important, ironically, in highly complex, regulated industries to be actually able to explain things and understand things on a quite rudimentary basis. 


 40:18

Lucas Timberlake
I'd say that's one of them, I'd say the second one is really the ability to recognize patterns and being able to understand specifically why you think things will or will not work out. A lot of the companies that we invest in as a result because we have this highly specialized expertise within lending and insurance have been overlooked at the earliest stages because people did not sit there and fundamentally spend the time to understand why they could work out. At later stages, larger investors come in and realize that these companies, because they have revenues and traction now, are viable businesses. These companies, some of them struggle to raise money because they were in sectors where people just did not understand them as well or they've become out of favor because of poor performance of public peter or poor performance post exit for some of the blue chip names that would be considered their equivalents. 


 41:33

Josh Wilson
As a fund. Do you get involved with investor relations, go and find new LPs communication to them having conversations, raising, is that a part of your charter? Is that what you do? 


 41:48

Lucas Timberlake
Yes, as a member of a small team, it's myself and my partner, I am doing it all and that's one of the beauties and also frustrations of the job is basically I will be going out and recruiting someone to join as a sea level higher for one of our companies and helping close them. I'll help close new investors for our existing companies as well and then I'll go and look at ways to increase our own brand presence too, which is obviously raising capital. I think a lot of people forget that a good portion of the job as a GPA at a venture capital firm is always be fundraising. Just like our companies and it never really subsides either because you're deploying funds every couple of years as well in terms of new ones and having to go out and raise and talk to existing investors and new investors you've been developing relationships with as well because a lot of them will follow you for years before they write their first check because they want to see that you can find companies and see them grow and evolve over time. 


 43:04

Josh Wilson
Yeah, super cool. Yeah, I totally get it. Right? Always be fundraising. You're always knocking on doors because you have to always be looking for new deals, which is exhausting. How many deals do you look at before you say yes and write a check? 


 43:17

Lucas Timberlake
The rule of thumb that I learned coming into the space was that typically you'll look at 100 dial, maybe get close with, let's say ten of them in terms of doing more high level or more than surface level diligence and then you'll probably invest in sometimes even less than one of those companies. It's typically less than 1% of the companies that you see do you actually invest in. For us it's easier because we have a highly specialized focus to weed out dial immediately. For instance, we don't do crypto and so we don't really spend much time looking at those deals even though we do get them via inbound. It's easier but still the rule of thumb is less than 1% of the deals that we see get done. I went back and looked at what we had done in terms of knowing the founders and how long we know them and for a lot of times we know the founders for over a year and kept in touch with them as well. 


 44:33

Lucas Timberlake
It's not just a split second decision because like I said, it's a lot of personal relationships at the preceded and C stage because there's not much in terms of data that you can evaluate but when you go out and raise a later stage round, you have revenues, you have unit economics to show and then the processes can be more condensed than preceding seed. 


 44:55

Josh Wilson
Precede post product seed, those are kind of live the stage where you guys will make an initial look at something right what is too soon for you. 


 45:10

Lucas Timberlake
There's a few ways that we look at it, at least for our space, I'd say one nonstarter, which is tough because some people do not have the means to leave their careers and start a startup and go without a paycheck for a long period of time. For us we found that it's alignment of incentives if the founder is completely committed and only working on their startup. We're not really investing in people that have not left their current gig and just have a pitch deck and no real substantive thought behind what they want to build. That's kind of more typical for what you could call the angel checks where you go out and try to find friends and family or specific angel investors that are writing you anywhere from ten dollars to one hundred thousand dollars checks into your company to basically help you develop the runway to quit your job and work on this full time. 


 46:12

Lucas Timberlake
We come in right after that. Where the company typically has a product that they can show at least mock ups of but at the precede level they don't necessarily have to have generated revenues. We also invested the seed where we do like to see anywhere from zero to 20 to 30,000 monthly revenues but that is later stage than where we're initially comfortable getting involved. 


 46:43

Josh Wilson
What is your seed threshold like? What are they doing on a monthly basis? 


 46:49

Lucas Timberlake
Typically it can still be zero but on average they're doing anywhere from $5,000 in revenue per month copy. That kind of how we look at it. 


 46:59

Josh Wilson
And that's when you'll come in kind. 


 47:00

Lucas Timberlake
Of at a C room at the seed, correct? That's when we write slightly larger checks and then typically for the seed, you are putting a price on the money that you were investing, meaning that you were valuing the company. Whereas when you're doing precede and angel investing. You typically do it on something called a safe or a convertible note, where you're basically offering your money as the investor, but deferring the valuation until a later point in time because you have no clue. 


 47:36

Josh Wilson
You have no clue what this thing's going to be worth at that point. 


 47:39

Lucas Timberlake
Right? 


 47:39

Josh Wilson
They're preceding they're figuring it out. 


