As part of my series about the “How to Navigate and Succeed in the Modern World of Finance,” I had the pleasure of interviewing Blair Silverberg.
Blair Silverberg is co-Founder and CEO of Capital, a financial services company using technology to accelerate the fundraising process. Prior to founding Capital, Blair was a principal investor at Draper Fisher Jurvetson where he sourced and managed venture investments during his four-year residency.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
I was fascinated with the stock market at a young age and got started in investing by using my bar mitzvah money to buy stocks. I earned about $100,000 in the stock market as a teenager, just from being able to get access to that one early infusion of capital.
As a college student, I went to Stanford and studied product design under David Kelly, the founder of Ideo. From that moment on, starting with conversations that I had with him and with other company founders, I’ve been thinking about investing in capital access. I see this as a huge area of opportunity to solve problems, and I’ve been particularly thinking from the perspective of a CEO or CFO. Founders are concerned with whether raising money is efficient and whether it fulfills your goals, or whether it feels like a bureaucratic waste of time that’s only necessary to survive.
I spent the majority of my professional career as a Venture Capitalist at Draper Fisher Jurvetson. Having the CEO/CFO perspective was very helpful and ultimately led me to start Capital. My goal for Capital is to bring the private markets into the 2020s. Many things about the private market capital allocation process are outdated and need to change. We are using the power of data to help more of the right founders get funded.
Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?
David Skok’s blog can teach you everything you need to know about growing your business and thinking like a private market investor.
Steve Blank’sBlank’s book, “The Four Steps to the Epiphany,” is the best playbook for creating and launching a new company.
Are you working on any exciting new projects now at Capital? How do you think that will help people?
We have a proprietary technology, called The Capital Machine, that helps us analyze businesses for investments of $5 million to $50 million. As we were using The Capital Machine, we saw some interesting and counter-intuitive trends in customer behavior change due to COVID-19. We are working on a tool to help businesses understand how their customers’ behavior has changed due to the crisis, and we want to give all businesses the ability to dig into customer behavior to adapt to this dynamic environment.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When you started your company what was your vision, your purpose?
Accessing capital is the lifeblood of any business, but few entrepreneurs have the connections or financial background to make fundraising easy, or even somewhat predictable. Too many aspects of the fundraising process are stuck in the past, to the detriment of founders and the overall economy.
Why in 2020 does the geography, gender, or race of a founder even have an opportunity to bias an investor’s decision to fund you? What if companies could connect their accounting and payment systems to some machine, get a transparent picture of their business efficiency, and have an immediate conversation with investors about whether they are a fit for each other?
If this were the case, enormous amounts of networking time and wasted resources would be cut from the system, and our economy would allocate capital more efficiently to where it is needed.
Unfortunately, nobody is trying to change the status quo, because incumbent investors profit from opacity. For example, Blackstone is a $60B investment firm with a $0 R&D budget.
After watching industries get disrupted by startups as a venture capitalist, I determined that the private asset management and investment banking business had a gigantic target on its back. I knew that if we could apply the Silicon Valley playbook to the process of allocating capital, we would dramatically improve entrepreneurs’ lives while also helping to provide sophisticated balance sheet partners with more predictable and lower cost investment opportunities.
Do you have a “number one principle” that guides you through the ups and downs of running a business?
Number one principle for me is to listen. My only job is to listen to my team and be the tie-breaker when ties arise. If you build your team correctly, you’ll be surrounded by very smart people with expertise in areas where yours will never come close. Your job is to really hear them, not tell them what to do. This is such a simple principle but it is so rarely applied and it’s crucial to our success at Capital.
Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?
I mentioned the Silicon Valley playbook before, and it applies here too. The key to lead generation in 2020 is to build your product and the workflows customers go through to use it in such a way that their behavior naturally spreads your product to others who would find it valuable. This means tapping into and facilitating behaviors where customers communicate with each other. This is easy for us, since raising capital is all about telling your story and finding the right person to listen.
If a fellow CEO would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?
Being an entrepreneur is painful. Doing it with extremely limited or no capital is unnecessarily painful. Every business needs capital and bootstrapping (unless you’re already independently wealthy enough to provide for all of your business’s needs) is a symptom of a system that is unnecessarily opaque and fails worthy entrepreneurs in matching capital to their brilliance.
The fact that there are any stories of bootstrapped companies achieving success implies that those businesses were clearly eligible for funding, but the economy failed to match capital to them. This should never happen. Of course, it is an entrepreneur’s choice to decide how much money to take and on what terms, but capital should always be available to companies that are creating real value for their customers and society by extension.
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
Broadly speaking, as an investor I’m interested in whether a founder’s business is creating or destroying value. If you’re putting a dollar into a company, and that company is repeatedly turning a dollar into eighty cents, then that company is destroying value and probably should not exist.