 47:43

Lucas Timberlake
Yeah, that is the interesting part because really, until you find out the price that someone is willing to pay to buy you have no idea what these companies are worth. Someone explained it in terms of when you are doing venture investing, you are not actually buying stock even though you own stock. You are actually buying a call option on the company's future value, which is a very interesting way of putting it, but that actually resonates pretty well in my point of view. The other thing that is really governed by the dynamics of the market is that at each stage of investing, really, from the seed to series A to B, you will have typical ownership thresholds that you give up, which just based off of simple math, will determine what your valuations will be and how much you typically raise. Although there's some deals where seeds are done at 100 million free, but that's really the aberration, not the norm, but that's for serial entrepreneurs or people that have considerable amounts of traction as the first round of capital they've raised. 


 49:00

Lucas Timberlake
Typically, like I said, there's some relatively narrow bands of how much people raise. It gives them typically 18 months of runway. That really factors into the valuation based off of the percentage ownership that you as a founder are giving to the venture capitalist. 


 49:16

Josh Wilson
Yeah, super cool. It typical for you guys to do multiple rounds with a group from like, hey, got an idea here we got going, we've got some customers lined up to seed, then bring them to Series live. Have you guys seen that? 


 49:30

Lucas Timberlake
The expectation is that the companies will raise multiple rounds of financing for us. We participate in the first two typically, although sometimes we've invested at the Series A, but we're typically doing precede and seed investing to get ownership that will get diluted over time, ideally. A lot of founders come and say, this will be the only round of capital we'll raise, will become profitable and then sell or IPO right after that. That's typically not the case. Typically you raise multiple rounds of financing before you're acquired, or ultimately, if you struggle to raise financing, you unfortunately go out of business. There are multiple rounds involved with this and multiple investors. Like I said, you're raising them typically every 18 months. Although sometimes it's longer, sometimes it's more near term. It really depends on the individual dynamics of the company. 


 50:34

Josh Wilson
I've got so many questions, but we're running out of time. I'm going to ask you for groups out there that do fintech and sure tech. They're building something and it's cool and it meets the investment criteria. I should ask this where can people go to find out your investment thesis and criteria to see if they're a good fit to go in front of you? What's a good place to do that? 


 50:59

Lucas Timberlake
We try to be transparent and I think we are on our website. It's www dot fintech v as in Victor.com. We list out the criteria in terms of how much we invest, where we're interested in terms of sectors, geographies, you name it. I am on LinkedIn and like I said, I do my best to respond to cold inbound if it's a potential fit and that's one way to get in touch. The second way that we actually do take a look is through the website. There's a context of form and the more information you can provide, including a deck live, I said it helps to screen pretty quickly what is a potential fit and what is not. That's kind of typically how we look at things too. You don't need a warm intro. Obviously, if there's someone in your network that knows myself, that's helpful because it does create some social proof in that regard. 


 52:02

Lucas Timberlake
But it's not 100% necessary. Several of the deals we've done have been from people reaching out cold over time and developing a relationship with them. 


 52:12

Josh Wilson
That's awesome, man. Two more questions before we wrap out. We run a community where we teach entrepreneurs and we're part of the learning together. It's an Eir kind of group as a whole. One of the members of the Eir Academy, they asked a question. Let me pose this to you. They're building a tech software that focuses on serving fix and flip investors. I know that you were in that background in the past with Fix and Flip kind of world. It's a portfolio analysis where they could take pictures, they could put the cost and all that. They could see investments side by side and monitor this things. What would you say as they're building this out? What would you say is the greatest threat to that kind offer for fix and flip investors, at least during this time frame that we're in 2022 as recording. 


 53:13

Lucas Timberlake
That's an interesting one because obviously you could go and point to macro environments, although interestingly enough, with the correction in home prices, I would argue that actually helps flippers and we haven't seen, despite interest rates rising, a prohibitively high increase in the cost of funding for the developers. If you ask me this, maybe nine months ago, I would have pointed to some of the macro headwinds as kind of one of the main issues behind this. The second, I think would be for a lot of these platforms, especially when it comes to fix and flip finance, or I should say Fix and flip project management. It's really finding an incentive or really forcing someone to use your product whether the lender requires it or I don't know that the contractors will require it. It's really finding a forced adoption of your product that is probably the biggest question mark when it comes to this type of platform because people don't necessarily want to pay probably what it's worth and that becomes difficult unless someone that you need to complete the project is requiring you to use or pay for it. 


 54:50

Lucas Timberlake
That would be kind of my biggest question is again, not knowing anything about the product, is that is it solving a big enough pain point that people are willing to pay for it versus the status quo because just like any of these industries they're still comfortable doing it via live sharing, spreadsheets et. Peter and it becomes interesting when you're offering certain other components like sourcing the properties, then offering this, then offering the financing. If you can do the full end to end process so you don't have to leave the platform or partner with someone that's doing the lending or the sourcing of these opportunities, many of which are off market. I'd say that's kind of the biggest value add or way that you can ensure that this has success. 