In general: leaders need to ask three questions: 1. Where are you investing in your company’s resources? 2. What is the ROI on these investments? And 3. How does the ROI compare to your cost of capital?
As far as determining value, leaders should look at a variety of metrics and understand the nuances of the data within those metrics. For example, you might want to consider a company’s cohort-level ROI and look at relevant industry benchmarks of how efficiently the company is performing in terms of sales and marketing efficiency or return on inventory.
What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?
You have two options when your business growth stagnates. You can lower your cost of capital and maximize your profit, or you can restart your engine. Both can be equally profitable but are rarely considered equally. There are several great books on reigniting your business — my favorite is The Innovator’s Solution.
But remember that the value your business creates is the difference between your return on the capital you invest in it and the cost of that capital. If you really understand this, you will know when to focus on growth vs. when to focus on profitability.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?
Bad metrics. There are a host of meaningless metrics out there that are misleading and dangerous. For example, eCommerce companies love to use a metric called “Return on Ad Spend” (ROAS). It is calculated by dividing revenue by ad spend over a period of time.
The problem with this metric is that if your revenue grows because of new purchases made by customers you already acquired months ago, your current ad spend has nothing to do with that. ROAS tries to answer the question, “is my ad spend efficient,” but it sheds little more light on your business than just tracking revenue itself.
Instead, businesses should divide net new revenue by recent ad spend. This is the concept behind the magic number which is often used in software businesses but actually applies to all businesses. This provides a tighter measurement of the effect of ad spend and is easy to calculate.
The best metric, however, is a cohort-based magic number which can be easily calculated via our Capital Machine.
Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
- Listen. As an investor, you are trying to figure out whether you should jump into an enormous and often immutable relationship by making an investment in a company, but you only see the world from your perspective. You can find the truth much more easily if you rely on listening to company executives, peers, and reference calls, particularly when you are listening to perspectives that are cognitively diverse.
- Learn to code. All of the data you need to analyze as an investor is inside a company’s system of record, such as Quickbooks, and stored in the cloud. Jupyter Notebooks are the new Excel.
- Think about making good investments as well as how to make investing a better experience for companies and investors. Quant funds revolutionized the way that public market investing works and private markets are well on their way into a similar transformation.
- Remember that capital allocation sits at the heart of the economy. You are doing important work with major knock-on effects by ensuring that the right companies receive the right amounts of capital. Investing as a sport for the greedy is going out of style and I predict that in the 2020s, investing owns its higher purpose.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
I have an 8 week old baby and a 3 year old, and juggling family with running a rapidly growing business is the hardest thing I’ve done. Here are the keys for me:
- I set a schedule with my wife and, particularly during COVID when I can be around the house, I think we are pretty clever about carving out family time at really important times — dinner, bath time, or afternoons where we know the weather forecast looks particularly awesome. There are a lot of ways to do this, but the key for me was the process of making a schedule together — it forced us to talk about how to juggle all that is on our plates in the right way for our family.
- I work out during the work day. I consider it work time since I’m almost always thinking about a work related problem, but exercising gives me a different perspective and often helps me find breakthroughs much faster than if I’m sitting at my desk. I encourage everyone on my team to do the same, and just make fitness part of your everyday routine. Being in strong mental and physical health isn’t something you should fit in around the edges of your schedule. It should go front and center and be elevated to the same level of importance as a team meeting or customer call.
- Related to health, I have an amazing therapist and consider her key to my success. I always laugh when celebrities or influential business people are profiled and they talk about their lifestyles. They will talk about what they eat or how they exercise but it’s rare to talk about your therapist. Utilizing a therapist is no more shameful than eating a kale salad or running barefoot on the beach. It’s an important part of my life and enormously helpful to me.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
I feel like I am starting a movement by building Capital. A functioning economy which allocates capital efficiently does incredible things for society — such as this “short history of global living conditions” — but nobody knows what the ceiling on that efficiency is. Amazingly, there are pretty much no private investment businesses that are investing in R&D to increase this efficiency of capital allocation.
When capital doesn’t get allocated efficiently, the world suffers for it. When the right companies and founders get funded, the world gets better faster. Imagine if extreme poverty could be eliminated twice as fast because the economy funds 25 innovative micro lenders instead of a wasteful investment like WeWork? Or what if 100% of the world could become vaccinated because better underwriting makes it impossible for a fraudulent operation like Theranos to slip through the cracks?
Capital has a strong sense of mission. We love data, we love going deeper into the numbers and helping businesses understand what the data is really showing, but we’re also here to help more of the right founders and the right companies get access to funding. For too long, too many great companies have been falling through the cracks because their founders haven’t been able to get into the rooms where investment decisions get made. We want to democratize access to capital and help create massively powerful changes that will emanate from that.
How can our readers follow you online?
You can follow me on Twitter (@blairsilverberg) or LinkedIn (Blair Silverberg).