 55:45

Josh Wilson
Yeah, that is such great. I love the idea of some type of forced adoption so we get all the investors and the investors say, hey, before we invest hard money into your projects, you got to be on this platform, whatever this is the way we look at our dial or that start to finish. Great feedback there Mr. Lucas. I appreciate it. 


 56:04

Lucas Timberlake
The one other thing I would add, I mean you can go the other way too and basically offer it as a lost leader but then try to convert people into more lucrative opportunities in terms of the financing and do legion that way. That's a lot more difficult to build a business on in terms of referrals and all of that. That's another option but it's kind of less viable in my view than having some forced adoption as we've already talked about. 


 56:34

Josh Wilson
Yeah, the referral thing is interesting. You got to be able to keep the lights on in the meantime, right till this things close. If they close, maybe the forced adoption plus the referral might be the superpower right there. Love that. I'm going to pass off that information to our member. Thank you for sharing. I think I said two more questions so we know how to connect with you LinkedIn in your website. Last question during this interview there's probably some questions just based on my inexperience. There's probably a question that I should have asked you that I screwed up and did not ask you. What question do you wish I would have asked you? 


 57:12

Lucas Timberlake
I'd say what I'm most interested in terms of themes within Fintech, Prop tech et. Peter? 


 57:25

Josh Wilson
Yeah, go for it. 


 57:26

Lucas Timberlake
And to answer my own question, that's. 


 57:30

Josh Wilson
A great question by the way, I appreciate it. 


 57:35

Lucas Timberlake
I'll Team Chat to you but in terms of what I think is most interesting now and it kind of goes back to the wave 2.0 we've seen for crowdfunding of real estate but it's a completely separate area. Fintech is that initially you saw a wave of companies trying to disrupt the legacy banks and financial institutions but now you've seen a wave really. Let's say only in the last three years as well. Partially because they were forced to undergo more rapid forms of digital transformation is technology is serving community banks to help them remain competitive versus neo banks that are fintech competitors and then also versus the bulge brackets that have much larger budgets on technology. You can just go look up what JP morgan has publicly come out and said that they are going to spend on technology and it's a lot. There are several thousand community banks that need to invest in this type of technology. 


 58:44

Lucas Timberlake
Same with credit unions. Fintech is really starting to solve that pain point, especially when it comes to loan origination and helping a lot of the banks solve what they have being a deposit problem and needing to make money on those deposits by obviously lending it out. That's kind of what we've been most interested in recently is software that relates to lending or to helping them maximize the returns on the assets that they hold on their books. 


 59:22

Josh Wilson
Team Chat is one of the so I love that question. I love what you're looking at. 


 59:31

Lucas Timberlake
Right. 


 59:31

Josh Wilson
Like a lot of people, the founder in me, right, the startup founder in me sees the big whatever and wants to go after goliath right, another approach and sometimes you win. Probably not. Right another approach. If you want to disrupt something, take a long term approach. How do I serve the smaller underdogs who are trying to compete first and then join up with them, serve them, build a software that helps the community banks, help them with their deposit issues. Super awesome. I like the way you describe that and explain that. Good job. 


 01:00:06

Lucas Timberlake
Yeah, unfortunately it doesn't necessarily work in terms of real estate because a lot of the lending that people are doing, whether it's on the Hyattcommercial side, I'm sure, as and obviously on the SFR fix and flip lending side, it's not really stuff that Ian ihill ngbn do because of the regulatory constraints as well. It's kind of more so when it comes to consumer lending or conforming mortgages, you name it, that we're really seeing this type of investment in technology from the banks. 


 01:00:40

Josh Wilson
Yeah. Awesome. Well, we got to wrap up fellow deal makers, thanks for listening in with Lucas Timberlake, not Justin, but we're going to have a dance off in maybe a few years if you have some deals that you want to put before them. Go take a look at their investment thesis and the hypothesis on their website. If it matches up, reach out to them. They have a contact form and say, hey, heard you on the Deal scout show. Please take a look at my deal. I'd like your advice on this dial. If you have a deal that you'd like to talk about here on the Deal scout, head over to the Deal Scout.com. Fill out a quick form. Maybe we could talk about a deal that you're working on or the kind of deals that you like to invest in. The shows. Mission and purpose is to put deals and dealmakers together. 


 01:01:23

Josh Wilson
So let's do that. Hope you guys have a great day. We'll talk to you all on the next episode. Bye, everybody. 

Lucas Timberlake Profile Photo

Lucas Timberlake

Co-Founder and General Partner -

Lucas is Co-Founder and General Partner of Fintech Ventures Fund, an early-stage fintech, and inusrtech-focused venture capital fund. He has spent his entire career in financial services in various capacities, including venture capital, private equity, and investment banking. He received his BA from Columbia Unversity.